Nestle: Greening the Supply Chain

Nestle has positioned itself as a global leader in combatting climate change. Will consumers buy it?

Nestle, the world’s largest supplier of food and beverages, is a global leader in addressing sustainability not just within their company but across their entire supply chain.  In January 2019, Nestle was one of only 29 companies recognized for addressing climate change with their suppliers in a report by the nonprofit group Carbon Disclosure Project (CDP).[i]  According to CDP, “the vast majority of emissions of the average company are in the supply chain,” but “too few companies have engaged with their suppliers.”[ii]

Food producers are already seeing impacts of climate change on crop yield as weather becomes more volatile.  According to a 2014 report by the UN’s climate science panel, crop yields are seeing a decline in rate of growth, and changes in temperature and rainfall could cause food prices to rise between 3% and 84% by 2050.[iii]  Nestle and other large food and beverage companies are well aware of these risks. In the lead up to the 2015 Paris Climate Accord, Nestle USA CEO Paul Grimwood joined 9 other CEOs of leading food companies including Mars, General Mills, and Kellogg in releasing a joint letter urging world leaders to take action on climate change.  In the letter, Grimwood stated, “these changes impact the business we do every day as well as the work of farmers, suppliers and distributors across our vast network of partners.”[iv]

While on the surface Nestle talks about business and corporate responsibility as the main reasons for its sustainability efforts, reputational risk is also a major concern.  Customers are increasingly sensitive to where their food comes from, yet they do not often differentiate between the brand name on their package and the suppliers further up the chain.[v]  Therefore a company which has its own sustainability programs but does not look to its entire supply chain may still suffer reputational damage if one of its suppliers is a major polluter.  To this end Nestle has participated in European Commission efforts to standardize how environmental standards and claims of sustainability are communicated to consumers, including standard definitions of “sustainability” and how to measure environmental impact.[vi]

Nestle’s actions to date

Nestle has taken steps on several fronts to “green” their entire supply chain.  They have taken a “life cycle approach” (LCA) to looking at their products, an assessment approach that identifies the environmental impact of a product at every stage in its life cycle.  LCA is becoming more and more common in agriculture and industrial food, and it has proven effective in assessing environmental impacts of products in a more systematic way.[vii]  For example, for their Nespresso coffee products, Nestle started with coffee farmers at the very top of their supply chain, evaluating sustainability practices at the farms and coaching farmers through a continuous improvement process.[viii]  In their manufacturing processes, Nestle has set a goal of being emissions-free by 2030. To date they have achieved reductions in emissions by improving manufacturing efficiency and switching to renewable energy and clean fuels.[ix]   Nestle also encourages factory sites to adopt best practices in sustainability from other sites through their Do It Yourself website.[x]

Taking it further

While Nestle has done a lot of work to promote sustainability in their supply chain and has been a strong advocate for responsible climate policy, some of their branding efforts seem to cross the line into “greenwashing,” or using labels and packaging that imply that a product is environmentally friendly.  For example, some of Nestle’s breakfast cereals sport a green banner at the top and proclaim themselves to be “whole grain.”  Nestle’s branding implies that these products are healthier and more environmentally friendly, yet many still contain large amounts of added sugar.  With these products Nestle risks alienating environmentally-friendly consumers who may resent this “greenwashing.”  They also risk misinforming consumers trying to make healthier choices, which goes against some of their customer-focused positioning, or diluting their environmental work by associating ‘green,’ more natural-looking labels with physical health instead of environmental health.  In addition, to drive real sustainability, Nestle should look to innovation in their packaging to develop more compostable or renewable packaging for currently disposable goods like plastic water bottles and cereal bags.

Open questions

Do consumers take sustainability into account when making purchasing decisions?  What is the best way to convey this message?  How can more large companies convince their shareholders to take sustainability seriously at all stages in the supply chain? (884 words)

 

Sources:

[i] https://www.reuters.com/article/us-climatechange-companies/more-businesses-must-work-with-suppliers-to-curb-climate-change-study-idUSKBN1580D0

[ii] ibid.

[iii] https://www.theguardian.com/environment/2014/mar/31/climate-change-food-supply-un

[iv] GLOBAL FOOD COMPANIES UNITE ON CLIMATE ACTION; in joint letter released today, chief executive officers of 10 leading food companies call on U.S. and world leaders to act swiftly and decisively. (2015, Oct 02). M2 Presswire Retrieved from http://search.proquest.com.ezp-prod1.hul.harvard.edu/docview/1718381026?accountid=11311

[v] P. Rao and D. Holt, Do green supply chains lead to competitiveness and economic performance? International Journal of Operations & Production Management, 25(9), (2005), 898-916

[vi] http://www.food-scp.eu/node/26

[vii] A review of life cycle assessment (LCA) on some food products. Roy, Poritosh; Nei, Daisuke; Orikasa, Takahiro; Xu, Qingyi; Okadome, Hiroshi; et al. Journal of food engineering Vol. 90, Iss. 1,  (Jan 2009): 1-10.

[viii] Alvarez, G., Pilbeam, C., & Wilding, R. (2010). Nestlé nespresso AAA sustainable quality program: An investigation into the governance dynamics in a multi-stakeholder supply chain network. Supply Chain Management, 15(2), 165-182. doi:http://dx.doi.org.ezp-prod1.hul.harvard.edu/10.1108/13598541011028769

[ix] http://www.nestle.com/csv/planet/product-life-cycle/manufacturing

[x] ibid.

