Sustainability Survey Results: Interesting Times in FMCG

Excerpt from Retail World Magazine March 16 issue:

Sustainability is gaining traction in the Australian FMCG industry but the economic benefits are yet to gain awareness, according to the 2008 Retail World FMCG Sustainability Barometer Survey.
- by Brent Couper and Lee McAllistair of the FMCG Sustainability Institute; providing Sustainability thought leadership, research, education and advice to the Fast Moving Consumer Goods industry. For more information visit www.fmcg-sustain.com.au

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Comprehensive results of the Retail World FMCG Sustainability Barometer Survey 2008 are now available via the Retail World March 16 issue and www.fmcg-sustain.com.au. The study is aimed at providing a ‘barometer’ to determine the state of the collective Australian FMCG & Retail industry in relation to environmental, social & economic sustainability.
Sponsors Retail World Magazine, Jigsaw Strategic Research and i-Link Research Solutions made the project possible through their generous provision of services and resources.
Supporters AACS, POPAI and ASMI also assisted with the promotion of the survey.
The 10 minute online, self-completion questionnaire was conducted 11September – 1 October, 2008.

271 respondents completed the survey, including:

• a breadth of business sizes (over half less than 100 people, 14% over 1000 people) and industries with an ANZ focus
• an even spread of turnover (approx one third $100m+, while one third less than $10m)
• a mix of respondent roles (approx one fifth CEO/ President/ Managing Director and another fifth were General Manager/ Manager)

What are the key messages from respondents?

1. Sustainability pressures rising: The pressure for, and importance of sustainability is increasing. The main pressures are coming from customers, consumers and shareholders, as well as managers
2. Strategic Responses Vary: Organisations develop sustainability strategies for a number of reasons. The primary ones are that they see this is where business is heading and they want to be good corporate citizens. CEO commitment and attracting and retaining good people are also strong motivations. Reducing costs and increasing revenues are less important.
3. Cost v Benefit? Jury still out: The views about the impact of sustainability on profitability is mixed – about half feel that profitability will increase, while a third feel it will decrease
4. Pioneers are Forging Ahead: Although new, organisations are adopting sustainability. For example:
   • almost half claim to have sustainability strategies
   • a third have conducted an energy, water, waste audit
   • almost half use green credentials in marketing
   • a quarter of respondents have had training
5. Real Benefits: Sustainability is achieving benefits… mainly around branding & risk management & less so with economic benefits. Perhaps this is because organisations develop sustainability strategies primarily for ‘soft’ reasons, as opposed to ‘hard’ economic benefits
6. Not a Top Priority: However sustainability is not a top priority. The main reasons cited are:
   • there are other priorities
   • customers don’t require it…won’t pay for it
   • there are no penalties for not doing it
   • competitors aren’t doing it
   • managers don’t know much about it
7. Barriers: The key barriers are inadequate funding, difficulty in developing targets & controls and the perceived costsAlso, in most organisations there is no clear primary responsibility for sustainability. Rather, each department/division shares responsibility
8. Future Directions: The priority sustainability issues over the next 2-3 years are attracting and engaging good people, improving energy and water efficiency, reducing pollution (including greenhouse gas emissions), and marketing/branding to reinforce sustainability performance

FSI Thoughts: Implications and Recommendations

Overall, the results can be interpreted in two ways. Perhaps they are two sides of the same coin and reinforce each other:

1. Heads: One view is that Sustainability is new, and despite limited funding & resources & diffuse responsibility, there are actions underway, and ‘soft’ results are coming through;
2. Tails: The other side is a view that Sustainability is not delivering ‘hard economic’ results. When this is coupled with lack of internal & external pressure it means that Sustainability is not a top priority.

Taken together, these interpretations suggest that Sustainability is still relatively new, and is being taken up by innovators, early adopters & some early majority organisations (in terms of the innovation curve).

A number of drivers suggest that Sustainability will continue to increase as it travels through the Adoption Curve:

• Large suppliers and retailers like Woolworths, Unilever, Wal-Mart will continue to drive their sustainability programs;
• Legislation & external pressures will continue to increase; and
• Examples showing that economic benefits will become better known.

Unlocking the Sustainability Benefits

One of the key barriers to sustainability progress in the Australian FMCG industry is a lack of understanding about its potential economic benefits.

A recent study (May to November 2008) showed that “… during the current economic slow-down, companies that show a “true” commitment to sustainability appear to outperform their industry peers in the financial markets.Companies recognised as sustainability-focused outperformed their industry peers over both a three- and six-month period, and were well protected from value erosion… over three months, the performance differential across the 99 companies in this analysis worked out to be 10%; over six months, the differential was 15%”
- Source: “Green” Winners, AT Kearney, 2009, www.atkearney.com

The key issue here is making a genuine commitment to sustainability. Unless companies are seriously committed (i.e. not just improving public relations or playing catch up) and are in for the long term, best not bother at this time. Those that have a genuine commitment (being strategic and long term) are likely to see the benefits in their market performance. It may be in the interests of these companies to actually increase their sustainability investment to position them as emergent leaders from this crisis.

