CDP: Most Fast Moving Consumer Brands Failing on Low Carbon Innovation

by | Feb 25, 2019


For the first time, CDP published an investor research report on the consumer goods sector. The new report released today looks at which consumer goods companies are ready for a low carbon transition. Fast Moving Consumers ranks 16 of the largest and publicly listed fast moving consumer goods companies (FMCGs).

CDP analysts ranked companies using a methodology based on the Task Force for Climate Related Financial Disclosure (TCFD). Those metrics were then weighted based on their relative importance to the sector’s decarbonization, and aggregated to produce an overall rank, explained Christie Clark, a research analyst on CDP’s Investor Research team.

Danone and Nestlé led the food and beverage sub-sector while Unilever and L’Oréal led household and personal care. Laggards included Kraft Heinz and Estée Lauder.

One key finding was that almost 60% of the top 10 revenue-generating brands for each company analyzed failed to deliver low carbon innovations to market in the last five years.

Clarke shared additional insights from the report with Environmental Leader:

What prompted this research?

Our research has historically focused on industrial and energy sectors due to their high Scope 1 and 2 (direct) emissions. We wanted to broaden the thinking by taking a value chain approach to analyze sectors with significant Scope 3 (indirect) emissions exposures such as consumer goods.

When you account for upstream agricultural emissions and downstream consumer emissions, the sector emerges as key player in driving over a third of global GHG emissions. We felt that this was an important story to communicate to investors and one that has been historically under-researched.

What are the main takeaways from the report?

Our analysis shows there are some companies demonstrating significant leadership. That said, all the companies we looked at still face significant exposures to business model disruption due to the linear and resource-intensive nature of their businesses. Climate-related resource constraints, particularly around water scarcity, have the potential to disrupt agricultural supply and reduce the feasibility of consuming water-intensive products.

In addition, changing consumer preferences could undermine demand for legacy brands if companies fail to innovate appropriately. Our analysis shows that while the leaders in the sector are investing in transformative low-carbon innovation, this is largely being rolled out by their smaller niche brands, leaving their key revenue-earning brands exposed. Leaders need to ramp up the scale of transformative innovation to protect their legacy brands and continue to manage their business model exposures.

How does CDP define low carbon innovation?

Low carbon innovation is any innovation which results in reducing carbon emissions for the sector in different parts of the value chain.

Any advice for companies ranked near the bottom?

An important starting point is understanding material value chain exposures. That’s why we looked at how well companies analyzed their lifecycle impacts and Scope 3 emissions. For food and beverage companies, these risks are found in their agricultural supply chains while household and personal care companies are more exposed in to how much their products use water and energy.

Once a company has a clear understanding of these exposures, they can design management strategies to respond. For this sector, carbon management requires engagement with suppliers and consumers to drive collaboration and innovation across the value chain, and drive behavior change.

Could you share some examples of successes?

We categorized innovations as being incremental, radical, or transformative. While incremental product innovations have historically been sufficient to keep ahead of the market, we now see consumers demanding more transformative innovations. Some examples of transformative innovation:

  • Smart agriculture and improved yield varieties: AB InBev, through their Smart Barley Program, is developing new barley varieties that can use up to 40% less water. Danone also launched a Soil Health Initiative, committing $6 million to soil health research.
  • Vegan and plant-based reformulation: Unilever created a new brand — Love Beauty and Planet is 100% plant-based. L’Oréal’s Pureology brand and L’Oréal Professional’s Botanea range have been formulated to use 100% natural ingredients. Nestlé and Unilever reformulated some legacy ice-cream brands to provide vegan ranges. Danone’s Alpro brand provides non-dairy alternatives.
  • Reformulation to reduce water and energy intensity in consumption: Unilever’s SmartFoam technology reduces the number of rinses needed by up to half.
  • Supplier engagement: Danone’s Feed the Cow project equips farmers to reduce their water footprint through efficient local feeding solutions. Nestlé’s Nescafé Plan provides farmer training and research into high yield varieties.
  • Local supply chains: AB InBev created a new supply chain in Uganda by developing a local product and supporting farmers in sustainable sorghum production. In Mozambique, their local product supports farmers in sustainable cassava production.

Any other insights?

Leading companies must begin to use their influence and scale to drive collaboration and innovation across their whole value chain rather than just focusing on what is happening within their operational boundaries. This is particularly relevant for consumer goods companies given 90% of the sector’s carbon exposures lie in the value chain.

Want to learn more about emissions reduction strategies? Head to Denver for the 4th Annual Environmental Leader & Energy Manager Conference (ELEMCON) May 13 – 15, 2019. Learn more here.

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