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Sector Reports - 22/10/2019

The food industry has a vital role to play in addressing major threats to global health including obesity, hunger and malnutrition, and in ensuring access to safe and nutritious products.

In addition, the promotion of inclusive development and sustainable consumption and production throughout products’ lifecycle is among the primary sustainable development challenges faced for the food industry. Companies are at different stages in terms of the maturity.

Still adequate management of risks associated with access and affordability of nutritious food, unhealthy impacts such as obesity, integration of labour and human standards in the supply chain, and protection of biodiversity is not demonstrated.

The report provides Vigeo Eiris’ exclusive opinion on 155 companies belonging to the Food sector. The report includes the sector’s strengths, innovations and best practice as well as controversies, vulnerabilities and emerging challenges such as sustainable food production, biodiversity preservation, sustainable sourcing, and the management of labour and environmental standards in the supply chain. This is in addition to other challenges that are becoming even more daunting in the context of a rapidly growing population including sustainable and healthy eating patterns, obesity and malnutrition, R&D investments, strategies to improving the livelihoods of communities surrounding the industry’s operations, and climate change in relation to food security. The report analyses performance scores and advanced indicators on critical issues such as environmental resources, business ethics, human capital and human rights, governance, integrity of lobbying practices, the level of sustainable products & services, and contribution to the UN Sustainable Development Goals as Food and agriculture feature in many Sustainable Development Goals.

Sector Report Food

Key Findings:

  • The Food industry covers activities related to processing, conversion, preparation, preservation and packaging of food products. The raw materials used are generally of vegetable or animal origin and produced by agriculture, farming, and fishing. Food product output has been increasing and the industry is highly diverse and comprises several components that starts with agriculture activities for growing crops, raising livestock and sea food and ends up with marketing, packaging, advertising and distribution.
  • Vigeo Eiris awarded an average weak score of 25.6/100 to companies in the Food sector, on a scale of 0 to 100. The sector’s performance remains unchanged since our previous analysis.
  • The sector ranks 38 out of Vigeo Eiris’ 39 sectors, which cover a total research universe of 4,500 companies and maintained the same ranking as in the previous review of 2017.
  • Sector leaders such as Danone (France) and Nestle (Switzerland) are concentrated in Europe thanks to their relevant disclosure and demonstrated ESG risk mitigation when it comes to material issues at stake for their operations. While laggards mostly belong to Emerging Market and Asia Pacific regions, some companies such as Ajinomoto Company (Japan) provide substantive disclosure on the management of key CSR challenges relating to their operations placing this company, for example, among sector leaders. Very few North American companies made it up to the sector leaders’ list as more than 90% of North American companies are subject to controversies with no systematic remediation demonstrated.
  • The Food sector reporting rate is 51%, below the universe average (57%), with European companies communicating more comprehensively (reporting rate of 63%) on their ESG policies, practices and performances. Companies in Emerging Markets have the lowest reporting rates of the sector that stands at 43%.
  • ESG risk mitigation scores are weak in relation to reputation (27/100), human capital (24/100) operational efficiency (25/100) and limited in relation to legal security (30/100). The relationship between human capital and labour productivity is of particular importance in the food industry, however, the lowest average score is achieved on the management of this strategic asset. The industry shows its highest performance in the management of issues affecting legal security. In addition to unrelenting competition, the industry is facing regulatory and compliance challenges linked to heightened and new obligations linked to food safety, marketing, and traceability.
  • The sector faces 275 controversies, affecting 47% of the companies: 1% are involved in critical cases, 24% in high severity cases, 22% in significant cases and the remaining in minor cases. The most recurrent controversies concern biodiversity degradation, labour and human rights’ violations in the supply chain, negative impacts on communities, and mislabelling or deceptive marketing.

Key Takeaways:

