The science is all too clear: climate change is already leading to humanitarian emergencies around the world, with 3.6 billion people living in areas susceptible to the impacts of global warming. As a result, both businesses and consumers are becoming increasingly conscious of the environment and are making efforts to be more sustainable in their everyday decision-making.
The CPG sector has come under particular scrutiny over sustainability, and sadly, this is not surprising. The industry’s value chains are far reaching. In 2015, the global greenhouse gasses (GHG) CO2 emissions of the CPG industry was measured at 33 gigatons.
With all this in mind, and despite high levels of inflation in the U.S., sustainable products have increased their market share to 17.3% of conventional consumer purchases.
It’s important that startups and small businesses joining this sector can consider incorporating sustainability into their overarching strategy, ensuring it has a balanced and positive impact on the economy, the environment, and the community.
In this article we’ll outline what it takes for CPG businesses to be sustainable, and some ways in which modern companies are becoming more sustainable and cutting emissions.
What is Sustainability?
The climate and sustainability have been significant and topical issues for decades now as we start to see the effect of climate change impact our earth. With consumers also taking sustainability more seriously, businesses have every reason to be aware of the ideas that underpin the movement towards sustainable commerce.
Although there is no single definition of sustainability in 1987, the UN defined it as: “meeting the needs of the present without compromising the ability of future generations to meet their own needs.”
While all relating to tackling the impact of climate change and building a more sustainable approach to the way we work and live, it can be separated into three categories: environmental, economic and social:
Decisions and actions that protect the natural world—i.e. conserving the environment and its ability to support different ecosystems—enable environmental sustainability.
For example, one way that businesses can take environmental sustainability seriously is by reducing the scale of plastic pollution. The Plastic Waste Makers index found that twenty firms produce 55% of the world’s total plastic waste—with petrochemicals being the main culprit. Plastic pollution changes natural habitats and processes, hurting the ability of ecosystems to adapt and thrive.
Economic sustainability considers how long-term financial performance can be balanced with the need to achieve environmental and social goals. It asks: what is the impact of business growth on the surrounding economy?
This approach begins with acknowledging that production uses up finite resources. Using renewable materials , for example, would make a manufacturer more sustainable and boost the company’s green credentials overall, while still supporting long-term financial growth.
Finally, social sustainability takes a similar approach to the other kinds — only its focus is primarily on how business and environmental outcomes affect people. Workers, customers, and community members are just some of the numerous people across the value chain affected by commerce.
Businesses must approach success in terms of revenue, sustainability, and long-term value for society.
Sustainability in the CPG Sector
Many companies are taking valuable steps to enhance all three kinds of sustainability.
And when it comes to CPG, in the words of McKinsey, “The sheer size of the CPG sector—with millions of employees and trillions of dollars in annual sales—makes it a critical component in efforts to build a more sustainable, inclusive economy.”
There are several key things the CPG industry can do to bring about a more sustainable future:
CPG Sustainability Trends
Eco-friendly packaging materials
The advent of single-use plastic packaging was a gamechanger for the CPG industry in the 1970s. At the time it was celebrated as a new way to transport and store items safely and cheaply. With rising demand and booming retail production levels, for a time single-use plastic was extremely popular—until its negatives became all too clear.
Now that we know the poor recyclability of plastic has a huge effect on the environment (only 16% of plastic is currently reprocessed), it has become vital for the CPG industry to reduce its impact on plastic pollution by considering new forms of packaging.
So far, the biggest CPG companies have opted to recycle more and bring down plastic usage. Another option is to use eco-friendly materials: corrugated or recycled cardboard and paper, stone paper, bioplastic made from renewables like vegetables or wood, or even recycled (and recyclable) plastic, are all emerging alternatives.
Kraft Heinz, for example, have been testing a paper-based ketchup bottle created from sustainably sourced wood pulp.
Predictive Product Lifecycles
One specific change in approach often cited as a way to improve economic and environmental sustainability is moving production from a linear model to a circular one. A linear model sees consumers buy a product, use it once, and then discard it.
A circular model is an alternative to this. Manufacturers consider sustainability in the design stage by creating reusable products, or at least products that fit into a system of exchange or renewal.
To support this transition, CPG manufacturers are redesigning products, and changing the way they use raw materials to make more use from them in the long-term. Product Lifecycle Management (PLM) for example keeps items in circulation through regular repair, reuse, refurbishment and recycling. Software solutions are also used by many firms to augment lifecycles by analyzing sales trends, customer feedback, output quality and competitors’ performances, among others.
When CPG companies consider the circular flow of goods, it is important to remember the wider dimensions of manufacturing and logistics: namely, the whole supply chain. Every link in the supply chain has its own strengths and weaknesses. Evaluating partners’ sustainability should be a non-negotiable part of the procurement process.
To make sure their practices are economically, socially and environmentally sustainable, CPG companies need to get visibility and transparency over their value chains. This helps to meet rising consumer expectations, sustainability standards and requirements, and means a business is truly doing its best for the planet.
Different software solutions have been developed to aid sustainable procurement. For example, blockchain technology has been used to trace items across an entire supply chain network. This allows consumers, businesses and partners to track exactly how a product was made, bringing a new level of transparency to the manufacturing process.
Get flexible support for your CPG business
At Setscale, we are committed to the growth and development of small businesses working to drive long-term, sustainable business success. That’s why our flexible financing model is tailored to help manage positive cash flow, so partners can focus on their big picture strategy.
Find out more about the PO financing solutions we can offer your business.