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How to Become a

Sustainable Brand

MARIA CORONADO ROBLES


Not to be distributed without permission.

The data included in this document is accurate according


to Passport, Euromonitor International’s market research
database, at time of publication: August 2019
How to Become a
Sustainable Brand

Maria Coronado Robles


Senior Consultant

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© 2019 Euromonitor International


Contents

1 Introduction

6 What Should Companies Do?

9 How Can You Plan Your Sustainability Strategy?

13 What is Next?

16 Conclusion

17 How Can Euromonitor International Help?

© Euromonitor International
Introduction

Today brands are facing increasing pressure from consumers, governments, NGOs, investors and insurance
companies to have a positive and active role in protecting people and the planet. As a result, a growing
number of businesses are promising to take action towards the 2030 Agenda for Sustainable Development
set by the United Nations.

Sustainability is no longer optional and is increasingly becoming part of the business bottom
line. Understanding what sustainability means for a brand and learning how to create a successful
sustainability strategy is key in ensuring a business’ long-term operations and unlocks investment
opportunities that are tied to the UN Sustainable Development Goals (SDGs).

In this white paper we navigate the topic of sustainability, looking at the evolution of the term,
highlighting sustainable business practices through case studies and providing a framework for brands
to plan successful sustainability strategies. This report will help brands identify opportunities to become
more sustainable, closing the gap between awareness and action.

Defining sustainability
In 1987, The United Nations first defined sustainable development as “meeting the present needs without
compromising the ability of future generations to meet their own needs”. Today, sustainability can be
defined as an umbrella term that encompasses all sorts of social and environmental concerns along the
full supply chain — from ingredients sourcing, product design and business models, to manufacturing,
transport and a product’s use and end of life. Sustainability always means better. Better for the planet,
better for the people and better for the long-term health of the global economy.

The impact of sustainability


Businesses rely heavily on natural resources for their operations. The protection of natural resources and
the transition towards more sustainable production and consumption models has become a strategic
imperative for corporate survival and success. However, countries and businesses are at different levels of
understanding, planning and implementing sustainability strategies.

The sustainability landscape of different markets highly depends on their environmental situation and
legislation along with consumers’ awareness and preferences. Results from Euromonitor International’s

© Euromonitor International
2 Introduction

2019 Sustainability Survey, taken by over 600 professionals working in different industries, show that
3/4 of our respondents define sustainability as “reducing the impact on the environment”. 64% consider
that sustainability means “reducing energy impacts” and 51% link sustainability to “supporting local
communities”.

When it comes to consumers, the term sustainable is often related to ethical claims (healthy, locally
sourced, eco-friendly, etc.). In 2018, the ethical label market for packaged food and non-alcoholic drinks
was worth an estimate of US$1 trillion and it is expected to grow by 18.5% by 2023, based on research
conducted in 26 key markets. With 50% of consumers trusting sustainably-produced claims globally,
sustainability claims made up 17% of the global market for products with ethical claims.

However, there is a gap between consumers’ appetite for ethical products and the actual purchasing
decision, as they still rank efficacy, value and aesthetics as key desired properties. This gap is higher for
household products and smaller for children’s products and it is more evident in developing markets,
where paying premium for ethical products and services is more challenging.

The evolution of sustainability


The term Corporate Social Responsibility (CSR) emerged in response to rising awareness of the negative
impacts of businesses on the environment and local communities. While, traditionally CSR has played
a key role in marketing, branding and reputation, the launch of the UN Sustainable Development Goals
(SDGS) in 2015 transformed the meaning of CSR. As companies launched voluntary commitments to
achieve these goals, CSR moved beyond far philanthropy and corporate ethics.

1987 1990s 2015 2018 2019 Going forward


United Nations Corporate Social UN Sustainable EU’s Circular Purpose-driven The era of
definition for Responsibility (CSR) Development Goals Economy Package businesses and Sustainability
Sustainable became an enters into force Corporate Shared
Development important strategic Value (CSV)
issue

Source: Euromonitor International

The circular economy is the new economic model for sustainable development, playing a key role in
achieving the SDGs. In this model, nothing is wasted, everything lasts longer and is shared, reused, repaired
or recycled. While this model reduces pressure on natural resources, it also brings economic and social
profits.

© Euromonitor International
Introduction 3

The EU Circular Economy Package came into force in July 2018, with implications not only in European
economies, but also on countries and businesses globally. Consumer goods companies from all sectors
such as Danone, H&M group, L’Oréal, Unilever or The Coca-Cola Company along with major retailers (i.e.
Walmart), packaging producers (i.e. Amcor) and waste management companies (i.e. Veolia), have signed
the New Plastics Economy Global Commitment that aims to achieve a circular economy around plastics.

Traditional businesses’ focus on improving their social and environmental footprint is no longer enough.
Today, “purpose-driven” brands that aim to find the balance between economic profit and the creation
of shared value are setting up the new rules of the game. Going forward, this balance is expected to
tip in favour of prioritising the creation of social and environmental value over profit. The new era of
sustainability is upon us with the next generation of sustainable leaders having a planet-positive mindset
and the mantra of “giving back more to the planet than is taken out”. A regenerative approach that gives
brands a new direction to build a sustainable economy.

Sustainability drivers
Brands need to adapt to evolving sustainability trends, not only to protect their reputation, comply
with legislation and achieve economic profit, but also to capitalise on new opportunities and increase
long-term resilience and success. Euromonitor International has identified six key businesses drivers
for sustainability. Understanding these drivers and how they impact the market is essential to plan a
successful sustainability strategy.

Source: Euromonitor International

© Euromonitor International
4 Introduction

According to our 2019 Sustainability Survey, the top reasons for corporate investment in sustainability are
customer perceptions and brand reputation, followed by keeping in line with brand image and ethos and
complying with legislation.

61%
With 61% of consumers worried about climate change, corporations and
governments are aware of the massive pressures and expectations that
the public put on them to take urgent action. Governments around the
world are proposing new environmental policies aimed at alleviating of consumers are worried
these pressures. Examples of such policies are the recent bans on waste about climate change
imports, plastic microbeads and plastic bags that have been approved by
many countries across the globe.

Leading brands are moving ahead of the legislation to improve their environmental resilience and ensure
business growth over the long-term. As a result, innovation is booming with businesses heavily investing
in the development of all sorts of sustainable solutions, from alternative ingredients and greener designs,
to cleaner technologies and new businesses models.

At the same time, the rise of consumer activism is changing the ethical game. NGO pressures are now
strongly supported by more engaged consumers who are ready to boycott brands perceived as unethical
and big supermarket chains pledging to remove controversial ingredients and packaging materials from
their shelves.

Why does sustainability matter?


While socio-economic and environmental pressures pose substantial risks to businesses, they also open
up exciting opportunities to accelerate the transition towards a more sustainable future, making the 2030
agenda a reality.
Capitalise Opportunities Avoid Risks
Attract investors, employees and customers Reputational
Drive innovation Legal
Growth & cost savings Financial
Contribute towards SDGs Operational
Source: Euromonitor International

Businesses are in a privileged position to make significant changes in global energy, water and material
systems, while ultimately growing the bottom line. Unilever demonstrated that there is a positive
relationship between a company’s sustainability efforts and profitability, with its Sustainable Living
Brands delivering 75% of the company’s growth in 2018.

© Euromonitor International
Introduction 5

54%
Improving brand reputation and retaining talent are two of the
many benefits that sustainability brings to brands. According
to Euromonitor International’s Lifestyles Survey 2019, 21% of
of consumers think they can
consumers prefer to work for a company that takes ethical and
make a difference in the world
social responsibilities seriously and 54% of them think that they
with their purchases
can make a difference in the world with their purchases.

With sustainability becoming key for business success, investors are moving away from short-term profit
and injecting capital into more sustainable companies. The reason is clear. Smarter and more resilient
businesses are less likely to be affected by price volatility and potential disruptions in supply chains
and / or new regulations that could come into place to protect the planet, secure resources and avoid
international conflicts.

As these pressures continue to rise, organisations are seeing sustainability as an area of competitive
advantage. However, as more companies integrate sustainability into their core business strategy, it will
slowly become less of a competitive advantage and more of a requirement.

© Euromonitor International
What Should Companies Do?

