Sustainable Transformation: How CPG companies can lead the way
Exploring a journey to sustainable practices and environmental impact reduction.
The consumer packaged goods (CPG) industry is one of the largest and most influential industries in the world. It produces billions of products every year, from food and beverage items to personal care products and household goods. In recent years, there has been a growing demand for companies to adopt more sustainable practices and become more mindful of their environmental impact in recent years. Consumers are increasingly seeking out eco-friendly and responsibly sourced products, forcing CPG companies to shift their focus from just providing quality products to being accountable for their operations' environmental impact. As such, the sustainable transformation has become necessary for CPG companies to remain competitive in today’s market.
Why is Sustainability a Necessity?
In order to dissect this new phenomenon, we must observe the pros and cons in subcategories.
1. Consumer Trends and Behaviors
At one point, a flashy and fashionable marketing message is now an undeniable reality. Although several factors play a crucial role in this new way of doing business, the one that has withstood the hands of time is consumer trends and consumer behavior. The reason why “the customer is always right” is because it is the customers who generate the demand. Brands have continually evolved and shifted their strategy based on market trends and consumer behaviors.
Evidence shows that CPG consumers are becoming more environmentally conscious and willing to pay more for eco-friendly products. Consumers are also increasingly aware of how their choices contribute to the current climate crisis.
How did the Covid-19 pandemic shift consumer behavior?
The Covid-19 pandemic has caused a significant shift in how consumers behave, particularly when it comes to their purchasing habits and attitudes towards sustainability. Consumers are now more aware of their purchases' impact on the environment and are looking for ways to reduce their footprint. For example, an increasing number of shoppers opt for eco-friendly packaging, buying in bulk to minimise waste and utilizing reusable bags. Additionally, with a rising focus on health and wellness, there has been a growing demand for clean-label products with natural ingredients that are sustainably sourced. Companies must recognize this shift and adjust their strategies accordingly to remain competitive in the marketplace.
· According to Evergreen Packaging, 67% of consumers say they are now more aware of how their actions and the actions of others impact the environment.
· The same study reports that consumer demographics are also not to be ignored. While only 38% of baby boomers say they will pay more for eco-friendly products, the majority of millennials, 64%, are willing to make the same investment.
· Messaging matters; as proven in a report by The Center of Sustainable Business, which finds that sustainable products grew over 5 times faster in sales than products not marketed as “sustainable”. To put that in perspective, these products accounted for 50% of the CPG market growth from 2013 to 2018.
Furthermore, the pandemic has caused a shift in how consumers view ethical and sustainable business practices. Consumers now expect companies to prioritize social responsibility, particularly with regard to the health and safety of their employees and the environment. Companies must demonstrate their commitment to these causes through transparent policies and practices or risk losing market share.
2. Reducing Pollution with Circular Economy Strategies
In the CPG industry, single-use plastics is a significant source of pollution that many of our clients face. This pressing issue must be addressed urgently to reduce environmental damage.
“If we do nothing, plastic production will increase from 1% at the moment to 15% in 2050 as a percentage of our total carbon budget,” according to a report from Ellen Macarthur Foundation.
Companies can adopt circular economy strategies to reduce their reliance on single-use plastics, such as replacing them with more sustainable materials or investing in reuse and recycling initiatives.
This is what the prestigious Ellen Macarthur Foundation calls “Eliminate, Circulate, Regenerate: Eliminate waste and pollution, circulate products and materials, and regenerate nature”.
“By 2040, compared with business as usual, a circular economy has the potential to reduce greenhouse gas emissions from the production, use, and end-of-life of plastics by 25%”. The benefit: “a circular economy for plastics could generate savings of $200 billion per year and create 700,000 net additional jobs”.
This example illustrates how the sustainability agenda must always have a medium-term vision but then articulate how to prevent this vision from significantly impacting the bottom line in the short term.
In order to build a truly successful sustainability agenda, we need to start applying concepts from lean strategy, which has been around since the late 1980
3. Transitioning from a Linear to a Circular Economy
The transition to a circular economy poses multiple challenges for the CPG industry. The primary challenge lies in transitioning from a linear “take-make-dispose” model of production and consumption to a circular model that focuses on extending the life cycle of products and materials. This requires developing strategies for reusing, repairing, or recycling materials throughout their lifecycles, reducing waste, and utilizing renewable resources where possible.
Many CPG companies are ill-equipped to make such large-scale changes to their operations and supply chains, particularly as the trend towards sustainability increases consumer demand for more eco-friendly products, but that’s where Propelland comes into play.
Additionally, transitioning from a linear system to a circular one often carries high financial costs. Therefore, companies must be able to implement cost-effective solutions that will enable them to achieve sustainability goals without compromising on product quality or competitive advantage.
4. The Societal, Legislative and Government Pressures for Companies to be More Sustainable
The pressure from governmental agencies, environmental groups, and other stakeholders to adopt more sustainable practices within the CPG industry is increasing. Governments worldwide are introducing legislation that requires companies to lower their carbon emissions, reduce their energy consumption, adopt more eco-friendly packaging, and use recycled or reused materials.
For instance, you can’t even step foot in a store in most European countries without either bringing your own reusable shopping bag or paying an extra cost for a reusable bag at the check-out line. Finding a plastic straw or a one-time-use plastic cutlery with your takeout meal is almost unheard of anymore in countries like France.
In San Francisco, you can be charged up to a dollar per plastic bag used during check-out. Even small mom-and-pop shops in Chinatown are guaranteed to charge you for the convenience of taking your items out of their stores.
These are just some of the quickly noticeable mandates due to legislative requirements. However, these requirements can present a challenge for companies not adequately prepared to meet the demands of transitioning to a more sustainable business model. Companies must proactively understand the legislative landscape and develop strategies to transition their operations successfully.
5. Volume-Profit-Investment
Short terms investments for long-term gains. This is what we at Propelland call the “volume-profit-investment”. We believe that we must prepare ourselves today to minimize damages and increase profit YoY for the long haul.
Managing the Environmental Profit & Loss Account (EP&L)
Consumer pressure for sustainability is high; however, it sometimes falls short when price becomes a factor. Therefore, a company’s Environmental Profit & Loss Account (EP&L) is an essential accounting tool that must first measure the environmental costs associated with its operations and production. It considers all operating-related activities that lead to negative impacts on the environment, such as resource consumption, waste generation and emissions.
Making Sustainable Transformation a Priority in the CPG Industry
Sustainability must be rooted in any company’s business strategy to ensure long-term success. Sustainability initiatives should not be seen as a fad or trend but as an essential part of the corporate vision and culture. The Covid19 pandemic has further highlighted the urgent need for a green transition to create a more sustainable and prosperous future for humanity, companies and administrations alike.
At propelland, we believe it is undeniable that to achieve a true sustainability strategy, companies should focus on three objectives: anticipate consumer needs, comply with legislative pressures, and reduce their contribution to social and environmental problems. By doing so, companies can ensure their long-term success in a sustainable manner.
Gonzalo Sánchez-Taíz is currently part of the Senior Advisory board at propelland
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