New report identifies challenges food companies face in meeting ESG goals for environment, social, and governance

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Although most food and beverage brands want to embrace environment, social, and governance practices (ESG), they still may face challenges when it comes to meeting that goal. This was the conclusion of a new report from TraceGains, an ingredient marketplace whose TraceGains Gather platform connects companies in the global consumer goods supply chain. The report is titled “State of ESG Compliance for the Food and Beverage Industry Report.”

From June 22, 2023, to July 7, 2023, the company says it conducted an online survey of 343 professionals from large CPG companies in the food and beverage industry, with 61% of survey respondents reporting company revenues exceeding $25 million. The survey was conducted globally in North America, the UK, EMEA, APAC, and LATAM. Respondents’ roles ranged from quality and operations to safety and R&D.

Overall, the report states that while 64% of those surveyed said their companies are willing to prioritize ESG-compliant practices in food production, many companies are still “hampered by high ingredient costs, lack of standards, and supplier sourcing” challenges that prevent them from fully doing so.

TraceGains’ press release says there is a “disconnect between well-meaning CPGs and their ability to deliver ESG-compliant products in the context of an increasingly complex global supply chain.” On the positive side, it said, 64% of respondents acknowledged the importance of being ESG-compliant, and 46% said their companies prioritize doing business with ESG-compliant ingredient suppliers. Also, 50% of respondents said their company would be willing to stop production of a product if it were unable to meet ESG standards.

On the negative side, 41% said they still feel they aren’t fully ESG compliant. One challenge lies in finding ESG-compliant ingredient suppliers. According to the TraceGains report, only 16% of those surveyed said their brands have a formal, technology-assisted process for selecting and validating ESG-compliant suppliers. Meanwhile, 42% said they rely on more informal methods like word of mouth or relying on suppliers’ claims. Also, the report notes, “55% demand more transparency into ingredient supply chains, with nearly half (49%) wanting visibility into Tier-2 and Tier-3 suppliers.”

Companies may be falling short on ESG compliance because they’re challenged to establish an ESG-compliant supply chain. As a result, “Given all the murkiness and work involved, more than one-third (39%) simply have not had the resources to search for ESG-complaint suppliers in the last six months,” the company reports. “And, of the 60% that tried, half encountered challenges finding suitable partners. As a result, it’s no surprise that the majority of respondents (60%) can only ensure compliance for up to 25% of their partners, underscoring the need for clearer guidelines and transparency.”

Other challenges CPGs may face include cost challenges associated with purchasing ESG-compliant ingredients. Some companies are willing to. The report states, “Despite razor-thin margins, two-thirds (67%) of brands are willing to pay more for ESG-compliant ingredients. Over one-third (35%) would pay a premium of up to 10%, while 32% would pay up to 20% more. A small percentage (24%) of price-sensitive brands are unwilling to pay any premium.”

Supplier transparency is also a concern, with 49% of respondents declaring they would like “deeper visibility into their supply chains beyond just Tier 1 suppliers” and that “25% need full traceability and ESG data all the way back to the point of cultivation for the ingredients in their supply chain.”

Technology is another challenge. Companies cited the need to invest in technologies that allow them to ensure and maintain supply chain transparency and ingredient traceability, and to monitor supplier and vendor compliance and environmental improvements.

The report concluded: “Demand for ESG-compliant ingredients is only getting stronger, with 42% planning to increase their usage of these ingredients in the next 6-12 months. This growth is being fueled by the evolving regulatory landscape (32%), consumer demand (27%), and competitive pressures (18%). With increased support, and the right tools and partners, food and beverage brands have an unprecedented opportunity to navigate the complexities of ESG compliance by fostering greater transparency, trust, and alignment with global sustainability initiatives.”