World’s Top Companies in Race to Keep Up with Climate Conscious Consumers

The world’s top Fast Moving Consumer Goods (FMCGs) companies, including Nestlé, Coca Cola and P&G, are in a race to adapt to rapidly changing consumer trends, including a rise in veganism and increasing activism on plastic packaging. This is according to a new report from environmental non-profit and investment research provider CDP. The report ranks 16 of the largest publicly listed food and beverage and household and personal care companies on business readiness for a low carbon transition.

The report notes that the life cycle environmental impact of products from the industry is significant and FMCGs have a key role to play in curbing over a third of global greenhouse gas emissions. It states 90% of the sector’s carbon emissions lie in the value chain, leaving companies exposed to raw material risks and product consumption risks. The proximity of the sector to consumers means companies are exposed to changes in consumer preferences, but also have the opportunity to drive behavior change in order to ensure the longevity of their brands.

Carbon Successes

Some of the most transformative low carbon innovations delivered by these companies include developing vegan and organic product ranges. CDP’s analysis shows five out of the seven food and drinks companies that originally offered dairy or meat-based products are innovating with new vegan alternatives.

Similarly, household and personal care companies are creating more plant-based, natural options. Six out of seven companies, including L’Oréal, are actively innovating to replace petrochemicals with natural, biodegradable ingredients. Unilever is among the four companies to have developed vegan personal care product ranges.

A tide of consumer activism on plastic packaging has resulted in increased scrutiny and changing preferences for circular, zero-waste business models. This is forcing companies to rethink their approach, with around 60% of companies investing to advance biodegradable plastic and recycling infrastructure, and Danone leading the way.

Carbon Failures

Despite this innovation in the sector, almost 60% of the top 10 revenue generating brands for each company have failed to deliver low carbon innovations in the last 10 years. Given most companies (88%) generate more than 50% of their revenues from these key brands, including Nescafé, Budweiser and Dove, they must up their game or risk falling foul of changing consumer demands.

Many FMCGs are responding by acquiring smaller, sustainable brands. The report says 75% of companies have directed M&A efforts towards the acquisition of niche, environmental brands in the last five years and this type of activity has more than quadrupled over that time. For food and beverage companies, this trend is further driven by the alignment of health and environmental trends, demonstrated by Nestlé’s recent acquisition of Sweet Earth and Pepsico’s purchase of Bare Foods. However, CDP says this approach will not be sustainable if their fundamental business models, which are based on driving more consumption – remain unchanged.

Packaging Plays a Part

Beyond reputational risks, impending regulation is also threatening these companies, as more robust rules on packaging and waste are introduced. The EU 94/62 directive’s 2018 amendment has set measures for reducing packaging waste at source as well as improving recycling and recovery, while product labelling and carbon footprinting is on the horizon.

The sector is also highly exposed to the physical risks associated with climate change. For example, heat stress and water scarcity have the potential to disrupt agricultural supply chains and cause price volatility. This poses a real threat to the sector, especially for diversified food companies like Nestlé and Kraft Heinz that rely on a variety of raw materials. When it comes to physical risks in the consumption phase, personal care and home care companies are most exposed, due to the amount of water it takes to use their products.

Notwithstanding the media scrutiny around palm oil, some companies are being slow to respond. Despite the palm oil exposure faced by all Household and Personal Care companies, less than 45% is supplied from physically certified sources. Of the palm oil users, only Danone and L’Oréal have already achieved a 100% physically certified supply.

CDP’s League Table of companies in the Food and Beverage sub-sector:

Companies Country Average market cap 2018 (US$bn) League Table Weighted rank  League Table rank
Danone France 53 3.30 1
Nestlé Switzerland 250 3.59 2
AB InBev Belgium 194 4.43 3
PepsiCo USA 156 4.59 4
Diageo UK 87 4.65 5
Heineken Netherlands 58 5.16 6
The Coca-Cola Company USA 193 5.55 7
Mondelez USA 62 6.44 8
Kraft Heinz USA 74 7.52 9
Source: CDP        

CDP’s League Table of companies in the Household and Personal care sub-sector: 

Companies Country Average market cap 2018 (US$bn) League Table Weighted rank  League Table rank
Unilever UK / Netherlands 161 2.31 1
L’Oréal France 130 2.57 2
Colgate-Palmolive USA 58 3.93 3
Henkel Germany 51 4.32 4
RB UK 60 4.97 6
P&G USA 207 5.32 5
Estée Lauder USA 51 5.55 7

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