Food and Beverage Report

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WORKING PAPER SERIES

CSM/WWF Research Project:

The Business Case for Sustainability

FOOD & BEVERAGE

Sector Report

Aileen Ionescu-Somers

IMD 2003-9

Aileen Ionescu-Somers

Research Manager, CSM Project

Forum for Corporate Sustainability Management

International Institute for Management Development (IMD)

23, ch. de Bellerive, P.O. Box 915, CH-1001 Lausanne

Tel: +41 21 618 0389

Fax: +41 21 618 0641

E-mail: [email protected]

Copyright © 2003 Ionescu-Somers

All Rights Reserved

mailto:[email protected]:[email protected]


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TABLE OF CONTENTS

LIST OF FIGURES .............................................................................................................................. 4

1 RESEARCH OBJECTIVE AND FRAMEWORK .................................................................... 5

1.1 R ESEARCH OBJECTIVES........................................................................................................... 5

1.2 R ESEARCH FRAMEWORK AND METHODOLOGY ...................................................................... 5

2 INDUSTRY AND COMPETITIVE ANALYSIS ....................................................................... 5

2.1 DEGREE OF R IVALRY............................................................................................................... 5

2.2 BARRIERS TO E NTRY ............................................................................................................... 6

2.3 THREAT OF SUBSTITUTES........................................................................................................ 6

2.4 SUPPLIER POWER ..................................................................................................................... 6

2.5 BUYER POWER ......................................................................................................................... 6

3 SUSTAINABILITY ISSUES AND THEIR ECONOMIC RELEVANCE............................... 7

3.1 R AW MATERIAL SUPPLY: LOOKING UPSTREAM ..................................................................... 7

3.1.1 Population Growth and Resource Depletion................................................................... 7

3.1.2 The Environmental Impacts of Raw Material Production............................................... 8

3.1.3 Water: A Scarce Resource............................................................................................... 8

3.1.4 The Social Impacts of Raw Material Production ............................................................ 8

3.1.5 Trade Barriers................................................................................................................. 9

3.2 OWN OPERATIONS................................................................................................................... 9

3.3 LOOKING DOWNSTREAM....................................................................................................... 10

3.3.1 Traceability and Health................................................................................................. 10

3.3.2 Long-Term Health Problems, Obesity and Diet ............................................................ 10

3.4 STAKEHOLDERS ..................................................................................................................... 11

3.4.1 Deterrent stakeholder groups........................................................................................ 11

3.4.2 Promoter stakeholder groups........................................................................................ 12


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3.5 VALUE DRIVERS .................................................................................................................... 14

3.5.1 Reputation Enhancement and Licence to Operate ........................................................ 14

3.5.2 Brand Value and Innovation ......................................................................................... 14

3.5.3 Attracting and Retaining Talent.................................................................................... 14

3.5.4 Value Drivers: Present and Future ............................................................................... 15

4 CORPORATE SUSTAINABILITY MANAGEMENT ........................................................... 15

4.1 CORPORATE GOALS AND ORGANIZATIONAL CULTURE ........................................................ 15

4.1.1 Corporate Vision ........................................................................................................... 15

4.1.2 Corporate Mindset ........................................................................................................ 16

4.2 SUSTAINABILITY STRATEGY DESIGN .................................................................................... 16

4.3 ORGANIZATIONAL STRUCTURE AND THE IMPORTANCE OF FUNCTIONS ............................... 17

4.3.1 Structure ........................................................................................................................ 17

4.3.2 Functions....................................................................................................................... 18

4.4 PROCESSES AND SYSTEMS ..................................................................................................... 20

4.4.1 Issue Tracking ............................................................................................................... 20

4.4.2 Issue Mapping ............................................................................................................... 21

4.4.3 Issue Prioritization........................................................................................................ 21

4.4.4 Integrating Issues into Strategic Decision-Making....................................................... 22

4.4.5 Integrating Issues into Operations................................................................................ 24

5 ASSESSMENT OF THE BUSINESS CASE, ITS POTENTIAL AND EXPLOITATION .. 27

5.1 ‘NO R ESOURCE = NO BUSINESS’........................................................................................... 27

5.2 I NTERNALIZATION OF COSTS................................................................................................. 28

5.3 BUSINESS FOCUS – UPSTREAM.............................................................................................. 28

5.4 FOCUSING DOWNSTREAM ..................................................................................................... 29

5.5 I NDUSTRY AND STAKEHOLDER DYNAMICS........................................................................... 29

6 A DIAGNOSTIC TOOLSET FOR SUSTAINABILITY OFFICERS.................................... 30


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LIST OF FIGURES

Figure 3.1 The Main Food and Beverage Industry Barriers to Success in Sustainability Initiatives .... 12

Figure 4.2: Strongest Opposition to Implementing Sustainability Initiatives ....................................... 19

Figure 4.3: Business Functions that Can Most Effectively Promote Sustainability Performance ........ 19

Figure 4.4: Level of Collaboration of General Managers with Sustainability Officers or Departments.... 20

Figure 4.5: Potential for More Collaboration to Contribute to More Sustainable Business Practices....... 20

Figure 4.6: Sustainable Development Tools Used in Food and Beverage Companies ......................... 25


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1 Research Objective and Framework

1.1 Research Objectives

This chapter will examine aspects of the business case for sustainability (BCS) specificallyin the food and beverage sector. It focuses mainly on the economic relevance of

sustainability issues and on corporate sustainability management aspects such as corporate

missions or visions, organizational culture and structure, and barriers to the business case for

sustainability within the industry. This research provided the basis for the development of

diagnostic web tools for food and beverage sustainability officers to use when working on

their company-specific strategies, and to guide officers through best-practice options on how

to build and implement a company-specific business case for sustainability.

1.2 Research Framework and Methodology

The business case for sustainability focuses on opportunities which companies can take

advantage of to create economic value by improving environmental performance (for

example by increasing efficiency or reducing pollution) and social performance (for example

by engaging in community development) beyond compliance.

Here, we present insights on perceptions, attitudes and management approaches related to

the business case for sustainability of both sustainability and other management functions in

the food and beverage sector. These insights were gained as a result of:

1) 37 interviews with a broad spectrum of senior managers at ten leading food and

beverage companies, and a further ten interviews with stakeholders such as non-

governmental organizations (NGOs) and industry associations.

2) A questionnaire distributed to 17 sustainability or corporate responsibility officers

(71 per cent of whom were senior managers, and 64 per cent of whom were based in

mid-northern Europe).

3) A questionnaire distributed to 88 managers in a variety of management functions in

the sector. Of these managers, 44.4 per cent were in middle management positions,

and a further 42.9 per cent were in senior management positions; 36 per cent were

based in mid-northern Europe, 18 per cent in Nordic countries and 14.7 per cent in

North America.

The companies that took part in the interview research were Cadbury Schweppes, Chiquita,

Danisco, Danone, Diageo, Kraft, Nestlé, Nutreco, Procter & Gamble and Unilever. Allstatements made in this report are based on attitudes and perceptions of senior managers in

these companies.

2 Industry and Competitive Analysis

2.1 Degree of Rivalry

There are about 1000 major listed food and beverage companies worldwide. Due to mergers

and acquisitions, the food and beverage industry comprises an increasingly smaller number

of global international players, but still a large proportion of small and medium-sized

companies. A few large firms with similar market share dominate the top end of the market.

