Building a More Sustainable Supply Chain
The article below is from our BRIEFINGS newsletter of 14 July 2020
Consumer packaged food companies are changing the way they source raw ingredients to help reduce their environmental and social impact. Goldman Sachs Research’s Jason English spoke with Mary Jane Melendez, General Mills’ Chief Sustainability and Social Impact Officer, Christine Montenegro McGrath, Mondelez’s Chief of Global Impact, and Kate Rebernak, Founder and CEO of FrameworkESG, to discuss how consumer food companies are shaking up their supply chains. What follows is an edited excerpt of their conversation from Goldman Sachs’ inaugural Global Consumer ESG Conference, held virtually last month.
Jason English: Kate, since you advise companies on their ESG strategies, can you set the stage and share how companies’ approaches are evolving?
Kate Rebernak: As more companies recognize ESG as a source of value, their stakeholders are becoming more sophisticated in their understanding of how sustainability factors can impact overall value. As a result, companies are trying to be more specific about making the connections between sustainability practices and the company’s data, vision and goals. Things have evolved because stakeholders are clearer in what they want to see from companies.
Jason English: How is the focus on sustainability playing out in Mondelez and General Mills?
Christine Montenegro McGrath: I would start out by saying that most successful companies today are creating value for the world at large, in addition to their own business, so understanding what’s material for your business and the broader impact you can have is essential. Part of that is being consumer-centric and understanding that consumers are increasingly aware of the connection that their choices have on the environment and their own well-being. At Mondelez, since we’re one of the world’s largest buyers of cocoa, it’s critical to have a strong supply of cocoa and be able to drive systemic change through our sustainability programs. Through our Cocoa Life program, for example, we’re able to help the farmers we source ingredients from, as well as the communities that we buy from. At the same time, we need to drive change in broader ways by working with governments and industry players. Some of these complex challenges are just too great for any one company to solve, so we also need to share best practices and knowledge, and build scale.
Mary Jane Melendez: Consumers expect brands to be a force for good. For us, it’s really about thinking about how we can activate our operations in a way that builds both business and planetary resilience. Given the impact of climate change and extreme weather events on our business, it’s critical for us to look up and down our supply chain. We also work with the farmers who grow our key ingredients—such as oats—to ensure that we’re sustainably sourcing those ingredients. As a food company, our business very much depends on the health and well-being of Mother Nature.
Jason English: What types of companies have been most active in ESG and how has investor interest evolved?
Kate Rebernak: What I’ve seen is that the heavily regulated businesses—for example, oil and gas, mining, and cement manufacturing—got a head start on implementing ESG strategies because they needed the social license to operate. And there has been greater engagement from the investor community. Five years ago, institutional investors weren’t as interested in doing a deep dive on ESG. Now all of them are. We’re also seeing greater engagement from companies’ senior leadership—if they’re not driving the strategies themselves, then they are actively supporting them. And this interest is across all sectors.
Jason English: Mary Jane and Christine, can you talk about some of the supply chain initiatives that you’re engaged in at your companies?
Mary Jane Melendez: At General Mills, one of the areas we’re focused on is regenerative agriculture, which uses a holistic, principles-based approach to farming and ranching that seeks to strengthen both the ecosystem and community resilience. It’s one of many levers that farmers can use to address planetary health. We’re currently running a pilot with 46 farmers—who are responsible for more than 50,000 acres—who will be applying principles of regenerative agriculture on their land over a three- to five-year period. The pilot is already showing strong results. In the first year, farmers have been able to spend less on synthetic inputs, such as fertilizers and pesticides, and instead are reinvesting more money into cover crops for their lands. By minimizing soil disturbance and maximizing crop diversity, famers can not only improve soil health, but also improve biodiversity and water quality on their farms—while creating more economic resiliency for their communities.
Christine Montenegro McGrath: We know that about 60% of our CO2 emissions come from our ingredients, so we have several initiatives focused on increasing the sustainability of our supply chain. The Cocoa Life program I mentioned earlier was launched in 2012 with the goal of helping farmers grow more cocoa on less land, while also providing them with access to sustainable farming practices, financing and training. We’re now working with more than 175,000 farmers and about 60% of the cocoa volume for our chocolate—which is used in products such as Cadbury and Toblerone—is currently sourced through the program; our target is 100% by 2025. Today, we’re working with farmers to ensure that the way the cocoa is grown is helping to solve deforestation on the ground while also helping to provide more income to the women in these communities, who typically do about 40% of the work on the cocoa farms. Another one of our initiatives, Harmony Wheat, works with farmers to ensure that wheat is grown in a way that promotes soil health and biodiversity, while also helping farmers to cultivate the bees and wildflowers on their farms that are so important to the long-term health of the environment.
Jason English: What, if any, changes to the ESG dialogue discussion do you think will result from COVID-19?
Kate Rebernak: In past crises, we would typically see companies dial back their attention to ESG issues. But we’re not seeing that right now. Because of the pandemic and the protests over racial injustice, companies are realizing that they need to continue to address social issues in ways that are both authentic and meaningful. Company leaders will need to build structures internally and throughout their value chains to insulate the business against some of the environmental impacts and create resilience. There are also expectations that company leaders need to speak out on issues, engage with policymakers and address issues such as paid sick leave, healthcare issues and pay equity. ESG concerns aren’t going away and, in fact, are interconnected with many of the issues we’re seeing right now.