This suggests that organizations committed to sustainability should maintain or even increase this commitment to imprive their future positioning through and after the current crisis.

A recent Financial Times article, suggests that companies should identify how various aspects of sustainability will be affected during this economic crisis.

They suggest that:
the concern for corporate governance will increase

• regulation will increase
• philanthropy will suffer
• the outlook for eco-efficiency will be mixed, continuing in most companies, but focusing on lower-key and lower-cost measures
• consumers will be more conscious of product impacts, but also more value conscious
• retailers with strong and growing sustainability ambitions should flourish

- Source: Why sustainability is still going strong, Vermeer & Clemen, Financial Times, 12 Feb 2009

Respondents reported that another major barrier to progress is lack of targets, measurement and reporting. Only1 in 5 have sustainability targets in their business plans, and only 1 in 10 are formally reporting on social impact and performance. Obviously this makes it hard to focus their sustainability efforts and measure real benefits. Note: Large companies are leading the way here – in 2008 almost 80% of the world’s largets companies prepared sustainability reports, and 68% of ASX N100 companies published information on sustainability. (Source: KPMG, 2008).

Shifting From Tactical to Strategic Response

Another further key barrier to sustainability progress is a lack of understanding about how to leverage sustainability for strategic advantage. For us at the FMCG Sustainability Institute, ‘strategic’ sustainability is different from ‘tactical’ sustainability. As discussed in our previous reports, we believe that strategic sustainability is:

• integral to the business model and fundamental to the business;
• a source of differentiation, builds organisational reputation with key stakeholders and helps branding;
• gives a leading edge through innovation, patents, licences, low cost, speed to market and first mover advantage;
• hard to copy;
• builds margin and returns via increased prices, lower costs, lower assets; and importantly;
• it is likely to be specific to the firm, in the organisation’s upstream business processes and is often externally focused.

Tactical sustainability, on the other hand, is an ‘add on’ and does not impact core business – every firm can do it. Many environmental programs fall into this category, and whilst essential to addressing sustainability as a whole, offer no real differentiation or strategic advantage. In fact, we believe that carbon programs, in particular, are likely to become a ‘hygiene factor’ as legislative activity increases and more retailers seek carbon savings via suppliers.

Ultimately, the more strategic the approach to sustainability, the greater the benefits, including economic benefits.

So, What Should We Do?

Six key things:

1. Develop Capability: Respondents in the FSI research indicate that sustainability is becoming more important. Organisations need to develop the capability to scan the external environment for changes in legislation, pressure from key customers, consumers and competitors, cost increases in key inputs, technology opportunities, etc.
2. Bottom Line Focus: During this economic crisis, economic performance is even more important. Set sustainability strategies with higher expectations of economic benefits and focus on those sustainability initiatives that attract customers and consumers, and address costs, without being capital intensive.
3. Link to Business Strategy: Consider how your approach to sustainability aligns with your overarching business strategy and differentiates your offer and market position from your competitors. The more strategic your approach, the greater the benefits will be.
4. Set Targets: Research / develop targets, measures and controls and report regularly.
5. Resource Appropriately: If you have a sustainability strategy, allocate good people, assign clear responsibilities, clarify priorities, coordinate/simplify the multiple initiatives , and share/replicate successes.
6. Build Capacity: If you don’t have a sustainability strategy, educate managers and seek out best practice (including results), pilot various approaches and demonstrate results, audit key areas to identify improvement opportunities, prepare a strategy to prioritise and coordinate the overall approach.

This article is the first in a series about the state of sustainability in the Australian FMCG industry.

Future articles for Retail World Magazine will include:

• Economics and sustainability: how it is stacking up globally and locally
• Sustainability in FMCG: who is driving it and why?
• The Sustainability Roadmap: how to drive on the ‘right side of the road’
• Leveraging sustainability to benefit your balance sheet
• Sustainability targets and measures: navigating the territory

New carbon economy: what it means for FMCG

Major retailers seeking to reduce their carbon emissions will be looking at their supply chain, in the wake of the new Australian carbon pollution reduction scheme. Shoppers will increasingly look to the carbon footprint of the products they buy.

For Retail World Magazine by the FMCG Sustainability Institute, a joint initiative of Shopportunity and EcoSTEPS to provide Sustainability  thought leadership, research, education and advice to the FMCG industry. For more information visit www.fmcg-sustain.com.au

Whether you are a climate change believer or skeptic, one thing is for sure: the carbon issue is escalating and will have a major impact on the economy more broadly, and FMCG specifically, over the next few years.

Download the full article here Retail World carbon article