Central to changing customer expectations for consumer products businesses is that people have indicated a great willingness to vote with their wallets (and indeed their clicks) if they feel a brand isn鈥檛 stepping up to the mark. A Hotwire survey in 2019 found that almost half (47%) of internet shoppers switched product because of moral or ethical values; protecting the environment topped a list of reasons to switch.

Meanwhile, institutional investment decisions are now being made with these considerations front of mind. Over three quarters (76%) integrate ESG data into their thinking, elevating the role and significance of ESG reporting in consumer products even further.

Clearly, ESG is now business critical, as well as ethical. And this shift is driving a new way of looking at, and reporting on, ESG across the consumer products supply chain.

The question to businesses in the sector is how well prepared are they for modern sustainable business operations and ESG reporting?

Why ESG reporting and performance management matters for consumer products businesses

One of the key concerns around ESG for consumer products businesses is their supply chain. Depending on their exact business area (food, clothing, or beauty for example) there are different nuanced, multi-faceted paths a product can take from raw materials to arrival on the shelves 鈥� touching natural capital, land, communities, materials and energy.

In prior years, this was something even the businesses itself (alongside a few external stakeholders) could only monitor with difficulty. Today, however, things are very different. The end user wants to know more about that supply chain, and bases decisions on everything from labour conditions in factories around the world, to the use of water, sourcing of materials and carbon footprint.

The pressure is on to improve processes, reduce wastage in packaging, create efficiencies in distribution and enhance sustainability at every stage from production to sale. None of which can be done without a clearer view of business operations 鈥� from pollution, energy consumption and waste management, to labour and the supply chain.

The path to improved operational visibility

For businesses within the consumer products space, this all reinforces the point that sustainability performance management and ESG reporting is not simply a PR exercise. Rather, it鈥檚 a critical commercial matter 鈥� because without high quality, trusted reporting and management of ESG performance, the risk is loss of revenue and reputation.

However, many consumer goods businesses have complex supply chains that even they don鈥檛 fully understand, meaning it鈥檚 difficult to measure impact at every point of the operation. Complicating matters further, current ESG reporting capabilities are often some distance from ideal. Whether that鈥檚 because of a reliance on manual processes leading to human errors, the need to collect and integrate data from multiple disparate systems, the complex modelling requirements, the multiple reporting standards, or even that their intentions have run a little farther than their capabilities.

Countering that requires a fuller understanding of where consumer products businesses can make clear and consistent gains. For instance, with greater transparency businesses can make a better case to investors and consumers that they are improving 鈥� and implementing good practices. While more automated digital solutions can transform how reporting is managed, providing clearer outcomes against KPIs as well as identifying areas where businesses can make efficiency or cost gains.

Of course, every business will require a solution that鈥檚 specific to its needs and the unique nuances of its operations. However, there are some commonalities that most in the consumer products industry can benefit from.

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The global COVID-19 pandemic has accelerated this trend. According to , in the first half of 2020 net inflows into ESG funds in the US reached $21 billion, nearly equalling the total amount for the entirety of 2019, which was in itself a record.

In a world where consumer and investor decisions are increasingly influenced by sustainability credentials, ESG is now seen as a base for opportunity, growth and value by asset managers. The major global investor now 鈥榝ocuses on integrating ESG risk and opportunity factors into investment decisions鈥�. According to the latest data from 2018, a third of investors are using ESG assessments to decide what companies to exclude from their portfolios, while an additional third are integrating ESG into investment decisions.

s aim to make financial services an agent of change by requiring the sector to report the ESG performance of its investee companies. And, the EU regulation听on Sustainability-Related听Disclosures, taking effect March 10, 2021, hopes to enhance transparency as it requires asset managers to integrate ESG considerations into their practices.

Key stakeholders in the corporate reporting world, such as the IFRS, the UK鈥檚 FRC and ESMA, have made it clear that more standardised, relevant and comparable information is required to support this new regulatory environment. For businesses, this increased focus on their ESG reporting provides an opportunity to showcase sustainability in their business models, link it to performance, and capture a lower cost of capital.