The world is changing at a faster pace than ever before and these changes bring both challenges and
opportunities. Euromonitor International has identified eight megatrends that are set to shape the world
through 2030. Ethical Living, which in a nutshell is being mindful when making purchasing decisions,
is the most influential megatrend when it comes to sustainability. Brands looking to become more
sustainable need to keep an eye on five key trends that are shaping the sustainability landscape.
Trust and Sustainable Building
New Leadership Circular Strategies
Transparency Packaging Partnerships
Giving more back Blockchain shaking Ingredients from Recyclability a Collaboration, a
than the business up supply chains waste becoming priority for global recipe for success
takes out mainstream players

Ikea committed to H&M launches Kellogg’s turns Nestlé launches John Lewis
become “People product discarded rice recyclable paper launches in-store
& Planet Positive" transparency for krispies and coco wrappers for its returns scheme
with its “climate all garments on its pops into beer YES! snack bar for hard-to-recycle
positive vision” website, enabling “Cast off Pale Ale” range, carrying the packaging in
including a 2020 customers to make to cut down on message “carefully partnership with
target of producing more informed food waste. wrapped in paper”. Terracyle.
more renewable choices.
energy than it uses.

Source: Euromonitor International

Become a sustainability leader


Although the SDGs are expected to be achieved by 2030, many brands have set sustainability targets to be
reached by 2020 or 2025. This means that, with or without government intervention, a new generation
of leaders are expected to emerge over the next few years in the sustainability space, providing a new
direction in goal-setting.

The days a brand could address its negative impacts in one area by compensating for them with positive
impacts in other areas have come to an end. Today’s sustainability leaders are embracing “net-positive”
business models, which are built on the idea of having an overall positive impact on the society, the
environment and the global economy.

© Euromonitor International
What Should Companies Do? 7

While Ikea and Henkel have the commitment to become climate positive, Unilever has announced a
net-zero emissions goal by 2030, a target that is very welcome by the UK, the first major economy with a
net-zero climate goal.

Create shared-value through partnerships


Companies are increasingly shifting the focus from profit to shared value creation, aiming to generate
economic profit in a way that also creates value for the society and the planet by addressing its needs and
challenges. Overcoming these global challenges requires collectively setting ambitious goals, rather than
individual brands operating in isolation. Businesses are expected to join forces with other players — both
public and private — to address these complex challenges.

Building the right partnerships across the value chain allows brands to share costs and have access to
resources, infrastructure, knowledge and skills that otherwise wouldn’t be accessible. There are many
examples of business partnerships across different industries.

Google Cloud is developing a machine learning tool in collaboration with Stella McCartney that aims
to help fashion brands to improve sustainability across the supply chain and Unilever has a three-year
partnership with Veolia to improve the collection and recycling of plastic packaging in countries with poor
plastic waste management.

Be transparent
The higher price of sustainable products along with the lack of transparency and traceability across the
supply chain are key factors preventing consumers from making more ethical decisions. Transparency is
the key ingredient to prove sustainability credentials and boost sustainable purchases.

Providing information to the consumer on where the products come from, how the materials were
sourced and how the products were manufactured is essential to build green consumers’ loyalty and
trust. Many companies are adopting new technologies to improve their transparency. In July 2019 Nestlé
announced a pilot program to track its supply chain using blockchain, and M&S launched a website with an
interactive supply chain map that offers information about a product’s sourcing and manufacturing.

There is no doubt that digital disruption offers the perfect breeding ground for sustainable innovation.
It opens up attractive opportunities for investment in areas such as blockchain, artificial intelligence,
electrification of transport, smart cities and industry 4.0. However, as these technologies gain momentum,
there will be greater competition to meet consumers’ expectations beyond regulation.

© Euromonitor International
8 What Should Companies Do?

Embrace circularity
The circular economy is increasingly resonating in sustainability departments of multinational companies
as a possible solution for the waste and resources crises. The transition towards a circular model requires
a collaborative approach across the entire value chain, with extended responsibility playing a key role.

Businesses and countries are now expected to take responsibility for the products they put on the market
(extended producer responsibility) and the post-consumption waste (extended exporter responsibility).
These two concepts bring opportunities for businesses and countries to create their own circular
economies.

