From deforestation associated with livestock farming to soil erosion arising from intensive agriculture, the food and beverage industry places a notoriously significant strain on the planet’s resources. To mark UN World Food Day, we delved into the EcoVadis Index data universe to reveal the latest sustainability trends in the sector, highlighting the importance of supply chain management in scaling impact and mitigating risk.
The sustainability performance of businesses across the world has in the years following the seminal Paris Climate Agreement come under unprecedented scrutiny. This is particularly the case for companies operating in resource-intensive, consumer-facing industries, such as the food and beverage sector, which is estimated to account for over one-third of global greenhouse gas emissions and over 70% of all freshwater withdrawals annually.
Climate Action 100+, for instance, the world’s largest investor engagement initiative on climate change, recently published a detailed inventory of actions the food and beverage sector must take to have any chance of achieving a net zero future in line with the goals of the Paris Agreement. The following month, the UN staged its inaugural Food Systems Summit in New York, bringing together governments, philanthropic foundations and business leaders in a bid to expedite progress toward the 2030 Sustainable Development Goals.
So what is the current state of play with regard to sustainability performance in the food and beverage sector? And how does the performance of such companies compare against that of other resource-intensive industries subject to less media and consumer scrutiny?
Food and Beverage Companies Exceed the Cross-Sectoral Average in Sustainability
In its fifth year, the EcoVadis Sustainability Risk and Performance Index examines trends manifest in the sustainability ratings of more than 46,000 companies assessed by EcoVadis during the period 2016-2020. This comprises an overall, total score, as well as ratings derived from research organized across four themes: 1) Environment, 2) Labor and Human Rights 3) Ethics; and 4) Sustainable Procurement. You can read more about the EcoVadis ratings methodology and how scoring works in our comprehensive guide.
Despite certain shared improvement trends, the 2021 Index reveals marked variation in sustainability performance between industry divisions. While highly regulated sectors, such as chemicals, electronics and concrete manufacture, display strong sustainability performance and year-over-year improvement, many companies involved in providing significant support services through supply chains – such as those operating in the Wholesale and Transport industries, for instance – lag behind the cross-sectoral average sustainability rating score, 47.4.
At an overall average score of 48.9, Food and Beverage was one of the best performing industries in 2020 and trails only the Construction (49.4) and Finance, Legal and Consulting (51.1) sectors in terms of overall average scoring. This circumstance reflects the extent of the industry’s engagement with sustainability issues and its willingness to assume a leadership role in improving standards on widely scrutinized matters such as resource use, packaging waste and transportation.
Furthermore, at 52.5, food and beverage companies achieved the highest overall average score of any industry in the Environment theme. This trend reflects a growing awareness on the part of food and beverage companies of the immediacy and extent of their vulnerability to the impacts of climate change, and a consequent, urgent appetite to adopt mitigation measures. In this regard, the agri-tech sector – including biologicals, regenerative agriculture, AI, and alt protein – is presently experiencing record levels of investment and has yielded significant sustainability gains for the industry, notably with regard to reducing water use.
At an average 50.6, the Food and Beverage industry has established itself among the leading sectoral performers in the Labour and Human Rights theme, and although at 44.3 the sector is formally categorized as “Medium Risk” in regard to its management of ethical matters (such anti-competitive practices and corruption), it is noteworthy that its scoring has improved in the Ethics theme in each of the last two years. Therefore, the industry is firmly on track to exceed the 45 point threshold required to be attributed with a “Confirmed” sustainability management performance in Ethics on the EcoVadis rating scale.
Supply Chain Vulnerabilities Persist
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Nevertheless, food and beverage companies’ scoring in the Sustainable Procurement theme continues to lag behind the industry’s overall performance. The most challenging of the four themes assessed under the EcoVadis ratings methodology, Sustainable Procurement is crucial to scaling sustainable impact, building organizational resilience and mitigating risk.
While many companies work effectively with direct suppliers to integrate sustainability considerations into the procurement function, the key to scaling the impact of a sustainable procurement program is to provide sufficient support and incentives to cascade such measures beyond Tier 1 suppliers. This ensures that social and environmental due diligence practices are implemented in procurement processes throughout the entirety of the upstream value chain.
From a record high of 42.9 in 2017, food and beverage companies’ scoring in Sustainable Procurement has declined in each of the last three years to an average of 39.9 in 2020. While this score remains in excess of the modest, cross-sectoral average, the Index data universe reveals marked geographic variation within the industry in terms of supply chain management.
For instance, while European food and beverage companies display a broadly strong and consistent scoring trajectory in Sustainable Procurement over several years, recording an average total of 43.0 2020, no other region achieved an average score in excess of 40 points (North America was closest at 39.6), while companies operating in the Great China region languish below the 30 point threshold.
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This decline in Sustainable Procurement is particularly concerning if we look at the substantial social and environmental sustainability risks embedded upstream in the supply chains of most food and beverage firms. Plus, because over 80% of the food and beverage industry’s greenhouse gas emissions derive from the activities of upstream suppliers, it is imperative that purchasing companies act to cascade sustainable procurement practices beyond the first and second tiers of the value chain to minimize adverse impacts and mitigate exposure to risk.
Opportunities for Sustainability Performance Growth
Ultimately, the data underpinning the EcoVadis Sustainability Risk and Performance Index 2021 makes clear that while food and beverage companies have made great strides in improving their management of many environmental, social and ethical risk factors, the supply chain remains a critical vulnerability, one that is liable to come under increasing public and political scrutiny as due diligence regulation expands internationally.
For more insights into sustainability performance of food and beverage companies, download the EcoVadis Sustainability Risk and Performance Index 2021. You can also review key findings from the global report in our concise Infographic and explore the Index data universe in greater detail via the My Index Online visualization tool.
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