This provokes a significant struggle for market leadership, leading to intense rivalry in the

marketplace. The trend towards mergers and acquisitions in the industry demonstrates a

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drive to take market share away from competitors in slow growth areas such as developed

countries. Larger companies devote considerable resources and energy to increasing their

market share in developing countries, their main opportunity for growth. Given the

importance of these markets, sensitivity to sustainable development criteria in business

strategy development will increasingly be significant in the sector.

The industry is using options such as product differentiation, creative use of distribution

channels and exploitation of relationships with suppliers in order to move away from a

commodity-type market where no competing firm has a differentiation advantage. This

presents an opportunity to put sustainability, with the product differentiation advantages it

offers, more firmly on the agenda of food and beverage companies (refer to section 3.5.2 for

more details on brand differentiation and innovation).

2.2 Barriers to Entry

The considerable number of small and medium-sized companies in the market is an

indication that the market is relatively easy to enter. Government monopolies and proprietary

knowledge do not generally restrict market entry. In addition, in the food and beverageindustry, assets can easily be utilized to produce different products. Barriers to entry are

therefore relatively low.

2.3 Threat of Substitutes

The relatively widespread availability of close substitutes for food and beverage products is a

considerable competitive threat in the industry. In addition, the costs to retailers of switching

to a substitute product are low. The threat of substitutes typically impacts an industry

through price competition – therefore companies lower costs. This then makes it difficult for

companies in the sector to raise prices except where there is a product differentiation

advantage. Major companies are reducing these threats by focusing on product

differentiation through perceived brand value or product innovations. Moreover, byestablishing brand loyalty, leading companies in the industry can increase barriers to entry,

thus making it more difficult for retailers to change to new competing products. This again

constitutes an opportunity in terms of moving sustainability further up the agenda in

companies.

2.4 Supplier Power

The negotiating power of producers in developing countries is low in the industry due to the

fragmented source of supply and overcapacity of many commodities (coffee is a good

example of this). This has significant implications for sustainable development in the

developing countries that produce the commodities, as producers are at the mercy of thefluctuations of volatile commodity markets. The switching costs of changing from one

primary producer to another are low for global companies, thus increasing the vulnerability

of producers. In addition, although it is not the trend at the moment, the industry can

integrate backwards by owning its raw material production if the producers do not offer

satisfactory prices, although this works well only for multi-crop per year horticultural

production facilities. For commodities, there are too few crops per year to hedge risk and

companies tend to avoid this.

2.5 Buyer Power

Retailers purchase a significant proportion of output from the industry and buy in volume. In

developed countries, they are quite concentrated, leading to significant market share in thehands of a few; and clearly there is an identifiable trend towards consolidation of this sector.

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Retailers thus have considerable influence on both the product and its price. However, there

are alternative sources of supply and the costs of switching to other products are low. Thus

retailers can shop around to obtain the lowest price, especially when raw material costs are a

high percentage of total costs (fresh foods). This leads to a significant trend to discount at

retail level. All of these factors can increase the power of retailers significantly over the

industry and producers. In developing countries, buyer power tends to be weaker as retailers

are generally more fragmented, although this is changing as European companies move to

expansion in these areas. The significance of retailers in promoting the business case for

sustainability is discussed in section 3.4.1.

3 Sustainabil ity Issues and Their EconomicRelevance

In their daily operations, companies cause ‘externalities’ (or external effects). These are the

environmental and social impacts of a company’s activities that are often not reflected in

market prices (for example CO2 emissions). Externalities often become sustainability issues

(global, regional or local problems) on the company agenda when they lead to increased

pressure from stakeholders such as NGOs, customers and regulators. By integrating

sustainability issues into business strategy and focusing on the business opportunities they

bring, companies can create economic value through, for example, improved reputation,

brand value and risk management.

Our survey showed that a broad spectrum of managers from diverse business functions in

leading companies consider themselves to be either ‘familiar’ or ‘very familiar’ with the

concept of sustainable development (75 per cent). Given the ‘frontline’ nature of the

industry, all levels of staff are exposed to sustainability issues affecting the sector. Over 80

per cent of managers surveyed felt that the concept of sustainable development would grow

in importance in the future.

Most managers surveyed indicated that the industry is slightly more affected by social than

by environmental issues; the sector has substantial impact on communities. In fact,

companies in the sector are faced with so many issues, both environmental and social, that it

is a challenge to establish a coherent sustainability agenda. In the next section, we focus only

on the key global issues in the value chain that, according to the managers we interviewed,

influence the strategic agenda for sustainability in the sector.

3.1 Raw Material Supply: Looking Upstream

3.1.1 Population Growth and Resource Depletion

World population will grow from 6 billion people today to 8.3 billion people in 2030, anincrease of nearly 40 per cent. The growth in demand for food and beverage products will

also increase; in fact, worldwide nutrition requirements are expected to double by 2025,

which will place significant demands on future agricultural productivity. The world’s

population is increasingly living in urban areas, and with economic progress, there is a shift

to a diet richer in meat, dairy and processed products. Consumers will seek a greater

diversity of food and beverage products in the future. However, the capacity of the world’s

food production system to meet the needs of increasing levels of population is limited.

Security of food supply is a major challenge in developing countries. Land available for

conversion to agricultural production is no longer plentiful. Production and productivity

increases are essential to ensure future global food requirements.

To manufacture processed food and beverage products, the industry is dependent on a

constant and long-term supply of high quality agricultural raw materials. The immediate

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threats to some natural resources, such as fish stocks, are having a major economic impact on

certain industries in the sector. Pressure on natural resources therefore affects the economic

sustainability of the industry as a whole. This pressure has forced some companies to

actively seek raw materials that have been produced in a more sustainable way in order to

ensure their continued availability in the future.

3.1.2 The Environmental Impacts of Raw Material Production

The greatest environmental impact of the industry is caused by agricultural production in the

supply chain. Companies in the sector do not tend to own land or produce raw materials

themselves, but are under growing pressure from retailers, consumers and regulators to

interface with and influence the agricultural methods that their suppliers use to grow raw

materials for food products. The main environmental effects are negative impacts of erosion,

soil degradation and loss of biodiversity and organic matter, abandonment and expansion

into other areas of natural habitat, deforestation, groundwater pollution and increased

residues due to accumulated pesticides and the use of agrochemicals. While these issues are

increasingly on the agenda of food and beverage companies, the industry is currently not

carrying the full environmental and social costs, which, if internalised, would have aconsiderable impact on the final price of food products, thus impacting consumer choice.

The industry is facing a crisis. A niche of consumers considers that organic farming offers

them the necessary consumer choice to allow them to protect their health. According to most

managers interviewed, however, organic farming is not a sustainable alternative to

conventional methods of industrial production and cultivation, as the significant decrease in

inputs leads to a natural decrease in production, which they feel will not meet the demands of

an increasing world population. NGOs, by contrast, say that due to lack of economic and

political pressure, companies are not seeking the alternatives to conventional agriculture that

they must seek in order to ensure sustainable development.

The industry has a considerable impact in terms of transport and logistics, although relativelylittle information is currently available on it. The use of locally sourced raw materials where

possible substitutes are available has the potential to alleviate this impact.

3.1.3 Water: A Scarce Resource

Agriculture – which provides the raw materials for the food and beverage industry –

accounts for 70 per cent of all fresh water used each year globally, with another 20 per cent

used by industry and 10 per cent used for domestic purposes. Since the world’s water

resources are under increasing pressure from drought, over-consumption and pollution, thus

placing an important raw material for the industry at risk, companies are placing more

emphasis on influencing suppliers to use water as efficiently as possible.

