The packaged food industry, which includes household brands that consumers know and love, is the highest performing industry in this analysis with an average score of 37 out of 100. While the packaged food industry includes many leaders, there is a significant range in performance, from a high of 82 points to a low of 9 points.
Areas of Strength
Companies in this industry are expanding the quality and scope of water risk assessments, with half of the companies showing improved performance in this area. Eight companies, however, have not yet undertaken an assessment of the water risks they are exposed to in their agricultural supply chain.
Ninety percent of companies in the packaged food industry have time-bound targets to reduce water use. PepsiCo and Unilever are the only companies that have taken this a step further by setting targets that are more aggressive for higher risk locations.
Business Planning and Strategy:
70 percent (15) of companies have begun to incorporate water risk into major business planning activities, such as acquisitions, capital investments, siting of facilities and diversification of product line away from water intensive inputs.
- Kellogg factors water resource considerations into location planning for new operations and site expansion, and evaluates localized water risks as a part of the site selection process for new facilities in order to ensure the water security of these locations and to position the company for growth in these areas.
Senior Executive Oversight:
62 percent (13) of the companies in this industry have strong executive oversight over water, identifying an individual internally who either reports directly to the CEO or sits on the executive committee.
Areas for Improvement
Forty percent (9) of packaged food companies lack strong board oversight over sustainability and water, and only two companies (Campbell’s and Nestlé) regularly brief their board on water-related issues.
Translating Water Risk into Financial Terms:
- Nestlé places a theoretical (i.e. shadow price) on water, ranging from $1 to $5 per m3, depending on the factory’s physical risk score, as generated by the Nestlé Combined Water Stress Index. This approach enables the company to convert environmental and social benefits into a notional payback and prioritize resource allocation.
Sustainable Sourcing Goals:
While 75 percent (16) of packaged food companies have set goals to source some of their commodities sustainably, only five (General Mills, Kellogg, Nestlé, PepsiCo and Unilever) have set goals for the majority of their agricultural inputs. Furthermore, many companies in this industry are not disclosing how they are defining and measuring performance against these goals with 40 percent (eight) providing this level of disclosure for at least some of their key agricultural inputs and only four (General Mills, Kellogg, PepsiCo and Unilever) doing this for all of their key agricultural inputs.
- General Mills clearly defines what sustainable sourcing means for each of its 10 major agricultural inputs, and measures performance against these goals using a range of different platforms and certification schemes. In addition to providing detailed descriptions of progress for each goal, the company uses a dashboard on its website to track overall progress, with an estimated 69 percent of its 10 major commodities sustainable sourced as of spring 2016.
Alignment Between Sustainability and Procurement Function:
More than half of the companies in this industry – 60 percent (13) – are not effectively integrating public-facing sustainable agriculture policies, supplier codes and goals into internal processes, nor leveraging them to train and incentivize buyers.
- Kellogg incorporates responsible sourcing requirements and best practices focused on supply chain sustainability, human and labor rights and supply transparency into supplier performance expectations and global sourcing events. Kellogg also links employee performance evaluation for procurement staff to achievement and execution of these commitments.
Engagement with Growers:
While about 75 percent (16) are providing educational support to farmers to encourage more sustainable practices, most companies are not doing this at scale. Forty percent of companies (8) are providing some sort of financial incentive, such as interest-free loans for equipment or IT solutions, premiums paid to producers or purchase guarantees to offset the risk of trying new farming practices.