Submitted by Rekha Menon-Varma (WG ’06), Managing Partner, Vertaeon LLC
Leading consumer product companies have embraced corporate sustainability, from setting mid to long term goals to driving alignment with business objectives. In addition to resource scarcity, increasing regulations, and ever expanding global supply chains, these companies also face changing consumer expectations. A decade ago, I was debating aspects of profit maximization, considering all stakeholders rights and the conflicts (in interests) it could bring about, at our business law class at Wharton. Today, leaders like Unilever, Nestle and Coca-Cola have demonstrated how to strike the right balance in implementing Sustainability initiatives.
Here at Vertaeon, our focus on sustainability strategy, resources and supply chain made us curious about goal-setting in consumer product companies (CPG). Sustainability goals in leading CPG companies ranged from operational (reducing/managing resource consumption, emissions, safe workplace) to supply chain (sustainable sourcing and reducing waste and carbon footprint of supply chain) to social impact. There has also been discussions and actions on business model and product innovation. However, as Clayton Christensen put it in a recent conversation* success in business model innovation is not easy even for leaders. Balancing innovation with social and environmental drivers make it even more complex to design and implement.
Being focused on data analytics and having experienced the power of data in ensuring successful Sustainability initiatives, we went searching for consolidated data on Sustainability goals at CPG companies and found it on Andrew Winston’s Pivot Goals site**. As a first pass, we looked at three sub-sectors including Food, Beverage, and Household and Personal Care. Within these, we assessed fifteen companies and fourteen KPIs including: Climate, Energy, Renewable, Fuel, Air, GHG, Water, Waste, Forest, Safety, Packaging, Food & Ag, Products and Distribution.
Our goal was to identify past focus areas and undertake some level of sector and company benchmarking and gap identification that could (a) yield higher visibility into goal-setting and (b) identify improvement options. For analysis purposes, each goal was reduced to the main message and assigned to one of four buckets/goal areas, categorized by Vertaeon, as Operations, Supply Chain, Products and Community. Progress along these four broad buckets is the primary focus of this analysis. In total, we assessed 19 goal types, 12 focus areas and 155 goals. Considering, ‘what’s measured is managed’, we also split goals with specific targets and progress from those with No Reported Change. Community bucket showed up mainly under ‘no reported change’. (Ref: Charts 2 & 3).
[For detailed analytics related to peer benchmarking and company performance, please contact us at http://www.vertaeon.com]
Operational goals lead the way:
It is no surprise that companies focused on their operations. 51% of the goals are related to reduction targets; GHG (11%), energy (9%), water (10%) and waste (14%) combined with improving recycling (5%), safety and renewable energy. Traditionally, reduction goals have been viewed as cost reduction opportunities; however, as CPG customers, retailers and consumers, demand more from their supply chain, operational initiatives will continue to stay at the forefront of sustainability. Vertaeon’s Integrated Analytics™ platform provides opportunities to further leverage, through in-depth analytics, the operational data collected as part of these initiatives to identify actionable operational improvements.
Supply chain offers new KPI opportunities:
Sustainable sourcing leads overall goals; however, this can be attributed to high coverage by Unilever and P&G (20/27 or 74%). Supply chain goals currently under focus in the CPG sector are improving sustainable sourcing (17%), reducing GHG emissions in supply chain (6%) and transportation (2%). This analysis indicates a vital need for more players to adapt goals/KPIs in the areas of reducing GHG and Carbon footprints, reducing packaging waste and improving sustainable sourcing of raw materials and packaging along the supply chain.
Product goals as prevalent as supply chain goals (Ref: Chart 2):
While leading players such as Unilever, Nestle, Coca-Cola & Pepsi have embarked on product nutrition and sustainability goals, overall there is still considerable room for improving product sustainability within these consumer sectors. Here again, we will see more KPIs as consumers demand higher levels of nutrition and impact labeling. Current product goals focus on health & wellness (13%) and packaging (6%).
Goals with no reported change (Ref: Chart 3):
The Community section leads the pack here with goals in community (13%), water availability (9%) and health & wellness (6%). This offers opportunities to set specific targets and monitoring for community and social impact and assess investment priorities as well as impact. Other notable ‘no change’ goals came up in Water (Operations), Food & Ag (Supply Chain) and Health & Wellness (Products). This could suggest there is room for setting additional targets and subsequently monitoring changes here as well.
This preliminary assessment of Sustainability goal-setting and currently reported goals at leading CPG companies indicate a primary focus on Operational goals. While Product and Supply chain goals are increasingly becoming part of sustainability initiatives at the leading companies, there is room for further adoption in this sector. The focus on Operational goals presents the unique opportunity for companies to leverage the operational data collected as part of goal-tracking to identify opportunities for improvement. As mentioned at the outset, the heterogeneity in consumer expectations has not yet fully translated to goal-setting or reporting. A recent publication by NC State University*** found that consumers see other dimensions (e.g. risk & compliance, social justice) of interest than those put forth by the GRI framework, thereby suggesting a disconnect between corporate sustainability reporting and stakeholder views and interests. Understanding of consumer demographics and preferences via segmentation and translating insights to product and engagement strategies can address this.
Blog Contributors: Danielle Boccelli, Data Analyst, Vertaeon LLC & Vipin Varma (WG’11, IGEL Alumni Advisory Board), Co-Founder, Vertaeon LLC
*Building a business creation engine, MIT Sloan Webinar, January 2017 **www.pivotgoals.com, A. Winston in collaboration with Jeff Gowdy ***Study finds current corporate sustainability reporting misses the mark, M. Bradford et al., NC State University, January 2017