Sustainability Key to Profitability

Meeting financial targets is not enough to secure the support of investors and shareholders. They expect businesses to serve a purpose greater than profitability and to operate responsibly.

Businesses are increasingly expected to account for all practices that impact the world around them. Environmental, Social, and Governance (ESG) criteria measure performance on metrics that today are as important as profitability.

More on this topic: Sustainability Pressure Intensifies and Sustainability Starts With Consumers

Producing, processing and distributing food has a tremendous impact on people and the environment. The food system is feeling pressure to assess and mitigate that impact.

Here are five things to know about how investor expectations are driving sustainability conversations.

1. Pressure is coming from the top.

It’s not only consumers and advocacy groups who are demanding companies become more sustainable. Wall Street has created a new reality for business today. Lenders and capital markets are establishing ESG criteria for lending and investment decisions. They view climate change and social inequality as market risks and want assurance that their holdings are managing for those risks. Companies are being graded based on ESG performance and metrics. Those that don’t measure up are being divested.

In short, investors expect the companies they support financially to demonstrate that they are responsible and serve the greater good. Non-profit organizations experience similar pressure from shareholders – their members, supporters and funders.

2. Pressure will intensify.

BlackRock, the world’s largest asset manager, announced in early 2020 that ESG would be its new standard for investment.

The global pandemic initially drew attention away from traditional sustainability attributes, as everyday activities pivoted to public health. As 2020 progressed, consumer insights show that other sustainability issues took priority. Social justice, food security and wages are more top-of-mind for the food system than they have ever been, and food prices are expected to rise in the coming months

As 2021 began, BlackRock’s CEO Larry Fink wrote in his annual letter that the current crisis has spurred BlackRock to address climate change even more forcefully, with increased expectations for the businesses being considered for investment.

Influential investors will have an impact throughout the food system. Demands will trickle down to farm commodities as part of the food supply chain, and producers will be expected to prove their practices are sustainable.

3. Sustainability is more than a label.

Sustainability should not be dismissed as a fad, or with quick fixes like checking a few boxes and signing a pledge. Social justice, caring for the earth and helping neighbors are deeply held values that transcend a label or statement.

The Business Roundtable has redefined the mission of what a corporation is, making a stronger commitment to all stakeholders and to making the world a better place for all. Food companies that embrace that mission will be better positioned to thrive in today’s rapidly evolving environment.

4. A strategy to balance competing demands is necessary.

Food and ag companies have often been reactive rather than strategic in the sustainability conversation, responding to external pressure to address the issue of the day. There will always be a new issue on the horizon. Without a structured framework for decision-making, it’s easy to fall into a pattern of chasing issues rather than addressing priorities through a deliberate strategy.

At Look East, we have worked with businesses and farmer-led groups to help them identify their sustainability priorities – based on their values and business objectives – and evaluate the tradeoffs and benefits to consider all sustainability dimensions and make decisions that are truly sustainable.

5. Producing food serves the greater good.

The United Nations named ending hunger and improving nutrition as one of its sustainable development goals, ranking it only behind ending poverty. Farmers and food producers should not feel intimidated by ESG expectations. Sustainability has long been at the core of food production. But we haven’t always been successful in communicating that to our stakeholders.

Look East can help you navigate the new sustainability landscape while holding true to your values and business objectives. Let us know how we can help you develop and drive your sustainability strategy.