Large companies are increasingly embracing responsibility for the impact of their operations on the environment and society. Business initiatives targeted toward support of these ends are grouped under the umbrella of Corporate Social Responsibility (“CSR”) and are receiving Board of Directors oversight. Globalization of business, shareholders’, and consumers’ environmental and social concerns will continue to provide the impetus for companies to report their goals and progress to stakeholders. The Governance and Accountability Institute (www.ga-institute.com ) reports 85% of S&P 500 companies issue a CSR report of some kind (of different depth and quality to be sure), up from 20% in 2011. We looked at Coca Cola, Mondelez International, and Hormel for specific examples in the food industry of CSR practices. Coca-Cola’s programs appear to be the most comprehensive among this small group and have elements of independent reviews/audits. However, all three firms had specific metrics and tracking associated with most of their goals. Their programs are briefly profiled in this article.
To quiet skeptics, there are independent firms assessing the commitment of corporations to undertake CSR-related initiatives. One of the best known measurements is the Dow Jones Sustainability Index (“DJSI’), undertaken by Dow Jones via a 20 year partnership with SAM (SAM is a business unit within RobescoSAM specializing in CSR data, ratings, and benchmarking www.robescosam.com ). The DJSI ranks participating companies across established criteria and weights and evaluates firms against industry peers. The DJSI is open to 4,500 of the largest global businesses. As of 2019, 1,166 had applied for inclusion in the index, an increase of 17% over 2018. The top 10% in each industry are admitted to the DJSI. An additional check on CSR can be the review by independent accounting firms of the statements made in corporate special-purpose reports, such as Ernst & Young’s review of Coca Cola’s 2018 Business and Sustainability report.
The good news for all stakeholders is growing evidence that branded consumer goods companies which are high performers in terms of CSR are also outperforming peer companies in share price appreciation. A recent study published in the Journal of Brand Management (authors Rahman, Lambkin, and Rodriquez-Serrano) found in a sample of 62 US public companies that
“…there is a synergistic connection between brand equity and CSR which increases long-term value over and above the direct impact of corporate brand equity”.
The win-win arises, beyond consumer perceptions, in part from the benefits of reduced operating costs arising from sustainability investments in lower energy and water consumption, and stronger networks of raw material suppliers practicing sustainable agriculture. As noted in a recent Barron’s article, corporate managers and boards able to look ahead to longer term environmental and social opportunities and threats to their business models are also likely to be more responsive to consumers’ needs and deliver superior operating results in the base business. Although not referenced directly in the article, we believe energizing employees by aligning their work with a sense of social responsibility is also a significant plus.
How should we think about companies based in the United States? US-based consumer product firms with significant international business are exposed to public pressures and retailer pressures on a global basis. Europe has been in the vanguard on CSR, with best practices established in the UK for public companies to issue annual reports on their initiatives and impacts of their operations. UK pension funds, which represent some 20 percent of investors, have been particularly active pressing corporations for visibility on CSR matters. The recent round of elections for the European Parliament placed 13 (out of 79) “Green Party” members in the legislative body, a tangible indicator of the priority placed on CSR maters by EU voters. Large grocery retailers in the EU, such as Ahold (also significant in the US) are active participants in CSR reporting and look to their private label suppliers to adopt similar initiatives:
“Customers also tell us they want to be informed about sustainable production and responsible consumption and they value products that are made with respect for people, animals and the planet. They underline the importance of recycling, sustainable packaging…”
The CSR-related activities for our sample of food companies seems to indicate the greater the proportion of revenues from International (non-US)/European operations, and the greater the reliance on agricultural/water inputs from developing countries, the more CSR initiatives are undertaken. International operating experience of company senior management and Board members may also play a role in assuring progress. Pressure from shareholders, as evidenced by proxy proposals, are likely to bolster Board level attention. The CSR activities of our sample companies can be grouped by packaging, water, carbon footprint, sustainable agricultural practices, and human rights initiatives.
- Coca-Cola has a goal of collecting and recycling a bottle or can for each one sold by 2030 [56% achieved to date]. Mondelez pledges to make all packaging recyclable by 2025 [and eliminated 65 million kilograms of packaging]. Hormel targeted reducing product packaging by 25 million pounds by 2020 [99% achieved] and a 10% reduction versus 2011 in pounds send to landfills by 2020 [69% achieved].
- Hormel reached its 10% water reduction target versus 2011 in 2016. Mondelez reported it had reduced “incoming water use by 25%…. in “priority markets”. Coca-Cola announced a 16% improvement over 2010 in water used in finished beverages, and has more goals associated with total water used in manufacturing.
- Carbon footprint metrics vary, with Mondelez announcing CO2 reduction of 10%. Hormel stating a goal of a 10% reduction versus 2011 in green-house gas emissions [67% achieved]. Coca-Cola has a target of reducing its 2010 carbon footprint by 25% by 2020 [21% achieved].
- Sustainability initiatives for crop production are the most difficult to quantify. Coca-Cola provides ranges (e.g. 0-25%, 25-50%) of sustainable product purchasing for 10 ingredients [of which 6 ingredients fall in the +50% range]. No target date was readily seen for the company’s stated goal of 100% sustainable sourcing. Hormel reports it supports best sustainability practices with outreach programs, but specific goals and progress are harder to assess. Mondelez supports at least two significant programs, titled “Cocoa Life” and “Harmony” (the later for wheat farmers), which provide sustainable agricultural farming techniques and may also support improved living standards, education, and diversity among small farmers. By 2025 Mondelez plans to purchase 100% of its cocoa needs from communities in the Cocoa Life project.
- 89% of suppliers to Coca-Cola comply with company policies regarding Human Rights, versus a target of 98% by 2020. Importantly, the company uses independent audits (2,800 in the last year) to determine compliance. Mondelez and Hormel can be expected to have policies requiring their suppliers to be comply with all laws and regulations, but the specifics are difficult to pull out of their various communication vehicles.
A few notes in closing. As a consumer. shareholder, and citizen I find the increased voluntary attention to CSR heartening. Particularly against a backdrop where global cooperation among governments is difficult to initiate. I do not profess to be an expert on CSR, nor to be fully knowledgeable on all the initiatives underway by the sample companies briefly profiled in this article. That said, I hope you find this summary “Food for Thought” and are similarly encouraged by the voluntary actions underway by these leading food companies.