3.1.4 The Social Impacts of Raw Material Production

Raw material production in the industry implies either being present in rural areas in a

variety of regions or having an influence on sustainable practices in such areas. If the

company is dependent on a rural area for its own economic progress, it is in its long-term

interest to promote a sustainable local economy. For the local population, the company may

be the only viable means of employment.

A number of local social issues relate to traceability in the supply chain, especially in

emerging economies: child labour, slavery, employee rights and human rights as a whole.

Leaders in the industry have focused on what their managers refer to as ‘ethical sourcing’ of

agricultural raw materials. Being able to prove, for example, that no child labour is used in

the complex supply chain loops of the food and beverage industry is a considerable

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challenge to the sector, but companies are nevertheless determined to achieve this

transparency as far as they can, since consumers are increasingly demanding it.

3.1.5 Trade Barriers

The purchasing policies of companies in the sector and their effect on the pricing and

sourcing of raw materials are issues of deep concern to NGOs working with rural

communities in developing countries. Most global companies procure their raw materials

from the global commodities markets. The enormous fluctuations in prices of raw materials

and the effects of low prices on production also constitute a business risk for the sector.

Many consumers and activists want local communities to receive a fairer share of the

economic benefits of the food they produce and are thus exerting considerable pressure on

the industry to change its approach to sourcing.

In addition, NGOs feel that the current protectionist agricultural policies of developed

countries (for example with the use of trade barriers and subsidies) require serious reform,

since they are detrimental to agricultural progress in developing countries. In fact, NGOs are

convinced that only a massive overhaul of taxes, trade incentives, subsidies and market barriers in the farming sector will make a substantial difference in terms of promoting

sustainable development in the sector. When asked during interviews to determine the key

issue affecting the business case for sustainability in the future, managers also often

answered that a significant change in the way national governments subsidize agriculture to

make farming more productive will be decisive.

3.2 Own Operations

The food and beverage industry is not considered to be one of the ‘big sinner’ polluters or

social rights abusers when it comes to its own operations. But because of regulatory pressure

and visibility and image considerations, companies tend to focus strongly on issues that

relate to the input/output ratio, (emissions into the air, water and soil, energy intensity,recycling and waste management). Transport eco-efficiency in distributing products is also

growing in importance.

However, health and safety considerations (for example contamination of food) have pushed

the sector into the headlines several times in the recent past, with a focus on food preparation

and factory processing methods. Given the severe impact of such media attention on

companies’ public image and reputation, health, safety and traceability are vital issues for the

sector. Monitoring and recording the use of critical additives such as flavourings and colour

enhancers to maintain traceability is key.

At this level of production, the industry has again a vested interest in maintaining a secure

water supply for its own operations. Water consumption is intense: cooling and heatingsystems and washing in food and beverage processing plants require vast amounts of reliable

and high quality water supplies. Almost all products in the industry are manufactured,

conserved and, eventually prepared by the consumer using water.

Packaging and recycling are key issues, given their considerable visibility and the potential

of these issues to affect a company’s reputation. Some companies focus on optimization of

packaging; although managers say that marketing executives have a major influence on final

decisions (refer to section 4.3.2 for an account of the importance of the marketing function in

the promotion of sustainability issues).

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3.3 Looking Downstream

3.3.1 Traceabil ity and Health

Globalization of world trade and its impact on the way companies move goods and services

around the globe has contributed to the increasing vulnerability of the food industry to risksof various food scares and public suspicion. With global telecommunications systems,

companies are more exposed to risk since an event in one part of the world is quickly

reported in another. The media target food and beverage companies when health and safety

issues related to its products emerge, even if the company is not directly responsible. As a

result, consumers increasingly expect product safety and traceability, but it is much more

difficult to access than, say, 20 years ago. In fact, NGOs openly state that the increased flow

of goods has led to less transparency, not more.

The sector has experienced many crises in the last few years related to food scares, such as

dioxin found (for example, in chicken or beverages), or serious meat production problems

(BSE or ‘mad cow disease’, scrapie, and foot and mouth disease). The once trusting

European public have realised that food can actually be harmful to health; and as a result,demands more transparency. In the future, consumers are likely to place more pressure on

food and beverage companies to label products in terms of ingredients, country of origin and

even cultivation methods.

The Case of Genetically Modified Organisms (GMOs)

In Europe, due to activist and consumer pressure, many companies in the food and beverage sector have been

forced to take a position on the issue of GMOs. The debate around GMOs in plants has created growing public

scepticism concerning the food processing industry, leading to public pressure not to release GMOs into the

environment, due to inadequate scientific understanding of the environment and health impacts of GMOse. NGOs

such as Greenpeace recommend that food and beverage labels indicate the presence of genetically engineeredingredients and that genetically engineered crops be segregated from conventional ones. The EU has introduced

plans for tough laws on labelling genetically modified foods. With consumer preference in mind, many leading

companies in Europe have excluded GMOs from the supply chain. In the US, companies are not under the same

pressure, as public opinion is more receptive to GMOs.

3.3.2 Long-term Health Problems, Obesity and Diet

The noticeable increases in levels of obesity, alcoholism, chronic dietary deficiencies and

allergies to many of the common ingredients in processed foods are becoming important

issues on the sustainability agenda of food and beverage companies. The publication in 2000

of a World Health Organization (WHO) report1 on preventing and managing obesity, now

called a ‘global epidemic’, was a clear indication that obesity is a major global health issue.Legislators in the US are looking at introducing bills requiring food service operators to

display nutritional information on menus and product packaging.

In addition, the labelling and marketing to children and young people, in particular, of high

fat and low nutritional value products and of ‘alco-pops’ has come under scrutiny. Obesity

lawsuits filed against a fast-food company in the United States have alarmed the food-

processing sector as a whole and raised the spectre of the litigation challenges currently

1 ‘Obesity: Preventing and Managing the Global Epidemic.’ World Health Organization Technical

Report Series 894, Geneva, 2000

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facing the tobacco industry. As a result, some managers interviewed stated that obesity is the

single biggest sustainability issue on their corporate ‘radar screens’.

3.4 Stakeholders

A range of stakeholders have a vested interest in the initiatives of food and beveragecompanies, including NGOs, consumers, producers, suppliers, retailers, community

organizations, local communities, central and local governments, other multinationals,

shareholders and trade associations. Here, we focus on those stakeholders that, according to

managers interviewed, play the most deterring and promoting roles when it comes to

sustainability action in companies.

3.4.1 Deterrent stakeholder groups

Two very powerful stakeholders tend to dominate the discussion on the rate of progress on

tackling sustainability issues in the sector: customers (retailers) – the transmitters to the

industry of consumer pressure and opinion – and shareholders.

Because of their purchasing power and therefore their influence on revenue, customers and

consumers are clearly the most important stakeholders for the sector. Food and beverage

companies strive to satisfy changing consumer expectations. Their objective is to meet an

emerging demand for healthy, quality food by delivering products with a perceived higher

value than the price that consumers pay. This is a strong driver in pushing sustainability

further up the industry agenda. As one senior marketing manager in a leading company

pointed out, ‘What is niche today, is mainstream tomorrow,’ and being ahead of the trend is

key in order to ensure long-term sustainability of the business.

