Businesses are reaping real value from ESG-driven decisions
Businesses are reaping real value from ESG-driven decisions
Increasing consumer demand for sustainable products and business solutions, and corporates’ intent to comply with UN Sustainable Development Goals, have driven executives to make business decisions based on ESG goals, and we have seen that these decisions not only ‘tick the box’ of sustainability requirements, but also deliver real, quantifiable value for businesses.
Consumer players continue to ambitiously innovate and ramp up every layer of their operations to achieve ESG goals. This ranges from the straight-forward, digitalizing paper invoices, to the industry-specific innovations such as alternative plant-based foods and the shift to resource-friendly ‘circular-economy’ initiatives that minimize waste.
Such actions are resonating with consumers: Dollar sales of plant-based meat, for example, grew 38 percent from 2017 to 2019, according to the Good Food Institute (GFI). And the eco-trend appears strong enough to be long lasting: in the US alone, sustainability-marketed products represented 54.7 percent of total 2015-19 CPG market growth, even though they make up only 16.1 percent of CPGs.
Large companies such as Nestlé, Mars, Danone, Coca-Cola and PepsiCo have set ambitious targets to use recycled plastic in product packaging. These changes directly address concerns among consumers and lawmakers regarding the harmful environmental impact of single-use plastic.
The pandemic has given consumers new insights into just how closely the environment and human health are interconnected. Prior to COVID, ESG typically focused on environmental issues such as plastic waste and carbon emissions. But the pandemic has broadened the public’s perspective to include other components of sustainability, such as people, workforces, suppliers and supply chains. As more people replace daily commuting with work-from-home arrangements, and as business travel gives way to conference calls, the reduction in workforce mobility could be a silver lining for a greener future and more-sustainable economies.
The pandemic has certainly propelled an eco-friendly shift in consumer buying behaviors and preferences. Direct-to-consumer (DTC) channels have proliferated, enabling companies to stay closely connected to consumers, identify and respond to their needs, and strengthen customer relationships and brand loyalty. Several companies, including Kraft Heinz (Heinz to Home) and PepsiCo (Snacks.com and PantryShop.com) have pivoted into DTC channels via organic and inorganic means.
In Thailand, we see the beauty care brand Rojukiss partnering with GMM Grammy in a media commerce business model in which Rojukiss, with access to GMM Grammy’s celebrities and media channels, launch their products through digital tv, online radio, home shopping channel and e-commerce channels. Another such partnership is between Zen Group and Lazada – Shopee. Zen Group opened their official store on the e-commerce platforms through which they sold coupons for five of their signature restaurants and took advantage of the huge 11.11 sale promotions. This allowed them to introduce their brands directly to new market segments and consumers.
On the regional level, Unilever Southeast Asia and Australasia also partnered with Lazada. Unilever opened their official store on the e-commerce platform in the region to not only engage their products with Lazada customers but also collaborate on learning and discovering new trends and solutions. A key priority of the partnership is learning how to overcome logistical inefficiencies holding back the use of e-commerce.
“This allows the business to bypass heavily saturated business competitive platforms such as supermarket shelves to directly connect with the consumer,” says Charoen Phosamritlert, Chief Executive Officer, KPMG in Thailand, Myanmar and Laos. “This also gives brands the opportunity to better their brand experience, have access to consumer data and insights, protect their sales figures, leading to improved margins. In fact, even convenience store giants like 7/11 are expanding into DTC channels. Customers can now buy 7/11 products through their official LINE channel, LINE Man, Grab, Shopat24 and 7/11 official app.”
While transforming distribution channels unlocks revolutionary new advantages for services and customer-centricity, it can also help meet key corporate sustainability goals. DTC channels may also improve last-mile distribution efficiency, as transportation is no longer needed from distribution channels to stores and from stores to consumers. Increased DTC reliance – online grocery sales are expected to form 21.5 percent of total sales – will eventually help to achieve economies of scale and solve the major challenge many of today’s sustainable products face: that they are typically expensive to buy and produce.
In monetary values, a Morningstar research indicates that ESG stocks have consistently performed stronger than their peers during COVID-19, indicating that good governance over environmental and social performance has a positive influence on share price. According to Nielsen, the US sustainability market alone is projected to reach USD150 billion in sales by 2021.
ESG also appears to have a direct impact on EBITDA. We analyzed several M&A transactions in consumer sub-sectors to understand ESG deals’ financial metrics and value drivers and observed 14.4 percent higher average EBIT for sustainability-driven acquisitions between 2017 and 2019 compared to others.
Chief Executive Officer, KPMG in Thailand, Myanmar and Laos
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KPMG in Thailand, with more than 2,000 professionals offering Audit and Assurance, Legal, Tax, and Advisory services, is a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee.