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ESG and the challenges ahead for the food and drink industry

20 April 2022

The importance of Environmental, Social and Governance (ESG) has grown rapidly in recent years, with consumers, governments and investors taking an ever-greater interest in business practices.

Business leaders find themselves with an employee and consumer base that don’t just want goods in their hands but also want to know that the companies they support are spending, planning and manufacturing with ESG top-of-mind.

Food and drink industry’s biggest sustainability barriers

For some areas of the food and drink industry, such as coffee and cocoa, traceability of ingredients has long been under scrutiny. But as consumers increasingly seek to understand supply chains from farm to fork, transparency is fast becoming a matter that every business must consider.

While questions about ethical spending, actions towards climate and environmental issues and overall purpose are being asked of all industries, what it means for food and drink manufacturers/companies requires a slightly different approach.

With increased consumer demand for ethically sourced and packaged products, how are companies in these sectors balancing the demands of an increasingly conscious buyer?

Food is the connection between practically every major sustainability challenge. What we eat today determines not just our health but also that of the planet. Consequently, the industry should have been an obvious focus for ESG-related research and development; it should have been leading from the front.

A Wall Street Journal survey on ESG metrics published in Feb 2021 showed that out of 5,500 companies studied only one food business scored in the top 100. It’s clear the industry has been slow to act.

Packaging

One of the biggest challenges facing food companies is packaging. With the drive to meet its ESG agenda, and the introduction of the Plastic Packaging Tax, companies have been working hard to develop and source more sustainable options. However, to be completely plastic-free means that companies are having to sacrifice some of the barrier properties that plastic packaging offered, which has a knock-on effect in terms of further development of the product itself often being required.

Biodegradable materials have come on leaps and bounds in recent years, but they are still not a match for plastic. Finding the right alternatives, without sacrificing too much of the product quality, remains a significant challenge for many.

Traceability

The food and drink industry can have long and complex supply chains, which means it is often unknown how sustainably, or ethically, the ingredients or packaging are produced. But it is claimed that a company cannot achieve sustainability without traceability – and therefore efforts and investment must be ramped up.

A company can focus on setting up a smaller supply chain, which could mean working with alternative ingredients. Reformulating existing recipes can have significant impact on taste, organoleptic properties and product shelf life.

Alternatively, it can seek to develop its digital infrastructure to effectively trace their full supply chain, whether that’s ingredients or packaging. This would also benefit a company’s transparency, as a good system will help in the collection and verification of supply chains and ultimately its material integrity information.

There is no easy – or investment-free - way for food and drink companies to tackle the challenges of an authentic and impactful ESG strategy. Research and development (R&D) will be required to improve the industry’s ESG credentials and company boards will need to take personal responsibility to make genuine progress.

BDO’s national R&D group has a team of over 70 individuals comprising scientists, software developers, engineers, finance and tax specialists. Many have first-hand experience in manufacturing, product development and chemistry, covering process design and development, fine chemicals, food and drinks, pharmaceuticals, and software / application development to mention a few. We have the expertise to help you identify when an R&D claim will be possible to help finance your investments.

For more advice and guidance on R&D schemes or the Plastic Packaging Tax, please contact Ece Akser.