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CPG Companies and ESG Offerings – Increased Revenue
Two companies that have increased their revenues by improving their ESG offerings are Nike and Coca-Cola, both of which have been categorized as CPG companies by the CPG Branding and Marketing Forum. Nike has had very positive revenue outcomes through the use of sustainable materials in its products, while Coca-Cola has made changes to its ingredients to reduce the sugar content of its products. The case studies of each of these companies are provided below.
- In the past years, Nike has been taking action to minimize its environmental footprint. Some actions include changing chemicals for material production, changing climate impacts throughout the value chain, minimizing energy use, greenhouse emissions, and non-renewable resources, implementing activities to reduce, reuse, or recycle, cut down the water used throughout its value chain, and monitor its impact in water-scarce regions.
- Since 2008, all Nike Air-Sole products are made with at least 50% recycled material. Based on revenue, Nike Air would be the third-largest company in the world.
- Nike Flyknit, which transforms recycled polyester into products, is a “multi-billion dollar business.” Nike Shoes made with Flyknit “create 60% less scrap waste than a typical shoe upper.”
- The brand is also using Nike Flyleather, a sustainable material made from at least 50% leather fiber, for many of its products.
Positive Impact on Revenue
- As of 2018, products elaborated with Flyknit had totaled over $2 billion in revenue.
- As part of its ESG offerings, in recent years Coca-Cola has compromised to reducing the sugar content of its products. This strategy was driven by the sugar intake recommendations of health authorities and what people are looking for in food products.
- This brand has drastically changed recipes to reduce added sugar, offering low- and no-calorie beverage options, as well as smaller packages “to enable portion control.”
- The Coca-Cola recipe with 30% less added sugar was first launched in Mexico in 2018 and has been taken to another 25 international markets. This formula has removed around “280,000 tons of added sugar.”
Positive Impact on Revenue
- The sales volume of Coca-Cola Zero Sugar “grew by double digits in 2019 for the third consecutive year” globally.
- In 2018 and 2019 sales per unit increased by 1.6% and 2.2% respectively.
CPG Companies and ESG Offerings – Cost Reduction
Among CPG companies, Procter & Gamble (P&G) and Nike have achieved significant cost reductions from their ESG strategies. P$G has achieved up to $2 billion in cost savings through waste and energy savings. Nike, in 2016 improved its profit margins to 11.25% within 12 months, owing to its cost reduction from ESG efforts.
1. Nike Inc.
- Nike Inc is one of the consumer packaged goods companies that have reiterated their commitment to environmental, sustainability, and governance issues to minimize environmental footprint, improve product innovation, and transform manufacturing to ensure steady growth of the company while also creating a better society.
- According to Nike, it focuses on ESG Nike as part of its corporate social responsibility and as a strategic growth engine.
- In 2019, Nike launched a sustainability plan dubbed “Move to Zero” to reinforce existing efforts in fighting climate change. While announcing the program, Noel Kinder, Nike’s chief sustainability officer, said “At Nike, we believe that climate change is the defining environmental issue of our generation because the reality is if there’s no plan, there’s no sport,”
- Over the years, Nike has achieved significant cost cuttings through its environmental sustainability initiatives, especially in waste reduction, recycling and reuse, sustainable packaging, water efficiency, and energy efficiency.
- James Duffy, an analyst at Stifel, was quoted saying that Nike’s “more environmentally conscious product has been a source of cost savings.”
- An article in the LA Times highlights Nike as one of the companies that have achieved attractive profit margins through environmentalism. The company came up with a new way of weaving that reduces the raw material used and labor time required to make a shoe.
Impact on Cost Reduction
- In 2016, Nike successfully improved its profit margins to 11.25% within a period of 12 months, an achievement that analysts linked to the company’s efforts to reduce manufacturing costs. In part, the success has been linked to the introduction of Flyknit” footwear that encourages the use of an automated technology which would be less labor-intensive (expected to reduce labor costs 50% per unit) and decrease material usage by 20%.
- Waste reduction Since 2012, the new method has significantly reduced costs and kept over 3.5million pounds from landfills. The company spends less on waste disposal, materials, and transportation.
- Energy Efficiency: The Nike’s contract footwear manufacturers have reduced their energy use by 50% since 2008. The company hopes to achieve a 100% transition to renewable energy by 2025.
- Nike’s 2019 Impact report states that “the company achieved nearly an 8% reduction in energy consumption per pair since our FY15 baseline at our suppliers’ facilities, mainly driven by the elimination and optimization of boilers, the implementation of more efficient motors, and by continuing fundamental energy management through the Energy Minimum Program”.