  • Malnutrition and obesity: Malnutrition is the main concern of the Sustainable Development Goal N°2 “Zero Hunger” with the objective of ending all forms of malnutrition by 2030. Obesity, on the other hand, is a growing concern as WHO estimates at least 2.8 million people dying each year as a result of being overweight or obese. Although “Obesity and malnutrition” are among the drivers with the lowest average performances in the sector with an average score of (17.8/100), still some companies managed to distinguish themselves through reporting on relevant measures. For example, through renovation of foods and beverages to lower salt, reduce trans fat and introduce more essential nutrients (Nestlé) or through elaboration of a plan to reduce sugar content of all products (Danone). Need and impact assessment to increase access to food products is among the resources reported to be deployed by few companies including Kerry Group, Nestlé, and Unilever. Overall, 64% of food companies are silent or hardly tackle access to food products for people in need, while only 6% of companies report on significant measures to tackle this issue. Overall, very few food companies inform about a coherent and balanced strategy to combat the negative health impacts of their products, expanding at the same time access to nutritious products.
  • Involvement in biodiversity degradation and deforestation controversies: Biological diversity is fundamental to agriculture and food production making the industry dependent to, a great extent, on forest-risk commodities such as palm oil and soy which have harmful impacts on forests and its dependent communities. The 15th goal of the SDGs challenge such businesses to address their role in deforestation and also reverse land degradation and halt biodiversity loss. Deforestation is increasingly getting a prominent place in investors’ agendas pushing companies to transform the way commodities are produced, to safeguard forests and halt other degradation of ecosystems. To prevent deforestation, about 20% of companies in the sector report on some measures covering certification schemes, such as the Roundtable on Sustainable Palm Oil (RSPO). The food sector is heavily involved in deforestation controversies mostly involving companies from Asia Pacific and Emerging Markets. As examples, Golden Agri-Resources and Wilmar International which are based in Singapore, IOI Corporation, Felda Global ventures, and Kuala Lumpur Kepong that are based in Malaysia.
  • Human rights in the supply chain: The food industry’s vast and extended supply chains impose particular challenges to meet social expectations and due diligence legal developments to respect human rights in the supply chain. A number of legal attempts to regulate supply chains have begun to emerge in recent years increasing the risks companies run by failing to fully attend to human rights risks in their supply chains. The management systems and mechanisms companies need to put in place to ensure ILO’s core labour standards are translated into practices and respected throughout supply chains are crucial specially in countries with weak labour laws. Overall, the companies assessed by Vigeo Eiris demonstrate an overall weak performance (29.3/100) reflecting the significant challenges laying ahead the food industry to establish effective mechanisms to mitigate and address human rights in the extended supply chains. 28 companies faced a total of 57 allegations, ranging from significant to high severity, over violations of fundamental labour rights in the supply chain such as Nestle, Unilever, Felda Global Ventures and Cargill, facing social allegations over exploitation of workers in palm oil production.
  • Packaging: According to the Ellen MacArthur Foundation, 250 organizations – including food companies – reported to be responsible for 20% of the plastic packaging produced around the world, are signatories of the Global Commitment to eliminate plastic pollution at its source. However, while significant progress has been made in environmental strategy and eco-design, although the average score remains limited (36/100), food companies do not seem to substantively tackle the environmental impacts from disposal of packaging at the end of a product’s lifecycle as shown by the overall average weak score of 14.5/100 with 47.8% of companies not reporting on any measures to address this issue. However, outperforming companies such as Danone (84/100) and Unilever (95/100) demonstrate relevant commitments supported by significant measures regarding reusable, recyclable or compostable packaging.
  • Social and economic development: 25.9% of employees in the world work in the agricultural sector according to World Bank. Through their large farmers and suppliers’ network, the industry can provide opportunities for inclusive economic development. To improve standards of living of the communities they are evolving in, sharing knowledge or technologies, supporting the creation and development of local farmers are among the initiatives that can contribute to the UN Sustainable Development Goals. However, the sector’s overall performance in the promotion of the local social and economic development is considered weak (23.5/100), although it improved since last review. Few companies standout with advanced performances including Unilever (68/100) and Danone (68/100) given their reporting on relevant commitments and extensive measures to address this issue corroborated by positive outcomes.

Best performing areas:

  • Board of Directors
  • Environmental strategy and eco-design
  • Product Safety

Worst performing areas:

  • Obesity and malnutrition
  • Reorganisation
  • Transportation

Top Performing Companies:

  • Europe: Danone (68/100)
    North America: Campbell Soup (49/100)
  • Asia Pacific: Ajinomoto Company (53/100)
  • Emerging Markets: Grupo Nutresa (43/100)

Companies making best progress since 2017:

  • Europe: Orkla (+9)
  • North America: The J.M Smucker Company (+14)
  • Asia Pacific: Ajinomoto Company (+18)
  • Emerging Markets: No progress

To view an excerpt of our 2019 Food sector report, download the document below
To request a copy of the full report, please complete the form below and send it to customer.service@vigeo-eiris.com

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