Due to the change in consumer patterns brought about by globalization, consumers in

developed countries expect greater choice and quality of food products at ever-decreasing

prices. Although a company’s sustainability agenda is quality driven, it must clearly takeaccount of what people are prepared to pay. Currently, managers say, if sustainability

initiatives lead to a more expensive product, consumers will not pay that premium, with the

exception of those attracted to niche markets such as organic food. Thus retailers, the

transmitters of consumer pressure to the industry, are not putting food and beverage

companies under enough pressure to push the sustainability agenda. One NGO officer

pointed out, however, that beyond social and ecological aspects, the question of labelling, a

prerequisite for consumer freedom of choice, is not currently being adequately addressed by

the industry. In his view, only if consumers know exactly what they are buying will it be

possible to make an informed consumer choice (thus placing the necessary pressure on

retailers). Without such information, consumers will simply buy the product that is perceived

as ‘most value for money’.

Discounting or the cutting of prices that retailers offer to consumers has dramatic effects on

the scope that companies have to push sustainability in the supply chain. Although some

retailers in the UK have played a strong role as drivers of sustainability, this is more the

exception than the rule. In Germany, for example, in spite of its culturally ‘green’ image,

interviewees singled out retailers as being particularly prone to levels of discounting that

have severe effects on the scope of the sustainability agenda in companies. Overall,

managers reported customers’ lack of interest as the most significant barrier to progress with

sustainability initiatives (20 per cent of all responses – see Figure 3.1). However, the

potential power of consumers to bring about radical moves in companies is demonstrated by

the consumer and activist pressure on retailers, which led European companies to adopt their

current position on GMOs.

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N = 60

Other

1.7%Lack of interest

from customers

20.0%

Opposition or lack

of interest from

investors

11.7%

Organizational

culture

10.0% Absence of

appropriate tools

and processes

18.3%

Regulation (e.g.

subsidies, low

environmental/

social standing)

5.0%

Managers' mindset

15.0%

Managers' lack of

knowledge/

expertise

18.3%

Figure 3.1 The Main Food and Beverage Industry Barriers to Success in SustainabilityInitiatives

European managers interviewed felt that US consumers are complacent about environmental

and social practices, count mainly on federal and state agencies to look adequately after their

interests and have a certain inherent faith in corporations. In their view, US agencies are

largely concerned with food safety, and US corporations with risk reduction; therefore few

comprehensive approaches to sustainability exist.

According to those interviewed, the overall focus on the ethical behaviour and social

responsibility of companies will increase in the future. The momentum for this will be

transmitted through retailers as they gradually become more aware of the power they have to

induce suppliers to change.

Progressive companies involved in our research see sustainability as an opportunity to add

value while maintaining value for shareholders, and thus not reducing their capacity to

compete. Managers do not perceive the role of capital markets in driving sustainability as

significant, although according to our survey, 28.6 per cent of food and beverage managers

expect this to increase very much in the future, while 52 per cent expect that the markets will

react ‘a little more positively’. The current lack of shareholder interest constitutes a major

barrier to getting issues on the sustainability agenda, particularly of less progressive

companies, in spite of new trends to include standards of corporate ethical and

environmental governance. Financial managers interviewed felt that the interest of

institutional investors in sustainability has shifted positively over the last 10 years, but hasagain slowed down due to current economic difficulties. Overall, sustainability officers

interviewed believed that the potential for showing shareholders that the economic bottom

line is enhanced due to sustainability has not yet been fully exploited.

3.4.2 Promoter stakeholder groups

Other stakeholders provide a counterbalance, exerting pressure on the industry to accelerate

action on sustainability issues. They include governments, regulators, NGOs and employees.

To a much lesser extent, the industry dynamic itself contributes to promoting sustainability

action in companies. Pressure from governments and regulators was initially the principal

driver for sustainability action. And sustainability officers interviewed at best-practice

companies confirmed that regulatory pressure was useful in the earlier stages of promoting a business case for sustainability, but is now less of a driver for those that are more progressive

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in the field. Companies take the view that as long as all players conform to legal

requirements, regulation does not put them at a competitive disadvantage. We deduct from

our research that in future, legal requirements related to food safety, particularly in the

European Community, will intensify and remain an important driver of sustainability action,

particularly for the laggards in the industry. According to our survey, sustainability officers

generally consider regulators as relatively proactive when it comes to pushing the

sustainability agenda in companies. The survey also indicated that managers in food and

beverage companies generally have a more positive view of the role of regulators than

managers in other industries. Leading companies are applying a conscious ‘beyond

compliance’ approach.

NGOs and the media are often responsible for damaging the reputation of companies. In fact,

our survey revealed that, according to managers, NGOs or media campaigns that support

them exposed over two-thirds of the cases that damaged their company reputation in the

previous three years. NGOs are particularly effective at creating a sense of urgency about an

issue, by forcing it on the company agenda and thus prompting companies to act earlier than

they otherwise would. Companies will generally take rapid action when strong brands, on

which their image relies, are exposed. Food and beverage multinationals are thus strongstrategic attack points for NGOs. When confronted by NGOs, many of the leaders in the

sector have gone from a defensive stance to a proactive stance of dialogue and – sometimes

– partnership, depending on the issues. There are examples of very effective partnerships

between companies and NGOs that are further developed in the toolset that resulted from

this research.

In dealing with NGOs, companies come up against a number of obstacles. There are many

NGOs to interface with on the diversity of issues included under the label ‘sustainability’.

NGOs are perceived as being better equipped to deal with sustainability issues because of

their ability to ‘speak with one voice’ and focus on single issues, whereas food and beverage

multinationals find sustainability issues a challenge to manage because of the fragmented

and decentralized nature of the industry and the sheer number of issues that can be broughtto their attention. Companies find the nature of activism difficult to understand; in cases

where cross-sector partnerships have been put in place with NGOs, it is sometimes difficult

for managers to accept that the NGO may work with the company on some agendas and go

against it on others. The sector perceives the media as siding with NGOs and being

imbalanced and sensationalist in its approach to the issues.

Employees can play an active role in promoting sustainability action. The level of influence

in developing countries can depend on how much support the government of the country

gives to unions. This stakeholder group is increasingly important in emerging markets,

precisely where food companies see the future growth of their markets. In general,

employees have a major impact on how society perceives a company, since job losses and

the way employees are treated are often highly newsworthy subjects that expose thecompany to a loss of reputation.

Sustainability officers surveyed generally gave a positive assessment of the industry’s own

contribution to sustainability. Competitors have increasingly adopted a united front on the

issues facing the food and beverage industry today (GMOs, water, obesity). Leading

companies view sustainability activities as giving them a certain degree of ‘first mover

advantage’, which enables them to distinguish themselves from other companies, thus giving

them an economic advantage. NGOs interviewed, however, seemed less convinced of this

dynamic. Our research indicates that companies that have taken the decision to be more

sustainable look at the leaders in the industry and learn from them. As an example, many

bilateral initiatives exist through industry associations. In terms of sustainability issues, the

leading companies in the industry compare themselves to peers generally in other industriesrather than looking at their competitors.

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3.5 Value Drivers

There are a number of underlying factors, or ‘value drivers’, that also prompt companies to

take sustainability action because of their potential to promote the business case for

sustainability. For example, the cost savings involved in increasing resource efficiency has

contributed in a significant way to driving a business case for sustainability in food and beverage companies, since it is directly related to the productivity of resources. However,

managers perceive reputation enhancement, licence to operate and brand value as having an

even greater impact on the economic value of companies in the sector.