- Recycling: In financial year 2015, “4 million pounds of factory scrap was transformed into premium materials used in Nike performance footwear and apparel”.
- Water efficiency:Nike also managed to reduce water use by “18% per unit in apparel materials and 43% per unit in footwear,” which “far surpassed” the company’s FY2015 goals. Furthermore, it uses innovative technologies such as its “ColorDry” technology “which dyes fabrics using zero water, [which] has saved more than 20 billion liters of water” since 2010.”
2. Procter & Gamble
- Procter $ Gamble is committed to ESG, as demonstrated in its efforts to contribute to climate change mitigation, ensure energy efficiency, and waste reduction.
- In its efforts to address climate change, P&G set a goal to achieve a 30% reduction in greenhouse emissions by 2020. By 2015, the company had achieved a 4% reduction.
- In a sustainability report, P$G is partnering with Constellation Energy and EDF RE as a strategy to increase its use of renewable energy.
- In 2019, P&G released reusable, refillable packaging for its popular products as part of its aim to achieve its 2020 sustainability goal of 100% recyclable packaging by 2030.
- The company also hopes to reduce its environmental footprint through transportation efficiency and ethical sourcing.
Impact on Cost Reduction
- While commenting on P$G’s progress on reducing footprint and other sustainability goals, the company’s Vice President of Sustainability Len Sauers reported that between 2007 and 2015, “they have realized a cost savings of nearly $2 billion through waste and energy savings and have reduced their company’s environmental impact.”
- P&G’s overall cost savings efforts (including cost savings related to sustainability efforts) plan contributed to the $3.6 billion in annual before-tax gross savings.
- As at 2020, PG has achieved 21% reduction in energy use per unit of production, compared to 2010.
- Currently, 13% of energy used at the company is from renewable sources which are less costly than the non-renewable sources.
CPG Companies and ESG Offerings – Productivity Increase
Two CPG companies that have increased employee productivity by improving their ESG offerings are Unilever and Tyson Foods. Unilever has improved its Employee Engagement Index from 66% in 2007 to 74-77% in the last five years, while Tyson Foods increased retention rate by 5.42% in 2019.
Unilever Sustainable Living Plan (USLP)
- Unilever Sustainable Living Plan has been an ongoing initiative since 2010.
- Since then, the company has been trying to reach three overarching goals, which are “improving health and well-being for over 1 billion people,” “reducing environmental impact by half,” and “enhancing livelihood for millions.”
- USLP also involves nine commitments and 50 time-bound targets. It is supposed to improve the company’s social, environmental, and economic performance.
- The plan includes multiple employee-focused initiatives, including fairness in the workplace, opportunities for women, improving employees’ fitness, nutrition, and mental well-being, and providing educational opportunities.
- Some other initiatives are sustainable sourcing, reducing waste, impact on greenhouse gases, and water use, as well as providing nutrition, health, and hygiene for disadvantaged communities.
- A detailed list of all USLP’s targets can be found here.
- Some of the highlights from the past ten years include improving the health and hygiene of 1.3 billion people, increasing the number of sustainably sourced raw materials from 14 to 62%, reducing CO2 emissions from energy in manufacturing by 65%, empowering 2.34 million women globally by increasing their opportunities and helping them develop new skills, and implementing the Framework for Fair Compensation across most global locations.
Impact on Employee Productivity
- Unilever “was named as the employer of choice for fast-moving consumer goods graduates in 44 of the 52 countries the company recruits in.”
- Reports on the progress of the USLP show that for the last five years, the Employee Engagement Index at Unilever was between 74 and 77%.
- In 2007, three years before the USLP was launched, employee engagement was at 66%.
- For the same period, voluntary turnover was between 5.9 and 7.4%.
- While there is no data to compare turnover rates before the plan was implemented, Unilever’s figures are below average. For instance, in the US, the average voluntary turnover in 2018 was 15%, while in Canada, it was 12%.
- According to researchers from Harvard, gender balance within the company can be linked to increased employee productivity because gender diversity attracts top talent and promotes the exchange of diverse ideas.
- Since implementing the USLP in 2010, Unilever has increased the number of women in managerial roles from 38 to 51%.
- Unilever stated that the above statistics, including attracting and retaining talent, as well as employee satisfaction, are related to the progress of the Unilever Sustainable Living Plan.
- Tyson Foods’ sustainability strategy consists of five commitments, which are reducing the environmental impact, sustainably feeding the world with high-quality products, enabling its team members to reach their full potential, supporting the underserved communities, and advancing animal welfare and experience.
- Three main sustainability goals related to the workforce are building an engaged team with a 10% annual increase in retention, reducing the recordable incident rate by 10% each year, and offering English and financial literacy courses to all employees.
