October 31, 2021
By: Lyat Avidor Peleg
The Key Factors Driving and Hampering F&B Sustainability
Increasing concerns around climate change are upping the pressure on manufacturing to improve sustainability. For the food and beverage (F&B) industry, the pandemic ratcheted up the stakes. When the supply chain disintegrated, it threw the need for a more sustainable and resilient supply chain into further relief.
Fortunately, this industry is one of the few which did not lose income due to COVID-19, so most companies are now financially well placed to take action.
As a whole, F&B is among the leaders in sustainability issues. According to research by ESG consultants EcoVadis, F&B has an overall sustainability score of 48.9, coming in behind only Construction (49.4) and Finance, Legal and Consulting (51.1); is the highest scoring vertical for Environmental Issues, and has considerably improved its ethical profile.
Many companies are directing R&D into agri-tech to develop more sustainable processes and products, and 55% of F&B business leaders report increased investment in environmental sustainability.
But the road ahead is long. There are many areas where F&B companies need to improve, and they face insistence from customers, investors, and stakeholders to speed up their sustainability transformation.
What is Involved in Sustainability for F&B Companies?
Sustainability is often interpreted as relating solely to the company’s environmental footprint, but the issues involved include:
- Reducing waste
- Cutting pollution and emissions
- Minimizing impact on the environment
- Improving employee safety and health
- Lowering energy and water consumption
- Advancing diversity in hiring
- Promoting a greater range of healthy products
All of this could be thought of as passive sustainability, or “do no harm” as it was termed by The Nature Conservancy. But sustainability goes beyond all of that to include “regenerative agriculture,” which strives to actively improve the ecosystem. As a case in point, over the next 5 years, F&B giant Nestlé will invest $1.3 billion, to support and speed up the implementation of a regenerative food system across its global supply chain.
Understandably, all of this requires more transparency towards consumers and more commitment to researching supply chain partners upstream and downstream.
F&B Companies Need to Narrow Their Focus
But with so many concerns surrounding them, most F&B companies need to narrow their focus and prioritize the most pressing issues. For the moment, the majority of companies are concentrating on four main concerns: reducing their impact on the planet; improving sustainable food sourcing; lowering food waste; and expanding their product range.
Shrinking the environmental footprint
Shrinking their environmental footprint includes:
- Limiting use of plastics and reducing packaging in general
- Controlling energy and water consumption
- Lowering carbon emissions during transportation and distribution
- Ending harmful farming practices
- Measuring and reducing air and water pollution
Sustainable food sourcing
Sustainable food sourcing includes shifting to use more organic and/or locally grown and raised produce in F&B plants, and ties in with a number of goals for shrinking the environmental impact.
Cutting food waste
Reducing food waste at every step of the supply chain is a key factor for sustainability. The UN’s Environment Programme estimates that every year, roughly 1/3 of the food produced for human consumption, or around 1.3 billion tonnes, is lost or wasted. According to the World Wildlife Fund (WWF) “When we waste food, we also waste all the energy and water it takes to grow, harvest, transport and package it.”
Expanding the product range
Finally, F&B companies are taking consumer product demands seriously. They are working on expanding their range of products to cover more healthy and diet-specific items, such as gluten-free, vegan foods, plant-based proteins, not from concentrate (NFC), and food with fewer chemicals and preservatives.
What is Driving Sustainability in the F&B Industry?
F&B companies are facing pressure from all sides to improve their sustainability.
1. A Need for Greater Resilience
The COVID-19 pandemic broke supply chains and emphasized the need for a more resilient industrial model, but disease and pandemic are not the only stressors. Drought, crop failure, wars, and transportation crises are all factors in rising global food insecurity, which will require greater efficiency at transporting food from points of surplus to places of famine.
Deloitte warns that climate change is compromising the food supply by lowering crop yields, reporting that every degree-Celsius increase in global mean temperature can lower wheat yields by up to 6%, rice by up to 3.2%, maize by up to 7.4%, and soybeans by up to 3.1%. As a result, it’s going to become increasingly challenging to feed a human population that’s expected to grow to nearly 10 billion people by 2050.
F&B companies need to find ways to respond.
2. Consumer Pressure
Today’s green consumers, especially millennials and Gen Z buyers, want to feel good about what they eat, not guilty. “People are waking up to the connection between our food system and the health of the environment,” says Amanda Starbuck, research and policy lead on food and farming work for Food & Water Watch. “And many are looking to support companies and products that align with their values.”
Consumer demands for sustainability aren’t simple. They include a number of sub-issues such as:
- Organic produce
- Fair trade produce
- Lower emissions
- Ethical production
And encompass a requirement that companies prove their sustainability along the entire supply chain.
The consumer view of sustainable products has some unexpected effect on F&B decision-making. For example, the beverage industry is seeing a move to more craft beers, which are seen as more sustainable than mass-produced lagers.