3.5.1 Reputation Enhancement and Licence to Operate

In a global economy, food and beverage companies face huge risks to their reputation, which

can have an impact on their economic value. Consumers perceive that a multinational

company has a role in society and that it must maintain standards that are suited to the social

fabric in which it operates. The politics surrounding food supply and the focus a company

gives to the role of business in society play important roles in determining a company’s

ability to continue operations (licence to operate). Some of the leading companies have aheritage of driving social responsibility. Going public on a sustainability strategy commits a

company heavily, since there is pressure to provide credible evidence of leading

sustainability practices and consistency internally at all locations, leading to a considerable

loss of credibility and reputation if the company changes course. If licence to operate is

jeopardized in this way, it is directly linked to share price and the success of business

operations.

3.5.2 Brand Value and Innovation

The brand is a food and beverage company’s most important asset; whatever tarnishes its

image has a negative effect on whatever premium the brand brings. Therefore product and

brand value directly affect the commercial viability of companies in the sector. Over 84 percent of food and beverage managers surveyed felt that either brand or reputation is ‘very

important’ to the company.

The association of value with a brand is key to brand differentiation and thus competitive

advantage, and this is even truer when a company name is tied tightly to a brand. In today’s

competitive environment, product concepts are being expanded beyond technical or physical

performance, leading to product differentiation, sometimes using sustainability or corporate

responsibility concepts. The relationship between the consumer and the brand thus becomes

more than a functional transaction. The public wants to know what is behind a brand and the

extent to which its values align with their own. Marketing managers interviewed said that the

brand reflects the responsibility of a company and has to be perceived by the consumer as

trustworthy and healthy. This relates to a number of corporate practices that are directly

linked to sustainable development. When a product meets sustainability criteria, the media

receive the product positively. Given the enormous budgets companies devote to marketing,

this heavy investment is thus somewhat alleviated. Although companies largely do not

quantify this benefit, there is a clear business case for sustainability involved in retaining

brand value.

3.5.3 Att racting and Retaining Talent

The desire of employees to match business practices with their personal values is also seen

as a strong driver for sustainability action. Employees have an underlying desire to be good

citizens, to work with an internal sense of satisfaction and pride and will accept and protectcore values that relate to this desire. Attracting and retaining talent in a competitive business

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environment is strongly in the economic interest of any company: hiring and keeping top

quality staff adds value to the company. However, interviewees described this as a ‘weak’

value driver because when jobs are no longer abundant in the marketplace, fewer employees

can make choices based on these criteria.

3.5.4 Value Drivers: Present and Future

Sustainability officers interviewed did not perceive value drivers as difficult to identify.

Those that are most relevant are clearly economically relevant to the sector. However, they

stated that it is sometimes difficult for managers to see and understand drivers – it is a

challenge to define what needs to be done from a business perspective succinctly and in a

language that they understand. Some value drivers have the disadvantage of not always

being easily measured and, given that managers stated that in companies ‘what gets

measured gets done’, it is thus a challenge for the sustainability agenda to be pushed down

through the company.

Sustainability officers said that that they expect the concept of sustainability to be better

defined in future, and thus better understood by both society and companies. Managers believe that the whole sector will move gradually away from an environmental impact focus

to a discussion based on research and development, resource and competence management.

Recognition of reputation and licence-to-operate value drivers will be enhanced as a result.

Managers also say that brands will be more part of reputation management than today. With

better tracking and tracing systems, managers believe that there will be increased branding

on the food producers side, or sometimes dual branding (retailer and producer). If this

happens, the company that is producing will be reaching out to consumers directly, and thus

reputation and image building will be even more important than before.

4 Corporate Sustainabil ity Management

4.1 Corporate Goals and Organizational Culture

4.1.1 Corporate Vision

Food and beverage companies are such an integral part of society that their potential

strategic role as corporate citizens emerges rather naturally from everyday operations that

provide them with deep insights on consumer trends. Not surprisingly, the visions or

corporate purposes of major companies in the food and beverage industry are inspired by the

objective of meeting consumer preferences and needs for products that improve the quality

of their lives, while building sales and profit, creating wealth for employees, communities

and investors, and also fulfilling the company’s responsibility as a corporate citizen. Clearly,visions and purposes that are centred in this way on consumer lifestyle and quality of life

provide a strong background for a sustainability strategy, as long as consumers are pushing

in the right direction, which we have nevertheless seen is not always the case. However,

raising and sustaining the quality of life in the places where they do business is key to the

long-term survival of food and beverage companies. Progressive companies focus on long-

term value creation as part of their corporate vision.

The examples of corporate purpose statements, corporate values and corporate principles

examined in the leading companies in the sector align well with sustainability strategy in

general, since they are often based on a history of innovative leadership inspired with goals

and a vision expressing concern and respect not only for consumers but also for employees

and communities.

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4.1.2 Corporate Mindset

The organizational culture, or corporate mindset, greatly influences the success factors

involved in rolling out a sustainability strategy. One officer described sustainability as an

iterative process (‘learning by doing’). An open, consensus-building organizational culture

lends itself to such a process. Too often, sustainable development initiatives come top down

from corporate initiatives rather than bottom up from operating companies and thus

ownership of the activity is often not firmly in place.

Interviewees felt that northern European cultures lend themselves well to consensus-driven

sustainability approaches, which may explain why these countries are also perceived as

leading the field in corporate sustainability. In the United States, by contrast, where top-

down approaches are more common, sustainability is not embraced as easily. One US-based

company included in the research chose to base its corporate responsibility strategy on

European examples, as its management perceived Europe as having better practice globally.

The view from the sector in Europe is that the US is less internationally aware – and more

inwardly focused when it comes to sustainability issues.

Sustainability officers interviewed felt that sustainability issues and their implications for the

business need to be more clearly defined in the mindsets of the people working in

companies. A lack of such an understanding greatly upsets the continuous feedback

mechanisms necessary for early identification of issues. Many interviewees said that

managers running businesses have a focus on ‘their’ brand and are confronted with many

initiatives. Thus, unless sustainability is integrated into the business (by establishing targets

and incentives), it is unlikely to become a priority. Time and resources are ‘pull’ factors that

create, if not active opposition, passivity and inertia in managers faced with what is

perceived as an extra management burden. There is often scepticism about the added value

of sustainability action, with fear of high costs and little or no return. If the push for

sustainability action should come, as many managers in the sector believe, from business

units, it is important that these units understand the link between sustainability activities andtheir business results. They have to be convinced that the company will simply not have

customers if the company does not act in a sustainable way, and that thus sustainability is

important for the bottom line. An example of how this is being donein the supply chain is

examined in section 4.4.5.2.

4.2 Sustainability Strategy Design

Overall, our survey revealed that over 60 per cent of managers at food and beverage

companies perceived that there is a high level of integration of sustainable development into

strategies and operations (while, interestingly, 76 per cent of sustainability officers believed

that this was the case), with a further 30 per cent indicating that they felt it was fairly well

integrated. However, few food and beverage companies interviewed have formulated a

comprehensive sustainability strategy per se, although the leading companies tend to have a

strategy around certain key sustainability issues. Environmental and social strategies tend to

be approached in the leading companies as true business strategies, and not only a reflection

of corporate responsibility.

When developing a corporate strategy, companies review their overall growth goals, identify

where future markets will be, and review global trends. Future markets for food and

beverage companies will be from an emerging consumer base in the developing world –

these are consumers with aspirations to a better quality of life, but with currently much less

purchasing power than consumers in developed countries. Some 4 billion people are at the

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‘bottom of the pyramid’ (see Hart and Prahalad 2 who illustrated this potential in one of the

reference articles on this subject).