There is no single magic solution able to turn the linear economy into a perfect circle, a successful recipe
requires the combination of new models, technologies, materials and products designs. There are many
ways for governments, manufacturers, consumers and recyclers to collaborate and achieve a circular
economy.

Using waste as new resources is slowly becoming mainstream. While Kellogg’s has found an untapped
market opportunity to cut down food waste using discarded cooked grains to produce beer, Mondelez is
exploring the potential of using a gluten free coffee flour made from spent coffee grounds to produce a
high protein snack, showcasing how using waste as a new resource is becoming mainstream.

Switch to sustainable packaging


With plastics dominating the news headlines, governments are launching strategies targeting plastic waste
and consumers are demanding better alternatives. Sustainable packaging is at the top of the agenda for
businesses across all sectors, with brands pledging to make all packaging sustainable by 2030.

Euromonitor International’s Lifestyle Survey 2019 shows that ‘recyclable’ is the most trusted green label
globally, followed by locally sourced, natural eco-friendly and natural. However, the ‘recyclability’ of the
packaging highly depends on the collecting and recycling infrastructure which varies across the world and
tend to be very poor in developing markets. While 52% of the municipal solid waste in the USA and 94%
in Costa Rica goes to landfill, 50% of it is recycled and composted in Europe. Asia offers a mixed picture
across its markets and while China sends to landfill over 3/4 of its municipal solid waste, Japan incinerates
close to 80% and South Korea recycles almost 60%.

Every country offers different opportunities and challenges in terms of sustainable packaging.
Understanding which solutions are meaningful and work in different countries is key for brands to achieve
their global commitments on sustainable packaging. Coca-Cola Brazil wants 40% of its bottles to be
returnable by 2020. In Europe the company is investing in recycling infrastructure and supply chain for
recycled plastics, with the goal of making all its plastic bottles with at least 50% recycled content by 2025.

© Euromonitor International
How Can You Plan Your
Sustainability Strategy?

Businesses across all sectors are embarking on a more sustainable journey. This requires fundamental
shifts in the way that traditional businesses (business-as-usual) operate. Sustainability is becoming a key
part of the overall business strategy with some players now publishing integrated annual reports that
combine environmental, social and financial data. Coca-Cola, for instance, released its first combined
global “business and sustainability” report in 2018.

According to Euromonitor International’s Sustainability Survey 2019, 66% of the industry professionals
believe that sustainability initiatives are critical to success. 73% consider that although these initiatives
are an important component of the company’s value proposition, businesses still need to improve their
sustainability strategy. This report proposes a five-step formula that can help brands plan a successful
sustainability strategy.

Talk and Assess and Commit and Measure and Educate and
Engage Prioritise Collaborate Report Communicate
Prepare a business Prioritise focus Build the right Find the right Be transparent with
case to ensure areas based on your partnerships with metrics to evaluate consumers about
stakeholder and specific markets and key stakeholders progress sustainability
management buy-in value chain progress

Source: Euromonitor International

© Euromonitor International
10 How Can You Plan Your Sustainability Strategy?

Talk and engage


The first and most critical step when planning a sustainability strategy is building a winning business
case for sustainability. At this stage companies usually face conflicts between sustainability and
competitiveness, two areas traditionally seen as opposed
“A lack of commitment by
to each other. A convincing business case will focus on the
senior management is one of
connection between sustainability initiatives and business
the most significant barriers to
benefits (value creation and risk mitigation). This step is crucial
investing in sustainability”
to engage senior leaders on sustainability topics. According to
our Sustainability Industry Insights Survey 2019, the lack of
commitment by senior management and / or the board is seen as one of the most significant barriers to
investing in sustainability.

Leading businesses are overcoming this barrier by integrating sustainability at the board level. Unilever
has pioneered this trend with its former CEO, Paul Polman, being one of the most recognised sustainability
leaders in the corporate world. Earlier this year, L’Oréal announced that sustainability and corporate social
responsibility will be represented within L’Oréal Executive committee from September 2019.

Assess and prioritise


The second step is mapping and prioritising sustainability-related risks and opportunities across different
markets. Every industry has its own sustainability challenges and opportunities depending on the markets
where they source, manufacture and sell their products. This step is key to attracting investors and
ensuring good financial performance. Identifying these risks and opportunities also helps to protect brand
reputation and company operations as well as complying with, or even getting ahead of legislation.

