Humans possess the remarkable ability to think about and plan for the future. In the case of climate change, however, humans have done a lot more thinking than planning. As a result, we are now feeling the adverse long-term effects of changing weather patterns. Both consumers and enterprises in the consumer packaged goods (CPG) sector are taking notice. Analysts at NielsenIQ observe, “Positive consumer sentiment toward sustainability has been growing for more than a decade, but the impact of purchasing preferences has yet to inspire a green revolution within the retail industry. Two rapidly emerging drivers of change — governance and cost — are about to change all that. They will force manufacturers, brands, and retailers to transform and commit to real sustainable business models within the next five years if they want to mitigate short- and long-term risk.”[1]

The Growing Case for CPG Sustainability

We would all like to think that companies have a social conscience and straddle the line that separates what’s best for the company from what’s best for society. The 18th century economist Adam Smith called this ability to improve both business and social conditions the corporate world’s “invisible hand.” Smith most famously discussed this concept in his seminal 1776 economic classic entitled An Inquiry into the Nature and Causes of the Wealth of Nations. However, according to Wikipedia, Smith coined the term in a much earlier work entitled The Theory of Moral Sentiments, written in 1759.[2] F. Eugene Heath, a Professor of Philosophy at State University of New York at New Paltz, explains what Smith meant by the term “invisible hand.” He writes, “[The] invisible hand [is a] metaphor … that characterizes the mechanisms through which beneficial social and economic outcomes may arise from the accumulated self-interested actions of individuals, none of whom intends to bring about such outcomes.”[3]

The NielsenIQ staff makes it clear that self-interest, not altruism, will force manufacturers, brands, and retailers to transform and commit to sustainable business models thanks to governance and cost considerations. However, unlike Smith’s contention that corporations are basically unaware of the societal outcomes of their actions, today’s corporations are well aware of the effects of their actions. NielsenIQ analysts insist, “Extreme weather events and the impact of the changing climate have created a business ecosystem where existing business models will be challenged. Stricter governance and mandates will propel the shift to more sustainable business models more quickly and purposefully than growing consumer sentiment has been able to. To succeed, businesses will need to balance and react to these drivers with authentic action in an environment of unparalleled scrutiny.”

Change is never easy and changing business models can be extremely challenging. A report released in June 2022 by The Consumer Goods Forum (CGF) and EY identified five actions consumer packaged goods companies could take to help reach the UN Sustainable Development Goals (SDGs) by the UN’s 2030 deadline.[4] By taking these actions, enterprises not only help achieve SDG goals but help address governance and cost concerns as well. Those actions include:

• Partnering for success. Obviously, climate change requires actions from stakeholders around the globe. In the CPG sector, so-called frenemy collaboration is required. The CGF/EY report notes, “Profitability and revenue competition are part of a healthy economy but solving sustainability’s systemic challenges requires collaboration. Only by pulling together can consumer businesses rise to the scale of the challenges ahead — from combating climate change to reducing global inequality.”

• Measuring for progress and impact. The CGF/EY report notes, “Businesses can’t manage what they don’t measure, and there is a clear need to integrate the SDGs with other frameworks and for consistent international or regional standards. The growing number of frameworks makes this difficult — yet convening bodies such as CGF have the power to consult and advocate for consistent standards.” Standards also ensure that businesses are competing on a level playing field. The NielsenIQ staff notes, “Regulatory organizations are put in place that monitor the sustainable progress of companies and create transparency on supply chains, sourcing, and sustainable product claim origins. To be truly impactful, this approach must include the regulation of most industries.”

• Embedding sustainability into company DNA. According to the CGF/EY report, “Companies that embed the SDGs into their working culture — potentially through rewards and incentives — are far more likely to achieve them.” The NielsenIQ staff believes real-world events will force organizations to change their business models in ways that will embed sustainability into their corporate DNA. They explain, “Exploding energy costs, crop failures, and supply chain disruptions that have emerged as a result of the changing climate and extreme weather events are already impacting existing business models.”

• Bringing the consumer on the journey. The NielsenIQ staff notes, “Consumers want to be part of the solution but report some shared roadblocks to sustainable consumption.” Those roadblocks include the cost of sustainable products and the limited availability of sustainable products. The staff concludes, “Brands have a unique opportunity to be viewed as partners in the fight for sustainability if they can help [consumers] overcome these obstacles at the point of purchase.” The CGF/EY report adds, “Consumer companies occupy a privileged position that confers great power, and great responsibility, in shaping consumption. They can incentivize better consumer behavior and raise awareness of the SDGs in ways that other stakeholders cannot. Consumers are rewarding those businesses who do the right things to improve the health of communities.”

• Supporting UN Sustainable Development Goals. The CGF/EY report notes, “All SDGs should be supported but prioritize the areas where you have the power to make the biggest difference. Whether it is malnutrition, sanitation or waste, certain companies can make a greater contribution to some SDGs than others, depending on their experience and sphere of influence. Setting material targets will help companies to make a tangible difference in the areas most appropriate to them.”

Concluding Thoughts

Are Traasdahl, Founder and CEO at Crisp, concludes, “When we enable real-time collaboration across the supply chain, brands and retailers can mitigate their environmental impacts on a daily basis. [Collaboration] can help CPG brands and retailers save costs and increase revenue in addition to reducing waste and conserving resources. This creates a positive double bottom line — good for the business and good for the environment. Companies can become more efficient while helping keep shelves stocked, customers happy, and making meaningful progress toward their climate goals. And best of all, we can get started today.”[5] Don’t want to get involved? That could be a mistake. The CGF/EY report warns, “If businesses fail to act on urgent environmental and social issues, they will get left behind.”

Footnotes
[1] Staff, “The changing climate of sustainability has reached a critical moment,” NielsenIQ, 30 November 2022.
[2] “Invisible hand,” Wikipedia.
[3] F. Eugene Heath, “Invisible hand,” Britannica.
[4] Staff, “CPG Leaders ID 5 Priorities To Meet 2030 UN Sustainability Goals,” Food Processing, 20 June 2022.
[5] Are Traasdahl, “We Don’t Need to Wait for 2050: How CPG Brands and Retailers Can Take Climate Action Today,” Retail Touchpoints, 11 January 2022.