This represents a huge business opportunity for the sector. But how can it strategically be

exploited? It requires new and creative ways of thinking and acting in companies. The

research identified a few extremely innovative efforts in the sector to build new business

models based on serving the poor, but in general, the growth strategies of even the leading

food and beverage companies are only beginning to focus on rethinking ways of creating,

manufacturing, distributing and marketing new products (disruptive technologies) in

emerging economies. Managers in the sector say that developing countries are much more

attuned to the concept of sustainable development, given their level of development. This

provides a remarkable opportunity to get sustainable development objectives increasingly on

the agenda.

Comment from a sustainability officer at a leading company:

‘The focus for design of our sustainability strategy was to ascertain how the businesses could best contribute to

sustainable development. Strategically, this led the company to create a focus in its sustainability actions on a

number of areas of global importance upon which it could have most influence and around which the companycould build some long-term initiatives.’

In difficult economic times, sustainability action is scrutinized, as is every other factor that

impacts the company bottom line. Sustainability managers interviewed felt strongly that if

companies have integrated sustainability programmes into their strategic plans, it is less

likely that they will be removed from the strategic agenda, given the credibility risk to the

company of withdrawing them.

4.3 Organizational Structure and the Importance of

Functions

4.3.1 Structure

Organizational structure varies enormously from one organization to another in the industry

– however, a few common denominators can be identified as providing an optimum

backdrop for building and promoting a business case for sustainability.

The corporate headquarters of food and beverage multinationals generally takes on the role

of central policy setting and strategic overview. Operational responsibilities are often

decentralized. Corporate managers felt that sustainability actions are most successful when

implemented by operational units; however, given the decentralized structure of mostcompanies in the sector, obtaining an overview of progress in these areas is problematic.

Business units for global companies in the sector are split into geographic markets in order to

maintain a local focus, but ‘glue’ is mostly provided through a global business overview

(strategy, innovation, business development) at the corporate headquarters. These functions

often facilitate the overview of progress in areas of sustainability. In general, managers

suggested that the key to successful issue identification was communication between

2 Hart, Stuart L. and C.K. Prahalad. ‘The Fortune at the Bottom of the Pyramid.’ Strategy and

Business, First Quarter, 2002

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business and strategy groups. For example, in some companies, strategy groups inform the

sustainability or corporate responsibility committee on issues and vice versa.

Companies have chosen various ways of locating responsibilities for sustainability issues in

their organizations and this can also be very company-specific. Sometimes the sustainability

function is located in the public relations department, sometimes in innovation departments.

A very interesting trend is to see the sustainability ‘champions’ in the supply chain

departments being responsible for pushing the key sustainability agenda in the company –

this is occurring in more than one leading company. In general, companies tend to appoint a

strategic coordinating committee to lead from the centre, with overall responsibility for the

identification of issues. The group is usually cross-functional, with the involvement of

different business units and unions, and with an appropriate geographical representation.

This group decides whether issues should be addressed at a group or business unit level.

The strategic coordinating committee nominates issue groups or ‘owners’ of the most

important issues (for example for ‘human rights’ or ‘ethical trading’). Like the coordinating

committee, these issue groups also have a diverse membership. In this way, companies

create ‘nets’ and ‘goalkeepers’ for these nets as appropriate. Through the creation of teams,

companies can work in a matrix structure that allows, for example, staff in the markets to

talk to global functions, thus ensuring a cross-pollination of issues and agendas. Information

gathered in one market is thus transferred to another more easily, facilitating maximum use

of knowledge in the organization; one leading company referred to this process as ‘search

and spin’.

To optimize the application of a sustainability strategy, some companies have set themselves

an objective of having an organizational structure that makes it easy for information to flow

across the enterprise and around the world. This makes it more possible to put in place an

‘early awareness system’ to learn directly from stakeholders and consumers as early as

possible, and to commercialize good ideas and innovations quickly. The company culture

thus provides an opportunity for individuals to pick up issues at market level and elevatethem to the appropriate level. In order to avoid some issues being kept at a national level too

long, ‘radar mechanisms’ are can be put in place to ensure that issue identification at market

level is channelled up and out quickly enough.

On the operational level, some companies have concentrated on building a network of

sustainability ‘champions’ at senior level scattered throughout the organization but

positioned in the business units. This increases ownership of any initiatives by the business

units and ensures that questions such as budget and resources for sustainability initiatives are

addressed in the context of business strategy.

4.3.2 Functions

Most sustainability officers interviewed felt that for a business case for sustainability to be

successful, the CEO and members of the executive board needed to take distinctly proactive

roles on sustainability issues. As the driving force behind the sustainability strategy, the

CEOs of the leading companies are often publicly vocal on a number of the sustainability

issues that their company is focusing on. One manager commented, ‘Without top

management support, it would not be possible to drive a sustainability strategy throughout

the organization, but this in itself is not enough for success.’

Support for sustainability initiatives varies widely among different business groups,

commercial activities and individuals in the sector. Functions that are focused to a large

extent on the business margin (sales and profits targets) generally see sustainability as a

high-risk strategy. Even in the most progressive companies, a significant barrier identified iswhat was often referred to as the ‘second layer’ of business managers under the CEO who

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are oriented towards profitable growth first and foremost. Then, throughout the organization,

the ‘old guard’, a community of hard-line sceptics can often delay the roll-out of the business

case for sustainability. Translating the difficult concept of sustainability into the language of

such managers is often the greatest challenge.

Senior managers interviewed felt that since younger executives often grew up with

sustainability concepts in their everyday lives, they were more prepared to take on the

integrative aspects implied by sustainability in their work. Women were also seen as being

generally more open to these concepts.

Some business groups or profit centres in the companies are difficult to access. According to

our survey, nearly 30 per cent of managers felt that finance and control functions present the

most opposition to implementing sustainability initiatives, followed closely by marketing

and sales (25 per cent) and manufacturing operations (over 15 per cent). The last group often

reacts to initiative overload and finds fitting sustainability actions into its tough target setting

a burden, and yet this business group is regarded as the one that can most effectively

promote sustainability performance.

N = 72

Other

11.1%

Finance/Control

29.2%

Marketing/Sales

25.0%

Corp Staff

5.6%

HR

0.0%

HR & Corp Staff

6.9%

R&D

6.9%

Manufacturing

15.3%

Figure 4.1: Strongest Opposition to Implementing

Sustainability Initiatives

N

Top Management

2.0%

Other

0.5%

Finance/Control

6.0%

Marketing/Sales

16.6%

Corp Staff

15.1%

HR

8.0%HR & Corp Staff

8.0%

R&D

21.1%

Manufacturing

22.6%

Figure 4.2: Business Functions that Can Most

Effectively Promote Sustainability Performance

According to our survey and interviews, sustainability officers in the food and beverage

industry perceive R&D, marketing/sales executives and buyers of raw and semi-processed

materials as key functions to be convinced of the business case for sustainability, as they

have considerable influence over product design and sourcing, important aspects affecting

sustainability strategy. Currently, however, these functions do not have sustainability on

their agenda and to a large degree do not realize the extent to which their work can impactthe sustainability model of the company; therefore lack of knowledge is a significant barrier

in these cases. Raising awareness of the business case for sustainability potential in these

functions can go a long way towards ensuring its ultimate implementation.

