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Is sustainability the new frontier?

There's a possible opportunity in consumer goods companies becoming more health conscious and environmentally friendly
Is sustainability the new frontier?

Every January, some of the most powerful people in business gather at Davos in Switzerland to discuss the state of their respective industries. This year, one speaker to make his mark was Alan Jope, Unilever’s (ULVR) new chief executive. Mr Jope described his industry as going through a "seismic change" as customers demand to know how brands are "making society and the planet a little better".

Millennials are said to be a more conscious – that is, 'woke' – generation than their predecessors, with the trend towards better living split between two sentiments: food that is good for you and products that have a minimal impact on the environment. While this has given rise to trends such as 'wellness' and 'clean eating', it's also clear that young customers favour companies with a defined purpose and a friendlier environmental footprint.

The International Food Information Council (IFIC) Foundation’s 2018 Food and Health Survey found that more than half of consumers asked think sustainable food products are important. Reducing the amount of pesticides was also a top priority, followed by an "affordable food supply" and conserving the natural habitat.

Meanwhile, Deloitte’s 2018 Global Human Capital Trends research found employee wellbeing is now a top priority for companies. The 'corporate wellness' market – which encompasses healthcare programs, screening, assessment, education and apps – is currently valued at nearly $8bn (£6.2bn) in the US alone, and is expected to hit $11.3bn by 2021. Deloitte reckons more than $2bn in venture capital has been invested in this field over the past two years, resulting in what it calls "a flood of online videos, apps and tools" to help "assess, monitor and improve all aspects of health".  In the survey, 43 per cent of respondents believed wellbeing "reinforced" their organisation’s mission and vision, while 60 per cent said it improved employee retention. Around 61 per cent believe it improved productivity and "bottom-line business results". 

Others are more sceptical. One City analyst dubbed the sustainability movement in consumer goods as "hogwash", claiming that companies simply want people to buy their products. As millennials gather spending power, it's in the corporate interest to cater to this demographic. And, after all, while some companies develop sustainable products for more conscious consumers, others are involved in manufacturing non-recyclable plastic products and contribute to the production of palm oil. Such efforts to market sustainability is "all in the name of making more money for shareholders" – but, perhaps, rightfully so. 

Regardless of the motive, consumer goods companies are catering to these new demands. And, if done well, it could bode well for shareholders over the long term. 

 

You are what you eat

According to the IFIC Food and Health Survey, consumers are motivated to make healthier food choices to lose weight, feel better and prevent future health conditions. And it seems consumer goods companies are tapping into this ideology. 

Part of Unilever’s current strategy is to expand into different health food categories, evidenced by its recent acquisitions. Last December, it bought GlaxoSmithKline's (GSK) Indian health food drinks portfolio, including the Horlicks nutritional drink, which is popular in emerging markets. In 2017, it bought other on-trend brands including organic herbal tea businesses Pukka Herbs and Tazo, and Brazilian natural and organic food business Mãe Terra. As a result, in 2017, the consumer goods giant said 39 per cent of its foods met the highest global nutritional standards – with a target of 60 per cent by 2020 – with a 15 per cent overall reduction in sugar.

Sugar is one ingredient to be consistently demonised. The sweet stuff has been blamed for everything from weight gain to diabetes, with many consumers making a conscious effort to cut back. Last year, the UK sugar tax added a further incentive for drinks makers to reformulate their products. Britvic (BVIC) has overhauled its portfolio with low- or no-sugar versions of well-known brands such as J2O and Robinsons, while AG Barr (BAG) has reformulated 90 per cent of its owned brands to contain less than 5g of total sugars per 100ml.

As a result, alternative sweeteners have proved to be a burgeoning area of growth. Purecircle (PURE) has contracts with some of the biggest consumer goods companies in the world, including Coca-Cola, PepsiCo, Danone, Nestlé, Unilever, Firmenich, Merisant, IFF and Kraft Heinz. Together they account for three-quarters of group sales as work is done to replace sugar with stevia.

 

Leave no footprints

But consumers don’t just want products that benefit them. They also want products that are good for society. Head to Unilever’s corporate website and you'll find a web page entitled 'Together we can change the way the world does business'. It sets out three main goals for the company. By 2020, Unilever wants to help more than a billion people improve their health and wellbeing, as well as improve the livelihoods of "millions of people" by promoting practices such as inclusive business and opportunities for women. By 2030, Unilever also wants to halve its environmental footprint, and has invested in brands such as Seventh Generation, which provides plant-based detergents and household cleaners.

Reckitt Benckiser (RB.) is pursuing similar goals. It wants a third of its revenue to come from "more sustainable products" by 2020 – up from 19 per cent in 2017 – and to reduce its carbon footprint by a third by that same year compared with 2012. It already sends zero waste from its factories to landfill – a target it met three years ahead of schedule. 

Of course, some companies have a better reputation than others when it comes to environmental impact. One group to earn a bad name is palm oil producers. But MP Evans (MPE) is a member of the Roundtable on Sustainable Palm Oil (RSPO), which has developed a set of environmental and social criteria that companies must comply with in order to produce certified sustainable palm oil. Anglo-Eastern Plantations (AEP) isn't part of the RSPO, but says that it takes environmental and social responsibilities seriously, and has committed to not removing 'primary' forest – that is, areas with no indication of human activity and where the ecological processes are not significantly disturbed. For areas it does develop, it's committed to not using fire to clear forests.