It’s never bad to do good. But sometimes it’s not easy.
Food and beverage companies are increasingly seeking to burnish their image through social responsibility initiatives. On the websites of one major food and beverage processor after another, there are pages after pages devoted to sustainability, diversity, a better future – many of them displayed very prominently.
Social responsibility is certainly popular, but what is it? There are a number of paths to go down: sustainability, in all of its many forms; diversity and inclusion, both within and outside the company; animal welfare, for those who deal in meat, milk or eggs; and other causes. The first task for a company wishing to raise its social-responsibility profile is to choose where to concentrate its efforts.
This can be a daunting task, says Marina Severinovsky, head of sustainability-North America at Schroders, an investment management firm that specializes in corporate responsibility. “Business sustainability means tackling the pressures exerted by increasingly informed consumers, more fragile and exposed supply chains and growing regulatory scrutiny,” Severinovsky says.
To have a positive impact on both image and bottom line, a company should pick goals that align with its market, have a good chance of resonating with most of its consumers, and can be achieved through realistic adjustments – to operations, packaging or some other aspect.
Pamela Grinter, a partner with law firm Fox Rothschild and co-chair of its ESG (environmental, social & governance) group, says companies must first decide who needs to benefit from a given initiative.
“The first step is to determine the company’s relevant stakeholders; employees, customers, suppliers and community members who are integral to the company’s business,” Grinter says. “Working with the stakeholders, senior staff and the board of directors, the company should determine what material environmental, social or governance issues are important to the business. After this analysis, the company can develop a strategic plan or initiative to address those material ESG [environmental, social and governance] issues, which may include a directed performance improvement plan.”
The most common, and arguably the most logical, choice of social justice initiatives in the food and beverage industry is sustainability. All of the top 10 companies by U.S. sales have active sustainability initiatives, many of them across multiple fronts.
And there are a lot of fronts. Aspects that regularly get included in sustainability initiatives include encouraging (or mandating) sustainable agricultural practices by the farmers who supply a company; sustainable manufacturing practices, such as using less water or electricity, and generating less waste; better packaging, often meaning less overall, and less use of virgin plastic; and other initiatives.
Sustainability is a natural fit precisely because it has so many aspects. And it’s been drawing a lot of attention. According to an estimate in Science magazine, up to 26% of greenhouse gases are generated by food – raising it, processing and transporting it, and discarding it.
Sustainability is also a natural fit because it draws such a high level of interest among consumers, especially younger ones.
“You have to look at where it collides with the consumer,” says Hank Cardello, a Forbes columnist and executive director of the Leadership Solutions for Health + Prosperity program at Georgetown Business School. “When you look at segmented data, it’s clear that millennials and now Gen Z are all over this – to the point where they don’t want to purchase products where they don’t have some kind of purpose to them and they’re doing something constructive.”
Many of the largest players in the industry are working on multiple aspects of sustainability. It’s not unusual for a company to have active initiatives on sustainable agriculture, processing, packaging and more. Many of these follow a standard playbook, like reducing water use or cutting back on packaging.
Others are more creative. PepsiCo, for example, has developed a way to capture and reuse the condensate from the steam it uses to heat snack chip fryers. This method will cut the water used for this purpose in half, while also saving on energy. PepsiCo pioneered this method in Kolkata, India, and plans to introduce it to “nearly 30 potato chip manufacturing plants in high-water-risk area,” the company said in a statement.
Bringing the pain
Certain kinds of sustainability initiatives carry an incentive besides burnishing a company’s image: saving money. Many of them involve reducing something: water use, electricity, packaging.
PepsiCo raised $35 million in funds for programs to teach consumers what can and cannot be recycled, in a program it calls the “All In on Recycling challenge.”
However, there are other initiatives that are more painful to carry out because they involve a practice or material that’s uniquely suited to a given product. Probably the most prominent example of this is plastic.
As a packaging material, plastic, in its various forms, performs beautifully; it’s light, airtight and protects products well. But its ubiquity, combined with the fact that it doesn’t degrade – once a piece of plastic is formed, it’s basically eternal – make it one of the most visible, and vilified, sources of pollution on the planet.
The problem, from the perspective of food and beverage processors, is that there isn’t a very good alternative to virgin plastic. Recycled plastic is consistently in short supply and usually higher in price, due to various factors, including high demand and the disorganized nature of American recycling. Biodegradable plastic is also expensive and often doesn’t perform as well as virgin. The same goes for other alternatives like bottles made from wood fiber, currently being tested by Keurig Dr Pepper.
That could be one reason why companies tend to defer the problem by making pledges – promising to cut back or even eliminate the use of virgin plastic by a certain date. Coca-Cola pledges to have 50% recycled content for its soft drink packaging by 2050 (although that includes aluminum cans, which are far easier to recycle). PepsiCo has announced a goal of 25% recycled content in all beverage bottles by 2025, and Keurig Dr Pepper says it will cut its use of virgin plastic by 25% by 2025.
