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Deep dive Q&A: Is sustainability financially feasible?

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Examining in depth the economic viability of sustainable practises in the nutraceutical industry

Increasingly, sustainability is a publicised goal of many nutraceutical and functional food brand and manufacturers. But how can businesses avoid greenwashing, and ensure that sustainability is economically viable, so as to form a central part of their growth strategy? To find out more, Vitafoods Insights spoke to Malachy Mitchell, managing director of international food and agribusiness management consulting firm, Farrelly & Mitchell.

 

Does switching to sustainable practises make economic sense for nutraceutical manufacturers and brands?

The nutraceutical and functional food industry are well placed to capitalise on the drive for more sustainable business practices. Sustainable business practices should be financially sustainable as well as delivering environmental and social benefits. These practices should not be viewed through a short-term lens and should be financially sustainable in the medium and long-term.

When improving environmental sustainability businesses can see reduced energy costs, decreased water usage, less waste and improved efficiencies. While these outcomes have a positive environmental impact, they also deliver cost savings that improve the bottom line.

Companies with strong sustainability strategies and programmes have also been seen to improve employee productivity and retention. Sustainable business practises have also been identified as a factor in attracting new talent to the organisation. This can help to reduce costs associated with employee turnover and creates a better work environment.

As more industries begin to see sustainability as a key pillar of business, the importance of implementing sustainable business practices is growing at a rapid rate. The food industry has seen a huge emphasis on sustainability and ESG (Environmental Social Governance) in the past number of years. This trend will permeate to nutraceuticals and is already evident in some areas such as fish oils and CBD oil where the environmental impact is a factor for many buyers. We expect to see this intensify in coming years and as consumers grow more and more accustomed to seeing environmental claims and information on food labels they will search for this information in other verticals. Sustainability is seen an increasingly important aspect of a product and a brand in the eyes of investors, customers and consumers. Failing to implement sustainable practices will increase the risk of being left behind and damaging brand value in the long-term.

 

Can nutraceutical brands and manufacturers ensure environmental sustainability whilst creating affordable products that bring nutrition to malnourished communities?

Environmental sustainability and affordability should not be mutually exclusive. As discussed above, many practices that improve an organisation’s environmental sustainability have a positive financial impact. ESG encompasses both environmental and social elements and impact such as bringing affordable nutrition to malnourished communities and improving outcomes for individuals has in itself major social impact.

 

How can businesses calculate the ROI of switching to sustainable practises?

The key to a successful sustainability strategy is to identify target areas and have systems of measurement put in place from the outset. This means that you can track progress in the areas that you have chosen to concentrate on or improve. In some instances, e.g. switching to a renewable energy source, it is very easy to determine ROI. However, for some other sustainable practices it may be more difficult to quantify direct ROI and this is the reason that vigorous measurement and reporting is so important in the area. By tracking the data and regular reporting it is easier to make inferences and to see trends and impact.

 

Is the responsibility of nutraceutical and functional food brands, not just their manufacturers, to look for visibility into their supply chain, and how far should brands look back into their supply chain?

Every individual along the supply chain from the consumer at the end, back to the retailer where they purchase the product, back to the brands that fill the shelves, to the manufacturer and all along the chain, has the responsibility to ask the questions: ‘where did this come from, how was it made and who made it?’.

Each supply chain actor should have a due diligence process surrounding each ingredient in their formula or recipe. This is already applied in a health and safety and food safety context and we see this becoming more and more applicable in an environmental and social sustainability context. If you already have risk assessments, safety documentation or supplier data for ingredients, environmental and social safeguards can be added to improve your business practises.

 

How can brands ensure they are making a real impact, as opposed to treating sustainability as a crowd-pleasing add-on?

Greenwashing by commercial entities is prevalent in the area of sustainability. This can make it difficult to distinguish between genuine programmes to improve environmental sustainability and marketing and PR mechanisms. Carbon neutral, net-zero and carbon negative are all trending buzzwords at the moment. Every day we hear of global blue-chip corporations making these commitments and promises.

However, the manner in which this is being achieved is key. For some companies, achieving these targets involves buying carbon credits from overseas countries, for some this is seen as a way to achieve net-zero while making little or no change to operations. Real cost savings and value, as well as genuine positive environmental and social impact, can be achieved from improved sustainability practices. In order to realise these benefits organisations must have a robust sustainability strategy that is realistic and is unique to their business. Copy and paste will not work here and a tailored plan is key to making changes that can be measured and tracked.

 

How should representatives of nutraceutical businesses convince their colleagues, investors and other stakeholders of the economic viability of switching to sustainable practises?

Like any key strategy in an organisation, a successful sustainability strategy and associated programmes and practices require buy-in from stakeholders across the firm. A lack of support from stakeholders in the area of sustainability may be fuelled by the fear of the unknown or by misconceptions surrounding the economic impact of sustainability. Sustainability and ESG is becoming increasingly important to investors and many now require information on sustainability in an organisation before investing.

Stakeholders must have a clear picture of the strategy, the intended outcomes and the path to get to them, in order to buy-in to implementation of sustainable practices. Communication is key here and it is vital that stakeholders can see that this is not greenwashing and not ‘fluffy’ but an area that is measurable, that will be reported upon and that can deliver real positive impact to the business, the environment and wider communities.

 

What are some initial practises that nutraceutical manufacturers and brands can adopt as they begin the journey of becoming more sustainable businesses?

The first step for any business in becoming more sustainable is to assess where they currently are in terms of sustainability. It is key to know where you are now before beginning implementation. This also means that you will be in a better position to see improvements and communicate these. In some instances this can be confusing as there are numerous standards and methodologies in the market. It is important to choose methodologies or standards that are used and accepted in your industry, are grounded in science and are aligned with policy and regulation, present and predicted. At Farrelly and Mitchell, we help our clients to base their sustainability strategies around standards and methodologies that work for them and their specific industry.

Once you have carried out the initial assessment, you can create tailored goals that make sense for your organisation, are achievable for the business and are aligned to your company’s brand and values. These goals should have a timeline against them and have interim milestones. It is important when it comes to your sustainability goals that you do not try and be all things to all people but instead focus efforts on specific areas where you see real value and can make real impact. When implementing the projects to achieve these goals there should be regular reporting and progress updates. A good communication strategy is pivotal to garner enthusiasm from shareholders, employees, customers and other stakeholders. Once you have achieved your first set of goals the process starts again and you can look at more ambitious targets on your current goals or select new goals. The sustainable business practices that you implement should be win-win for your organisation and stakeholders, and deliver marked value.

 

How do you help clients to improve sustainability in their businesses?

Farrelly & Mitchell have almost two decades of experience consulting in food companies around the world. We know first-hand the challenges and unique complexities of ingredient supply chains and manufacturing. We have developed a suite of consulting services in the area of sustainability to meet the needs of our clients and their industries. These include: ESG due diligence and risk assessments, ESG strategy review and creation, ESG reporting, sustainable supply chains, and circular opportunity and impact assessments.

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