ESG (Environmental, Social, and Governance) in Foodservice – Thematic Research

Environmental, social, and corporate governance (ESG) is the most important theme of the decade. Citizens, governments, regulators, and the media are turning the spotlight on corporations and demanding action. Social inequality, corruption, tax avoidance, and a lack of action on climate change are all issues that companies must now address head-on, in full public view. Some CEOs have been reluctant to embrace ESG principles because of the age-old fear of hurting profits. However, stakeholders are becoming more aware of ESG measures, and companies taking significant action now will be rewarded by the market in the long term.

What are the main trends shaping the ESG theme in the foodservice sector?

Technology trends

AI refers to software-based systems that use data inputs to make decisions on their own or that help users make decisions. Any ESG-related decision that data can improve can benefit from AI. For example, the technology could help achieve emissions and cost reductions by optimizing energy consumption, delivery routes, and inventory restocking. Starbucks optimizes inventory management by forecasting demand through AI-powered prediction models and promoting the order of excess supply at the end of the day.

Blockchain is a digital distributed ledger in which transactions or data can be recorded chronologically and publicly. Blockchain is often associated with cryptocurrencies, which are becoming a popular, yet still niche, payment method for consumers. However, blockchain will likely have a more fundamental impact on foodservice businesses in helping to manage and control supply chains. For instance, it could allow greater visibility at each stage of the sourcing supply chain and record the ethical and environmental credentials of key inputs.

Digitalization is a key trend affecting the industry, with digital marketing and ordering now business-critical for operators globally, having gained a major boost because of the COVID-19 pandemic. Digital technologies increasingly allow foodservice businesses to develop greater insight throughout their business across the whole value chain, not just in sales and marketing where digital technologies are better established.

Macroeconomic trends

COVID-19 has significantly impacted the foodservice industry and changed demand from consumers. The increased health concerns, government directives, supply chain, and workforce disruptions forced foodservice companies to rapidly adapt, taking a range of measures, from improving health and safety procedures to closing restaurants altogether. The implications of COVID-19 for ESG have been twofold. Operationally, it increased health and safety risks for staff members often working in restricted, crowded spaces, forcing companies to develop contingency plans, minimizing risks.

The gig economy is characterized by the prevalence of short-term contracts or freelance work instead of permanent jobs. Proponents point to the flexibility it offers in terms of working hours, but critics highlight the low wages and lack of basic employment rights offered to long-term employees. Governments will continue to clamp down on abusers of the gig economy by clarifying definitions of employment status and classifying supposedly self-employed gig economy workers (particularly those working for companies over a certain size) as employees, with rights to the minimum wage and holiday pay, among other benefits.

Anyone born between 1991 and 2005 is a member of Generation Hashtag. This demographic, which incorporates both younger Millennials and older members of Generation Z, cannot countenance a world without the internet or smartphones. Their priorities and preferences are reshaping the corporate world. At a rough estimate, Generation Hashtag makes up one-quarter of the world’s population, and its influence will only increase over the next decade as its members continue to enter the workforce.

What are the ESG challenges in the Foodservice sector?

Environmental challenges

Due to the public-facing nature of the foodservice sector, the pressure on companies to reduce their environmental impact comes from both investors and consumers directly. Consumers today have more knowledge of issues related to sustainability and the environment than ever before, and they use it to inform their purchasing choices. Therefore, it is imperative that foodservice companies understand the key environmental challenges facing their sector and develop strategies to address them effectively while clearly communicating their progress. Disclosure of environmental outcomes is still not well regulated, and a practice called “greenwashing” – making positive but unsubstantiated or outright false environmental claims about products and practices – has come to the fore.

To stay relevant, foodservice companies need to adequately address investor and consumers’ concerns on climate change. To develop truly effective climate strategies and win over consumers, foodservice companies must begin by systematically assessing their carbon footprint. A comprehensive inventory is the first step in identifying areas for improvement and developing an effective action plan. This allows companies to identify the main sources of emissions and prioritize actions accordingly.