Yet it also represents a clear challenge. Many companies have made strides towards giving ESG a greater focus. However, it remains the case that a great number are still far too reliant on legacy ESG reporting tools, manual processes and a lack of dedicated resource. Most businesses are fully cognizant of the direction of travel for ESG reporting and they鈥檙e making headway with more sophisticated reporting, providing investors with the assurance they need alongside internally highlighting inefficiencies that need reforming.

However, there is significant work needed to provide investors with the clear, authoritative and error-free reporting that they demand to take advantage of the opportunities many believe ESG will provide.

From a company鈥檚 perspective, failure to rise to the challenge of improved reporting means that investment may find its way elsewhere to competitors. As investment flows become more and more influenced by the quality of integrated reporting and sustainability performance, the cost of capital for better performers will continue to fall relative to that of poorer performers.

With sustainable investment portfolios around the world, the business case for ESG reporting improvement and transformation is clear. It鈥檚 now down to businesses to harness the new tools available to them, and to make changes that will benefit their business, their investors and the planet.

To find out more about this, and how our Corporate Sustainability Reporting and Performance Management solution can help, read our new or check out our .

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As concerns around climate change and water scarcity continue to grow,听sustainability听across a wide range of dimensions is听being brought to the forefront of the way听utilities听operate.听Many of these dimensions are captured in the听measures of environmental, social and governance (ESG),听which collectively establish a听鈥渟ustainability鈥�听framework for assessing a company鈥檚听performance听in everything听from greenhouse gas emissions to employee health and safety.听

ESG reporting is transforming from being a听鈥榥ice-to-have鈥� to a听fundamental business听need. Utilities 补谤别听doubling-down听on efforts to establish a comprehensive reporting methodology that听takes into account听the expectations of听a听number of听stakeholders, including financial investors, regulators,听customers and听employees.听

Meeting the ESG reporting听and performance management听challenge听

The听increased focus on听sustainability performance 鈥� as represented by ESG听鈥撎�and the听associated听demand for high quality data, has grown faster than companies鈥� ability听to provide听it in a robust, automated, auditable way.听Now, as customers, investors and regulators seek more transparency,听current ESG reporting capabilities need to be assessed听against their capability to deliver听evolved听requirements.听For the most part, they fall short.听

Reporting of operational performance, including ESG, tends to be reliant on听manual processes听and, as a result, reported听data听is often听incomplete and not听standardised.听ESG performance, or the impact on ESG performance, can鈥檛 be integrated into investment decisions as it is not linked to financial data.听听This makes it challenging for the Board to steer the business as ESG data is not generally as available or trusted as financial data for investment decisions.听

The lack of solutions that enable real time听insight into ESG听performance听has in the past prevented utilities from experiencing the full benefits of better听sustainability听reporting听and performance management.听But now,听with ESG becoming a boardroom issue, practical steps are being taken to update how sustainability reporting is carried out,听based on an enterprise-grade platform which provides trusted data to stakeholders inside and outside听businesses.听

Benefits of improved ESG reporting听

If utilities can听transform how they report on ESG issues, the benefits they receive听will听extend to diverse areas of their operations. For example, credit鈥痳ating agency听听has found that ESG considerations are now a factor that lenders take into consideration when offering loan pricing.听听听

Linking loans and other forms of finance to听corporate sustainability performance听(and carbon emissions in particular)听is听one recent innovation听鈥�听but听it will not be the last method investors use that requires advanced ESG data.听This means that utilities听need to ensure the platforms they use for ESG reporting听are able to听support听a robust due diligence process that finance providers will undertake when testing achievement听against听contracted听ESG targets.听

Beyond this,听ESG performance听will听also provide competitive advantages and unlock value creation. For example, through zero carbon听energy听or water听provision,听increased customer loyalty and differentiated pricing.听听

These kinds of听developments听are part of the future for听the entire utilities industry. And听they听make new听ESG听technology decisions paramount for businesses that are serious about investment and prosperity, as well as sustainability.听

Corporate Sustainability Reporting and Performance Management by SAP, allows you to understand and manage your environmental impact and report against a range of different ESG standards. To find out more about this, and how SAP鈥�s capability can help, read our new or check out our .听

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