- Within those overarching goals, the company offers creative benefits programs, extensive training opportunities, as well as diversity and inclusion initiatives. They are also conducting wage reviews and creating “formalized internal communication activities.”
- Additionally, the company continues to expand its Upward Academy, a life skills program for workers that focuses on teaching English as a second language, financial literacy, and digital literacy. The program has grown from one location in 2016 to 56 locations in 2019.
Impact on Employee Productivity
- The target to increase the retention rate by 10% each year was set in 2017.
- In 2019, the company improved its retention rate by 5.42%.
- In the same period, the recordable incident rate was reduced by 15.7%.
- In 2018, the incident rate decreased by 22%.
- Furthermore, in 2019, the company forged partnerships with 60 new technical schools to help its workforce develop new skills and attract new talent.
- Also, between 2018 and 2019, the company offered English courses to 9,232 non-English speaking employees, thus improving internal communication, which affects productivity.
CPG Companies and ESG Offerings – Regulatory Benefits
Unilever and Procter & Gamble are two examples of consumer packaged goods (CPG) companies that have improved regulatory outcomes by improving their ESG offerings. Details about how they have done this are provided below.
- Unilever has taken advantage of tax incentives that national and provincial governments have offered to encourage investment or economic development in their respective jurisdictions.
- It can be seen in page 105 of Unilever’s latest annual report that in 2019, the company had incentive tax credits amounting to 2% that it was able to apply in computing its effective income tax rate. While the company did not specify where this 2% came from, it indicated in the report that the incentive tax credits were “the benefit from preferential tax regimes that have been legislated by the countries and provinces concerned in order to promote economic development and investment.”
- Unilever explains in its Sustainable Living — Tax page that some of the territories it operates in offer tax incentives and that it takes advantage of tax incentives that are aligned with its goals.
- It cites Turkey as an example of a country that offers preferential tax regimes to promote economic development in some of its regions. In the country, Unilever has two projects that are eligible for tax incentives. One is an ice cream factory, while the other is a cleaning, beauty, and personal care product factory. Both of these factories are located in Konya, a province in Central Anatolia.
- By investing in Konya, Unilever is able to hit two birds with one stone. It is able to fulfill its role as a responsible corporate citizen by helping in the economic development of Konya, and at the same time, it is able to take advantage of the tax incentive.
- Because of its size and its conscious efforts to make its business practices more sustainable, it is also able to cooperate or collaborate with government units or agencies in a way that most other companies can’t, and provide inputs before regulatory frameworks are established.
- For example, it was recently able to enter into an industry-first partnership with PT Perkebunan Nusantara (PTPN), a palm oil plantation company owned by the government of Indonesia.
- This partnership, which is meant to help local farms and mills produce palm oil more sustainably, is beneficial to all parties involved. Local farmers are able to learn how to comply with the Proforest-led policy of No Deforestation, No Peat, No Exploitation (NDPE) of communities or people, Unilever is able to improve its sourcing of palm oil, and Indonesia is able to benefit from Unilever’s investment in the country.
- Unliever is also able to collaborate with governments and other stakeholders, provide its inputs, and voice its support for an improved waste infrastructure before Extended Producer Responsibility (EPR) policies in relation to waste are laid out and enacted. It is able to
Procter & Gamble
- By joining the Green Power Partnership program of the United States Environmental Protection Agency (EPA), Procter & Gamble is able to help the country meet the requirements established by the Clean Air Act. The green power usage of the program partners accounts for almost 40% of the voluntary green power market of the United States.
- Procter & Gamble has been a Green Power Partner of the EPA since March 2017. In 2018, the EPA named Procter & Gamble as one of the recipients of the Direct Project Engagement Award because of the company’s outstanding communications efforts, procurement of green power, utilization of multiple green power sources, and regional and sector leadership in the green power space.
- That year, the amount of green power that Procter & Gamble was able to procure was 743 million kilowatt-hours, around 19% of its electric load. This was a commendable feat given the lack of sizable green power projects in the CPG industry.
- By participating in the Green Power Partnership program, Procter & Gamble is able to gain access to the technical resources, credible usage benchmarks, and market information that the EPA provides.
- And apart from technical assistance from the regulatory body, Procter & Gamble is able to get public recognition as well. The EPA recognized Procter & Gamble not only for its direct project engagement but for its on-site green power generation as well. According to the EPA, Procter & Gamble is second in the country for on-site green power generation.
- By agreeing to be a Green Power Partner, Procter & Gamble makes itself accountable to the EPA. As a partner, it is required to meet or exceed the benchmark requirements set by the program, and report their green power use to the agency annually.