Social challenges

ESG investing has been gaining significant prominence in recent years. One-fifth of US assets are invested with an ESG mandate. Investors are paying attention to environmental and governance issues, with social issues often falling by the wayside. Increasingly, companies are becoming conscious of the need to bolster their reputation as responsible stakeholders in society. Growing philanthropic activity is part of better social outcomes, but the real work needs to happen within companies’ operations and their supply chains.

The most common risks for employee H&S in the foodservice sector are physical hazards, including long working hours, slips on wet floors, food preparation, and sharp knives; chemical hazards from cleaning and disinfection operations; and fire. Over the past year, however, the prevalent risk to employees’ H&S has been COVID-19. When they managed to avoid government-mandated closures, all foodservice companies had to rapidly adapt and develop stringent protocols to continue activity while safeguarding the health of their workers and customer. Chipotle, for example, administered daily wellness checks to its staff, provided them with training and personal protective equipment (PPE), and required team members to wash their hands at least every hour.

Governance challenges

The last decade has seen a sea change in attitudes about business management. In 2019, the influential Business Roundtable adopted a new Statement on the Purpose of a Corporation, signed by 181 CEOs in the US. The statement said corporate leaders have to manage their companies for the benefit of customers, employees, suppliers, communities, and the environment, as well as shareholders. In other words, leaders have a responsibility to manage their company’s ESG strategy and outcomes. Corporate boards also need to ensure they have diverse representation or risk facing voting action from their shareholders. Focusing on diversity not only improves a company’s reputation but can also enhance its performance. A study by Institutional Shareholder Services Corporate Solutions found that companies with diverse boards receive higher scores on ESG performance metrics more often than those with non-diverse boards.

Which are the leading companies focusing on ESG theme in foodservice sector?

Leading foodservice companies focused on ESG include Airbus, BAE Systems, Boeing, L3Harris Technologies, Leidos, Lockheed Martin, Northrop Grumman, Raytheon, Rolls Royce, Safran, and SpaceX.

Market report scope

This report provides an in-depth analysis of the following. It provides:

• GlobalData’s Q1 2021 global consumer survey, with over 21,000 respondents in 42 countries, found three-quarters of consumers demand more ethical or environmentally friendly products. Immediate ESG action will future-proof businesses and create tomorrow’s winners.

• Chipotle, Compass, and Seven and I Holdings are governance leaders, Starbucks, McDonald’s, Glovo, Doctor’s Associate (Subway) are governance laggards. Environmental and Social leaders and laggards are also highlighted in the report.

• Social media, one of the key trends impacting ESG, has enabled consumer feedback, both positive and negative, to quickly reach a global audience. As a result, foodservice companies have been facing increased scrutiny over all aspects of ESG, including food safety and cleanliness standards, engagement with social and environmental causes, and quality of service.

• Health and safety (H&S) and supply chain management are the greatest risk factors for the industry. H&S for both employees and consumers has come to the fore over the last year due to COVID-19. As foodservice is at the very end of the supply chain, sustainable and ethical sourcing are key components of a solid ESG strategy for any company aiming to reduce its environmental footprint, improve social outcomes, and avoid scandals.

Reasons to Buy

• Position yourself for the future and create a holistic ESG strategy using GlobalData’s ESG framework. Assess sustainability policies, performance, and progress against GlobalData’s ESG framework. Identify and mitigate risk factors and pursue actions to improve ESG performance.

• Uncover the foodservice companies excelling in ESG operations with GlobalData’s thematic scorecard. Understand competitor activity and positioning in the ESG theme with extensive coverage of leading companies’ activity.

• Use the trends section to identify key technology and macro trends affecting and shaping the ESG theme, such as using computer vision to reduce food waste.

• Understand the key challenges to foodservice companies across the environment, social, and governance, with company examples of mitigating actions and malpractice.

• Understand the ESG action feedback loop, a market mechanism that drives reputational and competitive advantage, incentivizing further action, and drawing more participation.