People are becoming more aware that, on a planet that’s now home to over seven billion people, it’s simply not possible to keep consuming resources at our current rate. Land degradation, carbon emissions, and food waste are all issues that consumers can - and want - to help with. It seems that, finally, businesses are taking notice.
But not all of them. Although consumers are becoming more environmentally aware - a recent IBM survey found that nearly eight in 10 respondents held sustainability to be important - many companies, especially large corporates, are struggling to keep up. Major consumer goods brands are not currently on track to meet their plastic pollution pledges by 2025, for example.
Unfortunately, the lack of urgency shown by these brands is likely to catch up with them in the end. According to market research firm Kantar, sustainability could provide a $382 billion boost for FMCG firms. Neglecting sustainability initiatives is not just bad for the planet; it hurts profits too.
Slow-moving consumer brands / Driving a transformational agenda
Over the last few years, a number of sustainability-focused start-ups have emerged in the FMCG space. There are firms like the Netherlands-based app-only supermarket Crisp, which is committed to championing locally-sourced seasonal products, Sweden’s Stockeld Dreamery with its plant-based dairy products, and a whole host of other innovative, young businesses.
In contrast, many larger FMCG companies have found it harder to innovate in the way required to fully embrace sustainability. The relative sluggishness displayed by these corporates isn’t part of some long-term growth strategy, however. Many larger firms are keen to undergo the kind of transformation required to incorporate sustainability within their core business processes, but organizational complexity, workplace silos, and a focus on short-term revenues make it difficult.
Start-up partnerships are increasingly being explored by corporates as a way for larger firms to grasp their own transformational agenda. With a renewed focus on agility and entrepreneurship, corporates in the FMCG space can quickly launch the kind of new, sustainable products that consumers are demanding - ramping up production quickly using their scale to good effect. By boosting sustainability in this way, corporates are likely to see impressive results on their balance sheets too.
According to McKinsey, smaller FMCG firms, those with net revenues under $2 billion, are growing at twice the rate of their larger peers. Through a mutually beneficial partnership, corporates can reinvigorate their own growth prospects too.
Consumers versus shareholders
The vast majority of businesses - as many as 96% - are feeling increasing pressure to become more sustainable. Predominantly, this pressure comes from consumers, who are placing more value on issues like energy efficiency, recyclable packaging, and other environmental matters.
Conversely, larger brands also face pressure from activist shareholders to adopt a profit-first mindset, leaving sustainability on the backburner. Just recently, Danone, one of the world’s leading food brands, replaced its CEO, Emmanuel Faber - reportedly, because activist shareholders had become concerned that the emphasis he was placing on sustainability was harming revenues. Ironically, not all shareholders are profit-orientated. Activist investors at Shell, for example, have long pushed the company to adopt more stringent green targets. Start-ups may crave the financial backing of investors, but they must be careful about what influence it grants them.
Larger FMCG firms are increasingly finding that the best way of balancing the demands of investors and consumers is by taking some inspiration from their start-up rivals. Through this approach, they can combine the kind of open innovation favored by smaller firms while leveraging the reach and scale that only corporates have access to.
Larger brands need to strike a balance between competing interests and methodologies, adopting the kind of agility displayed throughout the start-up world. At the same time, they must juggle their environmental ambitions while continuing to look after their bottom-line. Sustainability is now expected by consumers; profits are valued by shareholders. Ultimately, both are essential for long-term business success.
If you'd like to know more about how we enable large FMCG companies to leverage startup methodologies and solutions to enable a faster sustainable transformation, click here to contact us.