Marketing and sales executives generally do not yet see ways of using sustainability in brand

communication and other functions identify them as having ‘set approaches’ to their way of

doing business that make it difficult to move forward with a progressive and innovative

sustainability agenda. Sustainability officers see the development of an understanding of the

corporate reputation value driver as something that may help to bridge this current reality.

However, developing this understanding is a time-consuming process, and marketing

managers have a swift turnaround time in their positions (three years on average), with

tightly set deadlines and objectives. This is often a barrier to a change of mindset.

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Problems arise with including sales and marketing executives in strategic coordination

groups in charge of overseeing sustainability strategies. The reason given for this was that

since the industry does not associate specific brands with specific issues, marketing

executives easily drop out of the equation because of their direct association and

preoccupation with brand. This is clearly a problem that needs to be addressed in the sector

in order to promote a business case for sustainability downstream.

According to sustainability officers, any sustainability strategy that is not accompanied by a

comprehensive communications strategy will almost certainly fail. The communications or

external relations director can take the role of coordinating the communication effort and

roll-out and is thus viewed by sustainability officers as a key element to success in driving

the business case for sustainability through the organization.

Employees can be encouraged by their line managers to participate in sustainable

development initiatives. However, often the direct supervisor constitutes a barrier to change.

In these cases, a solution is to educate line managers about the behaviours that the company

prefers. Leading by example is one of the most important forms of managerial support for

managers in any company.

According to our survey, there is considerable scope for sustainability officers to work more

closely with various management functions, and to use these opportunities to promote the

business case for sustainability internally. Overall, 56.5 per cent of managers felt that there is

a certain level of ad hoc collaboration with the sustainability department in their company,

while 29 per cent felt that they worked with this unit on a day-to-day basis. However, 57 per

cent felt that more collaboration with the company’s environmental or sustainability officers

would contribute positively to sustainable business practices in the company.

N = 62

Yes, on an ad-hoc

basis

56.5%

Yes, on a day-to-

day basis

29.0%

N/A

0.0%No, we do not work

together

14.5%

Figure 4.3: Level of Collaboration of

General Managers with Sustainability

Officers or Departments

N = 58

Very much

5.2%

Not at all10.3%

N/A

0.0%

Much

29.3%

A little27.6%

Fairly

27.6%

Figure 4.4: Potential for More

Collaboration to Contribute to More

Sustainable Business Practices

4.4 Processes and Systems

4.4.1 Issue Tracking

Companies in the sector have often put issue management systems in place as a result of

incidents involving defensive confrontations with stakeholders. This is clearly more reactive

than it need be. The more affected a company has been by a major issue in its past, the more

it appears to treat the potential risks of issues seriously and the higher it places responsibility

for issues in the company hierarchy. For effective issue tracking, companies put in place

‘radar mechanisms’ to ensure that information in the markets is transmitted around the

network. The company then builds knowledge that will help to develop a way to implement

strategic thinking. Managers said that asking individual sites to be generally proactive and

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report back on their issues does not work and is unrealistic; requests have to be structured

and specific, for example, asking all sites how they collaborate or interact with local

stakeholders. To be effective, leaders in the industry say that every market should have its

own responsibility to look after the corporate affairs agenda and identify whether strategic

issues need to be addressed, thus allowing a continuous strategic action agenda based on

value creation to be set up.

Comment from a strategy executive:

‘We looked at the corporate affairs strategy, starting with identifying issues common to all markets and then

going on to the big issues that prevent managers from reaching financial targets. We asked, ‘What would ease the

licence to operate?’ of each strategic area head. In the last year, every market looked at public policy,

stakeholder dialogue and how it is addressing corporate citizenship. The benefits? Greater awareness of the

positive things being done within the company –people have addressed corporate responsibility differently. In

this way, we build strategic alternatives to reach our goals.’

Managers felt that more resources need to be dedicated to defining a best-practice framework

to flag the status of issues at an early stage, and to developing issue-tracking tools. Issuetracking is currently carried out at different levels in companies, using a variety of

approaches such as stakeholder dialogue, networking, accessing external expertise and

holding risk management reviews. Using tools such as print and visual media, the Internet,

surveys and database mechanisms are also increasingly part of this process.

4.4.2 Issue Mapping

Once issues are identified, companies assess their relevance and strategic fit with their value

drivers. The company thus builds an internal awareness of the business activities that are

relevant to each issue. Rather than producing a detailed quantification of their sustainability

efforts, companies in the sector tend to create a matrix with a prioritization of resources andefforts, particularly regarding social issues. In general, if the risk is high for the business, it

will be rated high on the company’s agenda. At this level, sustainability issues are

considered business risks.

A number of data management tools are used to inform the mapping process, such as the

continuous measurement of material, energy and waste flows and emissions, as well as more

ad hoc environmental impact assessment tools. Companies benchmark internally and with

other industries or companies in order to assess the relative significance of an issue. For

example, during the recent debates on obesity in the US (litigation against fast-food

companies), the sector drew parallels with the tobacco industry’s experiences with litigation.

Environmental performance indicators are more commonly used than instruments and processes to monitor social issues (for example level of staff turnaround, gender balance,

amount invested in communities) mainly because the latter are more difficult to assess.

Companies are increasingly looking towards standards such as AA1000, SA8000 for

guidance in this regard. In general, sustainability managers said that for a more effective

mapping and prioritization effort, more information and better tools on how you measure

intangibles are required (for example for measuring the impact of relationships with NGOs

and so on).

4.4.3 Issue Prioritization

Formal mapping of issues is often not required for prioritization, since some of the issues can

be assessed informally. Companies use risk assessment processes (internal and external) to

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prioritize their efforts. Business units submit these to the corporate function, which assesses

them in terms of a more holistic and long-term ‘big picture’. Risk assessment tools include:

• Qualitative and quantitative assessments

• Parameters such as probability forecasts and assessment of consequences

The review of risks results in a prioritization leading to a ‘risk register’, which later operates

as a tracking tool.

Auditing systems look at already identified critical risk issues and establish whether action

plans are in place and are being implemented, sometimes leading to a reprioritization of

efforts with regard to the identified risk.

Priority issues identified are integrated into strategic decision-making processes. Managers

interviewed generally felt that the way issues are tracked, mapped and prioritized needs to be

more transparent and more thoroughly understood in their companies. Managers indicated

that the industry is not quick enough in identifying the ‘real’ issues and that there should be

more anticipation, leading to early action being taken to develop strategies to deal withissues.

Managers also felt they were not sufficiently aware of how issues are being mapped and

prioritized on the agendas of peer groups and competitors. Some managers perceived this as

a threat that could eventually disadvantage the competitiveness of their company.

4.4.4 Integrating Issues into Strategic Decision-Making

Leading companies in the sector tend to focus their attention on sustainability issues in areas

that are most relevant to their business and where they can have most influence and impact.

To convince management in their company of the business case for sustainability, mostsustainability officers currently rely on presentations and papers outlining concepts and

plans. The business case for sustainability emphasis is also more focused on the concept and

value drivers behind sustainability initiatives than on a fully completed business case with

figures to back up the proposals. When presenting to management, sustainability officers

avoid referring to costs, but rather place the emphasis on product differentiation,

competitiveness and investment to cut costs in the medium term.

Implicitly, most CEOs in the leading food and beverage companies recognize a strong

business case for sustainability based on reputation and licence to operate value drivers

without a need for much further quantification. Putting a value on reputation loss, for

example, is a challenge that the sector has not tried to address. Some managers feel that more

work should be done in this area, based on the rationale that if it has been possible to value a

brand, therefore why should it not be possible to value reputation?

