Sustainability in the global consumer industry 

Hello and welcome to KPMG's podcast on Sustainability in the Global Consumer Industry. This is Julian Thomas. I am Head of Global Advisory for Consumer Markets.

I’m pleased to introduce Brian Connell, a member of KPMG's Global Advisory team with a special focus on the sustainability issues driving consumer organizations worldwide.

Brian will be talking about the importance of sustainability for today’s food, beverage and retail markets. He will share a number of key findings about growth and sustainability from a recent KPMG survey of over 200 senior executives at this year’s CIES World Food Business Summit.

Brian will also provide specific examples of how companies can support sustainability while also driving significant commercial advantages and payback.

Thank you, Julian.

Sustainability can mean different things to different companies, so it might make sense to start with a definition. I think a good one has been provided by Gareth Ackerman, chairman of South African retailer Pick ‘n’ Pay. As he said in KPMG’s CIES Survey, "Sustainability is not just about protecting the environment. It has to do with issues such as food security; food safety; job creation and individual prosperity; healthy eating; fair trade and ethical sourcing of products; labor rights; customer loyalty and poverty alleviation."

In many ways, sustainability is simply what companies should be doing most of the time. However, 2008 has not been ‘most of the time’. A worldwide credit freeze, plunging markets and the growing reality of a severe recession — or worse — make these if not the worst of times then certainly not the best. As a result, some companies are backing away from sustainability, deciding that the environmental, ethical or operational issues — as important as they are — should be addressed only after we work our way through the present turmoil.

With the current economy in mind, we might even ask whether sustainability is itself sustainable as a business goal. I would argue that the answer is yes. First of all, we have to admit that sustainability is not going away. Global environmental goals, regulations and standards that are now in place effectively serve as a permanent mandate for sustainability. The Kyoto Protocols to reduce greenhouse emissions have been adopted by virtually every country. The U.K. has just agreed to an 80 percent reduction of emissions by 2050, and the European Union wants to increase the use of clean, renewable energy to 20 percent of total energy demand by the year 2012. In the U.S., new cap-and-trade and emissions tax programs are being discussed. In China, the Ministry of Environmental Protection is overseeing a national five-year plan to reduce sulphur dioxide and chemical oxygen demand by 10 percent at the end of 2010. Other activities include Australia’s package of environmental incentives, penalties and taxes to encourage the use of renewable energy and discourage polluting activities.

We should also add that this trend toward increased environmental regulation is not affected by fluctuations in the price of oil and gas. Even if energy prices decline, the regulations will still be in force, and if energy costs rise, then ‘going green’ will make even more sense as both an immediate and long-term strategy. However, we can also recognize that sustainability is not simply a regulatory or cost burden so much as an important business opportunity. Based on our recent survey, additional research and our experience with many companies in global consumer markets, we have found that sustainability and profitability do indeed go together. In fact, many companies participating in KPMG’s CIES survey see sustainability as already driving profit, based on improved operational efficiencies, cost reductions and product innovation that attracts customers who are willing to pay more for better goods and related services. Innovation in particular was a key factor for many respondents. When asked “what best describes your business approach to sustainability and corporate responsibility” almost half of the companies said that it was primarily a driver of innovation. Companies in EMA and the Americas are most likely to see sustainability as an innovation driver, while companies in ASPAC are somewhat less likely to follow a sustainability strategy focused on innovation. Over 67 percent of survey respondents thought that sustainability was either cost-neutral or a definite source of profit. Our analysis according to company type also uncovered significant variations in attitudes between sectors. Retailers are more likely to believe that the net financial impact of sustainability is positive, while manufacturers believe that the financial impact is neutral.

However, in both sectors, the companies that see sustainability as a net cost are in the minority. Sustainability can also support a company’s reputation. Companies can build shareholder value by creating, implementing and disclosing policies that reflect corporate social responsibility. Corporate responsibility, in turn, creates value through risk management, product innovation and the ability to attract investment capital and strategic business partnerships. For the consumer industry, reputation is especially critical to success since consumers can easily change brands or buying habits. KPMG’s CIES survey showed a strong correlation between human capital and sustainability. Companies often put recruitment and retention ahead of consumer slowdown or increased costs of raw materials as their greatest growth challenges. Further analysis showed that companies which place a high value on human capital also value sustainability, and they consider it to be an important driver of innovation.

In contrast, those companies that did not value sustainability as much were also more likely to consider consumer spending or costs to be their greatest growth challenge. These findings suggest a strong link in the consumer industry between sustainability and the active recruitment of quality staff. We can also argue that a clear and public commitment to sustainability helps attract people who want to be proud of the business they work for. To be clear, we also found that over 52 percent of the companies in our survey believe that an economic downturn would encourage them to reduce or put on hold sustainability investment.

However, more companies believed that their investments in sustainability would increase than would be put on hold, and over half of the companies considered sustainability as a part of their core business. As the CEO of European food manufacturer, Dr. Oetker stated, "Sustainability limits risk. It reduces your vulnerability to attack and at the same time it strengthens the brand, it strengthens sales, and it strengthens recruitment." Sustainability initiatives are likely to continue to grow and evolve based on the changing needs of today’s companies. Often, a multi-disciplinary approach works best, bringing together professionals with a range of talent, experience and expertise to address operational, tax, logistical and other issues.

For example, KPMG member firms have helped a number of major consumer companies to integrate sustainability into their supply chain. This involves evaluating suppliers, eliminating inefficiencies, introducing automation, increasing inventory visibility, reducing delivery times and providing other enhancements. Along with supply chain enhancement, these improvements can help increase food security, lower energy consumption and help ensure the proper sourcing of products — all key elements of sustainability.

Companies continue to debate the various costs and benefits of sustainable business strategies, yet the conviction that sustainability can support profitability has been widely adopted. Even in the current economic crisis, companies should not significantly scale back on initiatives which lead to improvements in sustainability. Those businesses that continue to invest in sustainability are likely to see benefits over the long term. Indeed, experience has shown that sustainability as a corporate-wide strategy can better position a company for continued growth, reduced costs and enhanced revenues.

Thank you, Brian.

If you would like more information on this topic contact any KPMG representative or office. Thank you for joining us.