Many companies use the materiality assessment to identify sustainability issues across the value chain that
are important for both the business and the stakeholders. This approach is based on what is important and
can be done rather than what needs to be done, looking at business in isolation.

With partnerships becoming a central part of the sustainability agenda, there is a recent shift towards a
more “holistic” approach that looks at country-specific needs to set bolder sustainability goals that address
these needs. Euromonitor International’s Environmental Sustainability Index is an easy-to-understand
country “scoring” system to quickly map and prioritise sustainability-related risks and opportunities
across different markets, helping businesses to become more sustainable in the markets where they have a
presence or plan to expand.

© Euromonitor International
How Can You Plan Your Sustainability Strategy? 11

Commit and collaborate


The third step involves proactively setting targets and goals as well as working in partnership to accelerate
sustainable business innovation. There is an increasing number of companies setting up science-based
targets. The Science Based Targets initiative (SBTi) was launched in 2015 to help companies overcome the
barrier to decarbonise their supply chain and keep global warming below 1.5ºC-2°C compared to
pre-industrial temperatures. Global companies such as Adidas, IKEA and Salesforce have science-based
targets to reduce their negative impacts on climate change and support the achievement of the Paris
Agreement targets.

The best option for brands to overcome complex sustainability challenges and achieve bold commitments
is to build the right partnerships with key stakeholders, from NGOs, governments and academia, to
suppliers, retailers, logistic companies, innovative start-ups and waste management companies. One of
the most recent examples of sustainable partnerships is LOOP, a coalition of leading consumers brands and
Terracycle (a recycling company), that offer refillable and reusable packaging to consumers.

Measure and report


The next step involves selecting the right metrics to keep the sustainability strategy on track. There
is no point in setting goals if you will never know whether you achieve them or not. Although, the SDG
framework provides a set of 169 targets and over 200 metrics that can be used to track the progress
towards these goals, our Sustainability Industry Survey reveals that in 2019, just above a third of the
professionals were aware of their company engagement with the SDGs.

While the SDGs are the foundations for a sustainable future, contributing to some of them does not
automatically make a brand sustainable. As the implementation of the SDGs rises so does the risk of
“SDG-washing” (also known as “rainbow washing” due to the colourful palette of the SDGs). This new
term is used to describe businesses that use the SDG framework as a marketing tool, cherry-picking easily
achievable goals while ignoring others. To avoid this temptation brands should track and report both
positive and negative impacts that the business has on the SDGs.

© Euromonitor International
12 How Can You Plan Your Sustainability Strategy?

Educate and communicate


Communication plays an essential role in any sustainability plan. Brands that disclose their results and
learnings, both internally (with the shareholders) and externally (with governments, investors, customers,
employees, business partners and local communities) are perceived as more transparent.

An increasing number of brands have a division dedicated to updating websites with information about
their sustainability priorities, targets, initiatives and results. Global companies leading on sustainability
are launching powerful messages and catchy slogans to demonstrate their actions and commitments to
build a more sustainable future.

While social media plays a key role in informing a brand’s sustainability strategy — from its voluntary
commitments to its achievements — product labelling opens a direct channel to communicate with the
public. This is reflected in more labelling legislation coming into place with the EU passing a new law (in
June 2019) to regulate single-use plastics labelling. Under this legislation, by 2021, items such as cups,
certain sanitary products, wet wipes and tobacco products must be clearly labelled with the amount of
plastic they contain as well as waste disposal instructions.

© Euromonitor International
What is Next?

Leading sustainable businesses are those that can adapt to global trends while also anticipating market
dynamics and competitors’ moves. Understanding future sustainability trends allow brands to come
up with unique solutions that position the business ahead of the game. Euromonitor International has
identified the most relevant consumer and business trends that will shape the future of sustainability.

Source: Euromonitor International

Rising activism
Both consumers and employees are demanding more from the brands they buy from and work for,
expecting businesses to make a positive contribution to the society and environment. According to
Euromonitor International’s Lifestyles Survey 2019, 21% of the respondents consider it a priority to work
for companies that take ethical and social responsibilities seriously.