Pressure doesn’t just come from individual buyers, but from trade customers like restaurants and grocery stores. The Whole Foods chain requires that all the seafood it sells must be certified as sustainably caught by the Marine Stewardship Council or a similar organization; McDonald’s SupplierCode of Conduct holds that “suppliers are responsible for managing, measuring and minimizing the environmental impact of their facilities,” including regarding air and greenhouse gas (GHG) emissions, waste management, and water consumption.
3. Investor Pressure
Investors are an increasingly powerful voice in the clamor for sustainable action, with two-thirds of European CFOs saying they feel pressure from shareholders and investors to act on climate change, and 57% of executives agreeing that their organization is facing significant pressure from investors to report on climate-related risk and management.
Hank Cardello, a former food company executive, says: “My opinion is that the investor side can be extremely powerful. Investors and investor analysts are very crucial to effecting the change, and they’re the ones who are going to have to make noise.”
To prove the point come investor action groups like Climate Action 100+. By November 2020, more than 500 investors representing over $47 trillion in assets had signed the Climate Action 100+ initiative to pressure corporate GHG emitters to take action on climate change.
4. Concern Over Climate Change
As noted by research consultants Edelman Intelligence, F&B industry leaders and decision-makers are even more concerned than consumers regarding climate change, with 67% agreeing that it’s more important to do good than to do no harm, vs. 57% of consumers.
This is because F&B companies are themselves impacted by climate change as it affects their supply chain and productivity, as well as needing to reduce their own environmental impact. Edelman research reports that food industry decision leaders see water quality and climate change as the top risks to the food system, placing them ahead of pandemic, followed by land degradation and waste.
The UN’s IPCC report estimates that the food sector contributes around one-third of total greenhouse gas emissions, and the World Bank notes that the F&B sector accounts for over 70% of all freshwater withdrawals annually. It is also very energy-heavy, with energy needed not just for processing, but also to grow and harvest crops and transport food to process plants. Finally, food and beverage packaging is environmentally harmful, mounting up in landfills and polluting land and seas, while also using up water and energy to produce new packaging.
5. Financial Issues
Sustainability can also bring significant financial benefits, serving as a notable differentiating factor for competitive F&B brands. Research shows that consumers will tolerate a price increase of up to 36% in exchange for more sustainability, and the Sustainable Market Share Index shows that about 55% of the growth in consumer packaged goods (CPG) is due to sustainable products, even though they make up only about 16% of CPG products, and tend to be more expensive.
More sustainable F&B brands are also better placed to attract and keep top talent, especially younger employees. Deloitte reports that 80% of F&B executives said their employees were very concerned about climate change; 45% of millennials would change jobs if their company didn’t implement sustainable business practices; and among large US organizations, 30% of employees have already left a job because of the company’s lack of a sustainability plan.
Additionally, cutting waste and water and energy consumption as part of sustainable production saves money and lowers costs, with sustainable production and value chains saving between €280 and €470 billion a year.
What Are F&B Plants Doing to Improve Sustainability?
1. Increased Regulations and Governance
F&B companies are showing increased adoption of both internal governance measures and external regulations. For example, more companies have a chief sustainability officer, showing that they take the issue seriously, and issue regular ESG statements.
In the US, regulations include state limits on idling by delivery vehicles and a federal call for companies to reduce food loss and waste by 50% by 2030. The International Maritime Organization (IMO) introduced new regulations placing a 0.5% global sulfur cap on marine fuels, and the EU’s Plastics Directive aims to ensure that all plastic packaging is recyclable by 2030.
Additionally, the Climate Action 100+ group produced a set of requirements for F&B companies and their supply chain partners to commit to in exchange for ongoing support and investment.
2. Improving Packaging
Packaging is one of the main targets for F&B companies, with reports showing that 74% of consumers are willing to pay more for sustainable packaging. This covers a number of aspects.
Ongoing R&D is producing more eco-friendly packaging materials. Some of these are biodegradable, using plant-based materials such as Bio PET, which uses the residual material from sugarcane or sugar beet production. Others are new plastic variations like FDCA (furandicarboxylic acid) for the plastic PEF (polyethylene furanoate), which draw on renewable raw materials derived from residual agricultural industry materials or wood waste.
Advanced packaging with embedded sensors can track the temperature, humidity, freshness, etc of the food inside, helping consumers make a more informed decision about how long to store food and when to throw it out. Some smart materials even encode information about the makers’ sustainability practices.
Using more recycled materials is a key aim for F&B companies. One example of this is that PepsiCo has committed to eliminating all virgin plastic from its Pepsi brand bottles in nine European markets by 2022.
Reusable or recyclable packaging
Products in the food and beverage market have a relatively short life cycle, which means that product disposal and recycling options are a key part of eco-friendly purchase choices. Brands are actively promoting their recyclable packaging. For example, the Ferrara Candy Company aims to make all of its packaging 100% reusable, recyclable or compostable by 2025.
3. Reducing food waste
As mentioned above, addressing food waste is another core pillar for F&B sustainability. More companies are being established that use food that would otherwise go to waste, such as Wonky Veg Boxes in the UK which delivers produce that is less than perfect.