Comment from a strategy and business development executive:

‘It is hard to prove that sustainability adds value but it is clear that not paying attention to it destroys value, and

rather rapidly. It is not always possible to translate the impact of non-action into money terms. It has more to do

with vision – and the fact that if you do not do it, business value is at risk.’

This leads us to the question of whether quantification of the economic value of

sustainability would help convince sceptical strategic decision-makers of the business casefor sustainability. Food and beverage companies have tried to quantify sustainability

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benefits, but in an incomplete way. Quantification is subject to doubts and criticisms and,

managers felt, sometimes provokes more debate than it resolves.

Measurement tools to increase transparency are regarded as powerful support tools, since

they allow for a quantifiable argument for the business case for sustainability. Few today

would dispute the efficiencies achieved and costs saved by quantifying environmental

compliance, applying targets and then measuring continuous improvement; these tools are

extensively used by the industry. However, measuring the social dimensions of sustainability

is considered much more of a challenge. Managers felt that expressing a value for some

issues, such as child labour, should not even be tolerated by a corporate responsibility

approach.

The following points illustrate the view of managers in the industry with regard to

quantification:

• The more it is measured over time, the more sustainability means to people within the

company.

• Although the same rigorous assessment procedures should be applied to sustainability projects as to other projects, both tangible (economic impact) and intangible

(relationships with stakeholders), sources of value have to be looked at.

• Measurement without the belief is not compelling. The added value of sustainability

action is not always economic; there are issues that are not measurable in money

terms, and justification for involvement is not always quantifiable – it is often simply

the ‘right thing to do’, based on best practice and pending legislation. Making the link

between the investment and the return on investment is thus exceedingly difficult.

• Quantification makes decision-makers go by short-term numbers, whereas in fact the

benefits of sustainability are much greater in the longer term. Thus, measurements in

the same short-term snapshot as financial performance will never be equal and be able

to tip the balance.

• In a ten-year perspective, there is never a single reason for a given sustainability

action, but a network of reasons.

Sustainability officers in the sector nevertheless believe that if they can show, with numbers,

that sustainability action is having an impact on profitability, there is a powerful argument to

promote a business case for sustainability. However, it is interesting to note that once senior

business managers are convinced of the business case for sustainability based on the

reputation and licence to operate value drivers, they are less convinced of the need for

quantification than the sustainability officers themselves.

Leading companies in the sector push issues into strategic decision-making primarily byusing the following methods:

• Scenario building helps to build momentum around an issue, by making strategic

decision-makers face the consequences of doing nothing about a given issue (for

example by showing the impact on share price of NGO activism around a given issue).

• Success stories and pilot projects show strategic decision-makers the relevance of an

issue to the business and can be very instrumental as learning tools to prove business

case potential. In the food and beverage industry, pilot projects for cash crops in the

supply chain are proving to be the most effective way of showing decision-makers the

business case for sustainable sourcing and that sustainability can be integrated into the

business without cost and still produce benefits.

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If a single issue is very significant, then a focused strategy is articulated and a strategic

action plan related to the issue is developed as a matter of priority. Position papers are

established on the most important issues. Traceability is an example of an issue that gathered

so much momentum that it quickly became integrated into the strategy of many companies.

4.4.5 Integrating Issues into Operations

Comment from a strategy officer:

‘What you basically need to implement a strategy is a framework, people aware and motivated to deliver it,

systems in place and an effective target setting process.’

Generally speaking, the way corporations apply sustainability is seen as being a matter of

stages of cultural and economic development, as affluent nations are perceived as being

more interested in meeting corporate responsibility standards while the less affluent are

mainly striving for rapid growth. However, if multinationals establish a principle in onecountry, it is applicable in another. Dual standards are perceived as a risk for the company.

Therefore, the way a business case for sustainability is built for a company does not vary

from country to country. However, there are significant national differences in the way the

business case for sustainability is implemented locally. Issues in developing countries are

interpreted differently to those in the developed world.

Europeans are motivated to urge corporations to act in a sustainable manner. In Europe, there

is a fairly uniform desire to meet certain standards, but when it comes to implementation,

there are again differences. Northern European and Scandinavian countries are seen by most

players in the industry as being the strongest when it comes to implementation.

4.4.5.1 The Framework

For successful issue integration into operations, most companies work within an agreed set

of policies and management systems. Central to this are statements of principles, and values

that provide a framework within which to operate. According to our survey research, 26 per

cent of managers perceived the most important tools related to sustainable development as

being documents laying out corporate values, policies and standards that take account of

sustainable development issues. This shows the importance the industry accords to having

the right corporate mindset and values in order for sustainability initiatives to be successful;

these create an operational framework within which the business case for sustainability can

be promoted throughout the organization, rolling it out to every manager and employee

around the world.

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N = 218

Measurement tools toincrease transparancey

20%

Tools measuring resource

allocation10%

Strategic planning and

accounting proceduresthat take account of these

issues

8%Corporate values,

policies and standards

that take account of theseissues

26%

Reward and punishment

systems

1%

Management

development

11%

Coordination committeediscussing and pushing

strategic decisions at

corporate level11%

Business teams, taskforces to resolve conflicts

and push improvementson an operational level

11%

No initiatives whatsoever

0%

Other2%

Figure 4.5: Sustainable Development Tools Used in Food and Beverage Companies

Most sustainability officers felt that the message on the business case for sustainability must

come from top management first and foremost, before being pushed through to all levels of

the organization. However, they also felt that employees should first have a basic

understanding of the concepts before trying to reach them. Developing this understanding

takes time. One strategy officer remarked, ‘A corporate message on sustainability has

general themes – but the message has to be received in a way that is relevant and modified

based on region or country; otherwise it is not going to be effective. Operational units have

an important role in developing and transmitting this message.’

In the early stages of development of a corporate sustainability strategy, some companies

rely on the attitude and persuasive power of the senior staff member responsible forsustainability or corporate responsibility to drive the business case for sustainability. Having

this function report directly to the CEO gives the entire organization the message that

sustainability is being taken seriously. This also gives sustainability exposure at the highest

level (shareholder and board meetings, for example).

However, leading companies do not view this as sufficient for successful implementation in

business operations. One experienced manager put forward the view that building and

implementing the business case for sustainability cannot be separated; sustainability is a

matter of learning by doing, through a process of iteration and interaction. The most

innovative examples of learning by doing can be found deep in the supply chains of global

companies. One of the most effective ways of creating a network of sustainability

‘champions’ is to use pilot demonstration projects and to get people in the company workingon sustainability issues in their businesses. In this way, it becomes possible to ‘speak the

language’ of the business to engage in the process. Pilot projects or focused actions

effectively introduce the concepts of sustainability in a hands-on way, so that people can

better understand how they can personally contribute. By being able to point to success

stories, the business case for sustainability is immeasurably enhanced on an operational

level.

4.4.5.2 Sustainable Agr iculture

The leaders in the industry have recognized the need for a change of mindset and for the

food industry to speak out on the challenges posed by agricultural production systems. They

are currently experimenting with pilot sustainable agriculture projects using key crops suchas tea, coffee, palm oil and other cash crops. By using local partners’ know-how to jointly

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develop sustainable agriculture best-practice guidelines for farmers, and by then providing

information to those who shape the market (such as other producers, buyers, processors and

consumers), the objective is to gradually create market mechanisms that favour sustainable

practice

Food and Beverage Report

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