Sustainability study provides risk assessment

By George Reynolds

- Last updated on GMT

Related tags: Risk management

A new study by Deloitte Consulting has been developed to help
manufacturers assess the impact that the drive towards
sustainability could have on their business and operations.

The study provides an insight into what the picture may look like based on current situation and likely developments. Sustainability is becoming an increasingly important decision-making factor for food manufacturers because of rising raw material and energy costs, ever tougher legislation, and the growing pressure from consumers and environmental groups. There has been a 300 percent increase in climate change regulations over the past five years, while the segment of 'green buyers' has grown to 17 per cent, according to Deloitte. The study was compiled through a series of interviews, surveys and research with leading operators throughout the supply chain as well as environmental experts during April and May 2007. Collaborating with Deloitte to understand the key drivers and trends behind sustainability were the Grocery Manufacturers Association (GMA) and the Food Products Association (FPA). Despite the concept of sustainability being in its infancy, with not even a standard definition agreed upon, businesses need to integrate it into future plans, according to Deloitte. "Consumer businesses need to consider how their core business models, priorities and focus areas change, despite the uncertainties about how sustainability will evolve,"​ the study said. Sustainability is a critical business issue for manufacturers because of the large environmental footprint left by sourcing materials, processing, distribution, sales, and usage and waste disposal. For food manufacturers, sustainability poses some problems that are unique to industry. "Reliance on scarce resources such as water, oil and corn expose the industry to commodity risks and margin compression as inputs rise,"​ according to study. In the past year, corn prices have doubled from $2 to $4 per bushel, in response to the increased demand for the biofuel, ethanol. So manufactures are exposed to not only rising ingredient costs, but also rising energy bills. Furthermore, while branding on packaging is designed to attract consumers, future regulations could force manufacturers to become responsible for product and packaging disposal, according to the study. Materials deemed harmful to humans and the environment is increasingly subject to scrutiny from public concern and government. Retails have started to request complete formula information from suppliers, Deloitte found. The study gives four examples of how the environmental impact of sustainability is affecting industry now and how it could shape the future. Between 2005 and 2006, the average price of domestic gasoline increased 17 per cent, while the cost of diesel rose by 48 per cent, Deloitte said. While alternative fuels account for just six per cent of total US energy use, with ethanol representing one per cent, 18 per cent of the national corn output is used in its production. Agricultural irrigation uses 69 per cent of all water withdrawals, while industry uses 23 per cent, but legislative action is being considered at all levels of government to regulate usage, the study claims. While packaging waste represents 30 per cent all solid waste in the US, only 14 per cent of water bottles, for example, are recycled, according to statistics quoted from the Container Recycling Institute. European regulations are beginning to make manufacturers responsible for container disposal, and such measures could be implemented into the US. Growing scientific evidence links emissions with climate change, and erratic weather in recent years has disrupted the production a number of crops in the US. According to the study, the McCain-Lieberman bill could have a downstream affect on manufactures and supports a cap and trade system. These issues and more require manufactures to consider future sourcing of inputs, and trying to meet consumer demand for smaller convenience containers, while reducing packaging, the study said. Manufactures are becoming increasingly exposed to risks in their reporting of environmental, among other responsibilities. Although companies are not legally required to report environmental information on operations, where data does not reconcile with public statistics, a growing number of class actions are forcing businesses to obtain third-party verification, Deloitte found. Shareholders and government are demanding more transparency and consistency in environmental reporting, and these could pose difficult demands for manufacturers in the future. Retailers, such as Wal-Mart are influencing attitudes and behavior, but they are not the primary drivers of businesses sustainability programs, according the study. Internal drivers, such as cost reduction, commodity risk management and upholding corporate culture, have been driving manufacturer activities. Deloitte's key finding is that while 62 per cent of companies surveyed focus on initiatives to manage risks and reduce costs, only eight per cent leverage sustainability to creative a competitive advantage. The study found that while companies are dealing with sustainability in different ways, the successful programs methodically address strategic, operational, collaborative and governmental requirements. "Companies will not be able to dictate the timeframes or expectations for managing sustainability,"​ Deloitte said. "The time is now to undertake initiatives and integrate sustainability into the organization."

Related topics: Downstream Processing

Follow us

Products

View more

Webinars