© Euromonitor International
14 What is Next?

While social media offers an ideal tool through which consumers can share their opinions about brands,
street activism is rising with the proliferation of protests calling for action. Recent examples include the
school strike for climate movement initiated in August 2018 by Swedish teen activist Greta Thunberg and
Amazon employees protesting the company’s insufficient action towards climate change in May 2019.

Living with less


The mantra of “living with less” is appealing to more ethical consumers that are concerned about the
environmental impacts of ‘throwaway culture’. According to Euromonitor International’s Lifestyles
Survey 2019, 36% of consumers try to lead a minimalist lifestyle and do not buy new items unless
necessary, 20% of them like to repair items instead of purchasing new ones and 43% prefer to spend their
money on experiences over things.

Sustainable brands are responding to this shift in consumers’ expectations. Patagonia offers new services
such as free repairs to keep clothing in circulation for as long as possible, reducing not only waste
generation but also the carbon and water footprints associated with manufacturing new products.

I want to know more


Consumers and investors are demanding more transparent information from brands. Smartphones are
providing easy access to this information with 99% of the mobile phones in the world expected to have
internet by 2030. While this digital connectivity gives consumers instant access to product information, it
also offers brands a powerful platform to promote their ethical initiatives and shape consumers’ opinions.

According to Euromonitor International’s Lifestyles Survey 2019, 40% of global consumers follow or like
a company’s social media feed or post. Brands are aware of the power of these social platforms to connect
and engage with consumers green values and to share their sustainability story. Stella McCartney has
announced a social media series called ‘How to Save the World’ which will share tips for ways to fight
climate crisis for its 2019 winter collection.

© Euromonitor International
What is Next? 15

From knowledge to action


Leading brands in sustainability are moving away from the “tick box” approach and genuinely taking
a more proactive role to become part of the solution. There are pioneering companies that are seeing
business opportunities in taking action. The largest power producer in Denmark, Ørsted, is an example of
real action. Over the last 10 years the company has redefined their business, moving away from fossil fuels
and becoming a renewable energy company.

This proactivity is expected to play a leading role in achieving the globally agreed Sustainable
Development Goals, transforming the way that products are produced and consumed.

Purpose over profit


Consumers are engaging with brands that go beyond short term benefits and reflect their greener
values, with brands reinventing their sustainability strategies to meet these new demands. While some
companies are betting for purpose over profit strategies (putting first social and environmental impact
than moneymaking), others have launched “net positive” strategies that ensure a more resilient and
regenerative world.

Net Positive Sustainability Strategies Purpose Over Profit Sustainability Strategies

Company Strategy Company Strategy

IKEA People and Planet Positive Nike Purpose Moves Us

Dell Net Positive Social Strategy PepsiCo Performance With Purpose

Kingfisher Net Positive Plan P&G Purpose and People

BT Net Positive Vision Unilever Profit Through Purpose


Source: Euromonitor International

© Euromonitor International
Conclusion

Embedding sustainability into the brand’s core values is the new normal with sustainable investment
becoming mainstream. Brands are moving from traditional CSR programs to more holistic approaches,
setting up ambitious targets aligned with the SDGs. This is challenging traditional business models as
brands are now expected to create shared value while maintaining profit and boosting growth. This has
led to the emergence of disruptive business models that offer “more with less”.

While many brands consider themselves to be sustainable, contributing to some of the SDGs does not
automatically make them sustainable, a good sustainability strategy does. Active leadership by CEOs
and senior managers along with collaboration are the key pieces to solve the sustainability puzzle.
Partnerships which were previously considered to be irrelevant are now fostering sustainable innovation,
with multidisciplinary teams working together to achieve common targets.

While sustainability has long been somewhere on the agenda of many businesses, brands are now moving
from knowledge to action and from purpose to advocacy. Communication and transparency are more
important than ever before, with disrupting digital technologies such as blockchain and Internet of Things
(IoT), bringing light to the dark spots of the supply chain.

There is no doubt that sustainability offers fantastic opportunities for brands to deliver the SDGs while
also seizing the opportunity for a sustainable future. As sustainability shifts from optional to essential,
brands investing in sustainable innovation will be uniquely positioned to lead in this space over the years
to come.

© Euromonitor International
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