Report calls for sustainability improvements, Unilever receives praise

Posted by Daniel Palmer on 28th October 2009

Many companies are failing to adequately address the issue of sustainable sourcing of raw materials, a new report has claimed.

The report*, which highlights Unilever as a leading example of best practice, evaluates 31 multinational companies in the food, beverage and tobacco industries against a new tool – the Ecosystem Services Benchmark.

The benchmark shows companies’ dependence on the ecosystem and allows investment analysts to rank companies in accordance with the level of sophistication of supply chain management of biodiversity and ecosystem services.

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“Companies and their investors have long taken ecosystem services for granted, as if they came for free,” Karina Litvack, Head of Governance and Sustainable Investment, F&C Investments, suggested. “Yet recent pressures on natural resources suggest that in future such services will start to command a premium, or, worse, become unavailable. This could have a profound impact on the strategies and valuations of companies in high-risk sectors.”

The survey reveals a picture of early stage response. Companies have pilot projects in place, but no plans disclosed to roll them out. They have management systems that tackle the issue in part, but are incomplete – perhaps applied to a single commodity or region. They have a wealth of activity but no clear rationale/ risk assessment process underlying it. This suggests a reactive rather than proactive approach.

The overall poor performance was not because the companies evaluated were inactive or disengaged, but because they could not readily demonstrate that the extent of their activity to manage this issue was appropriate for the risk involved.

“Almost two thirds of the companies were attempting to address the issue through some form of pilot programme, but often these were small initiatives at local level rather than company wide schemes that deal with natural resource issues at a scale equivalent to the company’s global footprint,” Mario Monzoni, Director of the Centre for Sustainability Studies at Brazilian business school Fundação Getulio Vargas, advised. “Such programmes often reflected a reaction to immediate risks rather than being part of a longer-term strategic risk assessment that anticipates the ‘natural resource’ crunch before it becomes a reality.”

Shining lights

It is not all bad news, however, as many of the companies in the analysis had started the journey to understand and address their impacts and dependence on ecosystems.

Dutch food giant, Unilever was the only company to fall within the realm of best practice within the survey. The UK retailer, Marks and Spencer also performed well. Both companies were distinguished by their well-documented, strategic and risk-focused approach which indicated they had understood and were managing many aspects of their ecosystem services footprint.

“Investors concerned about long term performance will examine the sustainability of a company’s business model,” Steve Waygood of Aviva Investors noted. “Companies that monitor their dependence on ecosystems and ensure the security of raw material supply have a competitive advantage in a resource-constrained world.”

Annelisa Grigg, Project Director of the Natural Value Initiative for Fauna & Flora International, added that the report challenges corporations to disclose more fully on the issue and put in processes to allow a better understanding of their company’s dependence on biodiversity and associated risk exposure.

“Perhaps the most telling result from the survey was the fact that less than half of the companies evaluated incorporated the full range of ecosystem services within their corporate risk assessments,” she said. “Hence, risks may be unmanaged and opportunities to build shareholder value missed.”

The decline in ecosystem services is the next big challenge for society and business.

* The report was produced by the United Nations Environment Programme Finance Initiative, conservation charity Fauna & Flora International and Brazilian business school, Fundação Getulio Vargas. The Ecosystem Services Benchmark tool was designed in conjunction with investors from Europe, Brazil, the USA and Australia: three UK-based asset managers (Aviva Investors, F&C Investments and Insight Investment); US-based asset manager (Pax World); Brazilian based bank (Grupo Santander Brasil) and a leading Australian pension fund, VicSuper.