At the same time, there’s a rise in brands using food waste and byproducts from their own or other brands’ processes. For example, RIND makes dried fruit snacks out of whole fruit, including the rind or peel which is usually discarded; Wheyward Spirit uses whey from cheese production to make a craft spirit; and ReGrained uses the grain left by breweries to create an ingredient for snack bars and chips.
4. Increasing transparency in sourcing
F&B brands are looking beyond their own processes to ensure that their suppliers are adhering to ethical and sustainable practices. They are striving to offer more transparency, so they can source more responsible and local ingredients, and ensure fair treatment of food producers. For example, palm oil is often connected with deforestation and abuse of indigenous populations, so companies like Unilever are taking steps to reassure consumers about their palm oil sourcing.
More visibility allows brands to discover hotspots for Scope 3 emissions, which are emissions that originate from outside of the control of the reporting organization, so they can switch suppliers or work with them to improve ESG policies, and build a more resilient supply chain. The Budweiser Brewing Group reports that its UK production sites derive almost all their malt from UK sources, for example.
As part of this step, manufacturers are joining initiatives such as Fairtrade, the Rainforest Alliance and UTZ, and SAI/FSA (Sustainable Agriculture Initiative / Farm Sustainability Assessment), which certify their raw ingredient sourcing.
5. More efficient processes within the plant
Increased efficiency within process plants, which overlaps with the concept of the circular economy, can save resources in F&B manufacturing. For example, brands are introducing more energy exchange processes and transitioning to green power and renewable energy options, including thermal solutions, on-site generation, storage, PPAs, VPPAs, offsets, and more.
Advanced processes like waste water recycling can also help cut water consumption. Ultrafiltration, reverse osmosis, and other water treatments can reduce water consumption in beverage operations by up to 80%. Carlsberg opened a water treatment system at its Fredericia site which is expected to cut its average water consumption from 2.9 hectoliters to 1.4 hectoliters per hectoliter of beer.
Plants are also working towards optimizing plant efficiency by using predictive analytics to keep equipment in top working order; implementing product and process optimization for resource efficiency; designing products for a circular lifecycle so they can be recycled and reused; and exploiting waste as a resource.
This relies on upgrading equipment and systems so they can leverage data and analytics to spot anomalies that could point to inefficiencies within the plant, allowing earlier resolution and preventing crises from unfolding. Next-gen analytics also helps plants identify and implement retrofitting opportunities to improve demand-side energy and water intensity.
6. Decarbonizing the supply chain
F&B companies are decarbonizing their end-to-end operations by shifting fleets to low-carbon transportation, changing to low-carbon cold chain technology, and optimizing transit routes. With smarter transportation, products can be grouped into fewer individual shipments, requiring less energy.
Finally, increasing local sourcing for raw materials and nearshoring the supply chain helps cut the distance that resources need to travel, with a commensurate reduction in fuel usage.
What Are the Challenges to F&B Sustainability?
Despite the well-documented willingness of F&B companies to improve their sustainability, progress is slow. One report concludes that only 15% are on track to meet their sustainability goals. The Climate Action 100+ group notes that “Scope 3 land-based emissions must be reduced by 85% compared to a business as usual scenario. The sector is currently not on track to meet that target by some margin, with little evidence of specific strategies to measure and reduce scope 3 emissions.”
While there are many contributing factors, there are two key hurdles that deserve to be singled out.
1. A Highly Complex Supply Chain
Approximately 90% of F&B-related emissions are Scope 3 emissions originating from agriculture, land-use practices, and livestock control. According to EcoVadis, sustainable procurement is still the weakest link in F&B’s sustainability endeavors. “While food and beverage companies have made great strides in improving their management of many environmental, social and ethical risk factors, the supply chain remains a critical vulnerability” observes the report.
A more resilient and sustainable food chain desperately needs to address these issues, but cannot without full visibility into a supply chain that is highly fragmented, complex,and global in reach. It needs the help of broader cross-industry groups. Climate Action 100+ again recognizes the role it can play by stretching across industries to address the entire supply chain, with Natalie Wasek, Shareholder Advocacy Manager at Seventh Generation Interfaith Coalition for Responsible Investing, saying “Investors are looking for action plans to hold these companies accountable for reaching their targets. The Climate Action 100+ initiative can help make this happen.”
2. A Lack of Actionable Insights
F&B brands need not just data, but also better analytics to produce the insights that will enable them to achieve a realistic actionable zero carbon roadmap.
Many brands are still struggling with legacy software that can’t support the artificial intelligence (AI) and machine learning (ML) tools which connect their processes, reveal inefficiencies, and open up visibility into their complex supply chains. Until the digital transformation is complete, F&B companies will still fall short of their goals.
F&B Companies Are Well on the Way to Sustainability
F&B companies understand the crucial importance of sustainability and are doing much to achieve it, with consumer pressure and the direct impact of climate change on the industry forcing them to prioritize food sourcing; eco-friendly processes, products, and packaging; and reducing food waste.
Complex and fragmented supply chains and incomplete digital transformations are serious obstacles, but with concerted initiatives, ongoing investment in R&D, and more transparency, F&B brands are on the road to making the sector greener, cleaner, and more ethical.