Pledges are a good way to get credit for intentions before a company actually does anything. And in some cases, they can help consumers accept the necessity for things like packaging changes or higher prices.
But the problem with pledges is that they’re liable to be broken, for reasons that are often beyond a company’s control. Coca-Cola announced in 1990 that it would use at least some bottles made from 25% recycled plastic, but it quietly phased them out four years later. PepsiCo couldn’t live up to a promise to increase the overall soft drink container recycling rate to 50% by 2018.
Companies that break such a pledge can always hope that consumers forget them, which is a strong possibility, according to John Stanton, professor emeritus of food marketing at St. John’s University (and a former Food Processing columnist): “I think that most people won’t remember what the pledge was, to be honest with you.”
But that doesn’t mean that breaking pledges is without consequences. Sometimes they are remembered, and they get companies accused of “greenwashing.”
“Many companies are making public commitments about reducing their environmental impact because they feel like they need to say something to remain competitive in the marketplace,” says David Colvin, a partner with Fox Rothschild and co-chair of its ESG group along with Pamela Grinter. “But some of those companies have faced claims of greenwashing because their environmental-impact claims were made for marketing purposes only (to appeal to environmentally conscious investors or consumers) and there was no effort by the company to actually implement the stated environmental initiative.”
Possible negative consequences of such actions include legal action by shareholders, adverse action by government regulators or loss of investment by institutional investors and lenders, Colvin says.
The ABCs of DEI
One of the strongest corporate social-responsibility imperatives in recent years has been diversity, equity and inclusion (DEI) – a catchall phrase that generally means employing more minorities.
Every one of the top 10 food and beverage companies by sales has some sort of active DEI initiative. It’s a popular measure because it speaks to a major and growing concern. It’s also something that can’t be easily monitored from outside, especially when it comes to internal hiring practices.
The problem is that DEI initiatives can draw backlashes, especially if a company tries to impose them externally, on the organizations it does business with. A recent example of such a backlash happened when the general counsel of Coca-Cola sent letters to law firms that the company had used, warning them that unless they met goals for having minority lawyers on their staffs, they could expect a loss of business from Coca-Cola.
The letter drew criticism from conservatives who said that it amounted to reverse discrimination. The counsel, Bradley Gayton, left the Coca-Cola job only eight months after taking it, and Coca-Cola ended up explicitly disavowing his approach. (Gayton did not respond to a request for comment.)
Trying to impose standards of conduct on others, by declaring that you won’t do business with anyone who doesn’t meet those standards, is always tricky. It can be a viable approach, especially for large companies with a lot of market influence. But it also gives companies more exposure to adverse market conditions or other events, and by limiting the choice of suppliers, can drive costs up.
Perhaps the most prominent example is the issue of slave labor in cocoa. Most of the world’s cocoa comes from small farms in West Africa, and many of them use children as laborers, in conditions that amount to slavery.
Big chocolate processors periodically pledge not to use cocoa that comes from slave labor. They promised, collectively, to eliminate it by 2005, then 2008, then 2010. But in fact, the prevalence of child labor in agricultural parts of Ghana and Ivory Coast, the two largest exporting nations, increased from 31% to 45%, according to a survey by the U.S. Labor Dept. The problem is that purifying the supply chain this way would increase the cost of cocoa to a point that mainstream processors could not sustain.
To successfully persuade suppliers or others to follow a food company’s lead, it helps if the issue is prominent and has broad popular support. It helps even more if pressure is coming from an external source, such as the company’s own trade customers, or even the law. That’s the case with one of the hottest current social-justice issues: animal welfare.
Companies that deal in meat and eggs are undergoing increased scrutiny relating to how the animals that provide them are treated. Arguably the most successful such recent initiative has been with treatment of laying hens. Activists have been pushing for years to mandate a minimum size for the hens’ cages; California and Massachusetts recently put such laws into effect.
“I would say that it’s a combination of both the market and legislative demands,” says Josh Balk, vice president of farm animal welfare for the Humane Society of the United States. He says the drive to help animals is firmly rooted among consumers: “The public is viscerally disgusted with the treatment of animals in this cruel and inhumane way, and it’s no surprise that they’re outraged that a company isn’t doing their part in eliminating this cruelty from their own supply chains.”
Motivation for corporate social responsibility initiatives can come from the ground up, or laterally, from within the supply chain. But usually they have to come from the top. A company’s approach to responsibility is a core part of its corporate identity, and its leaders have to be the ones taking the initiative.
“I don’t like to use the word morality, but I think having purpose, doing the right thing and demonstrating good moral leadership is kind of what Adam Smith said in the first place,” Cardello says. “So moving in that direction I think is the right way to go.”