Previous:

Reacting to rising isolationist sentiments with production overseas

Next:

Information overload: GE’s opportunity for enhanced partnership across the OFSE supply chain

18 thoughts on “Nestle: Greening the Supply Chain

  1. Thank you for your balanced approach in assessing Nestle. Like most companies, there are certainly two sides to Nestle’s efforts. Polypropylene is one of the bag styles Nestle uses with certain products, and it is widely used across the pet care industry. It appears to be recyclable; however, many recycling facilities are ill-equipped to process it, so it ends up in the trash.

  2. Nestle’s leadership in sustainability is seemingly admirable it’s important to remember quite how damaged Nestle’s reputation is/ was, starting with controversies around their baby milk in 1977 and followed with numerous protests and boycotts. They were/are arguably one of the most hated companies in the world. Nestle’s leadership in the fight against climate change is essential to re-establish Nestle’s credibility and image with consumers.

    Does it matter if these efforts are merely a PR exercise or is the motivation for change irrelevant so long as the results benefit the planet?
    Is Nestle committed to making ‘real’ change or merely creating a glossy ‘green’ surface to improve consumer perception?

  3. I agree that sustainable packaging should be a huge focus for Nestle. If we think about Nespresso’s single-serve aluminum espresso pods, the effort to source coffee from sustainable farms is offset by the waste this packaging creates. In fact, Nestle will not even disclose how many pods are recycled (1). This lack of transparency is fishy and calls into question just how committed Nestle is to fighting climate change.

    Moreover, as late as September 2017, Nestle was being accused of contributing to severe plastic pollution in the Philippines. Nestle, together with Unilever and PT Torabika Mayora, was responsible for 1.88 million metric tonnes of mismanaged plastic waste in 2016 in the Philippines (2). Philippines like other emerging market nations are “sachet economies”, in which consumers rely on goods in smaller sizes as a way to increase affordability and accessibility. Nestle should be thinking about how to help consumers adopt more sustainable practices – such as creating reusable sachets.

    The fact that in 2016 Nestle admitted that seafood suppliers in Thailand were using forced labor and essentially conducting modern day slavery was shocking and not to mention, a huge PR blow. If the Company had the right supplier vetting procedures in place then this would not have happened. Beyond packaging, they need to do a better job of selecting and monitoring suppliers.

    Lastly, with over 8,500 brands and presence in 80 countries, Nestle is a company that should leverage its size across brands to impact sustainability efforts. In other words, it should not take a siloed approach to fighting climate change at the brand level, instead sustainability should be a mandate from the parent company. I am not sure Nestle is encouraging its individual brands to collaborate and work together in this department.

    (1) https://www.theguardian.com/sustainable-business/2015/may/27/nespresso-sustainability-transparency-recycling-coffee-pods-values-aluminum
    (2) http://www.greenpeace.org/international/en/press/releases/2017/Nestle-Unilever-PG-among-worst-offenders-for-plastic-pollution-in-Philippines-in-beach-audit/
    (3) https://www.theguardian.com/sustainable-business/2016/feb/01/nestle-slavery-thailand-fighting-child-labour-lawsuit-ivory-coast

    1. I also support Bismah’s skepticism of Nestle’s commitment.

      Apparently, in 2008, Nestle Water Canada ran an ad claiming that “Bottled water is the most environmentally responsible consumer product in the world.” It also doubled down on the message that its plant-based plastics is less damaging to the planet than other types.

      However, as The Guardian points out, only about 31% of plastic bottles end up getting recycled. Thus, it’s quite ironic that the poster child of environmentally friendly corporations actually creates millions of tons of refuse each year. Granted, in an industry like Nestle’s some sort of environmental footprint is necessary. However, is Nestle trying to capitalize too much from its actions?

      (1) https://www.theguardian.com/sustainable-business/2016/aug/20/greenwashing-environmentalism-lies-companies

  4. Immediately, your essay reminds me of a recent case where we discussed how responsible an organization is for influencing and monitoring their suppliers. As we discussed in that class, companies are being pushed to exert more authority over suppliers to ensure they have proper labor conditions, do not employ child labor, and – in Nestle’s case – are prepared for and helping to combat climate change. Greenwashing presents an interesting problem that has arisen as a result of their green efforts. I think it is very common to confuse consumers by associating physical and environmental health, and in many situations the consumers who care about these two factors are one in the same. Do you think it is possible for Nestle to promote their environmental friendly products in a way that does not make them appear “healthier” overall? I would be nervous that this approach would only further confuse consumers.

  5. In agreement with your view that Nestle faces many angles of possible sources of reputational risk. At the risk of piling on, I believe another climate change driven source of reputational risk for Nestle would be their approach to water utilization and the sustainability gaps they’ve needed to close. If I recall correctly, they were one of the first companies to come under fire for their water practices during California water droughts. A holistic, comprehensive strategy for their green supply chain, as well as an approach to communicate it effectively to consumers, would greatly benefit Nestle against these multi-pronged PR challenges.

  6. To the question of consumers shopping choices reflecting any concern for sustainability, it must be remembered that not all people are members of the religion of global warming. As such, Nestle and other companies like them should be and I assume are taking into account various points of view when measuring consumer concerns. Certainly negative press and intimidation from highly organized lobby groups are a factor as well. I would assume too are government initiatives around green technology help form the choices that a company like Nestle make. How much is the consumer voice heard in the whole equation? Hard to tell, but it is certainly one piece of the puzzle, and to assume that the majority consumer voice is one that each of us agrees with may be a mistake.

    1. I think you’ve raised an interesting point – that is, how much should companies kowtow to the demands of the eco-conscious consumer? I would agree that not all people are as sensitive to environmental or sustainability concerns when making their purchasing decisions. Having said that, what is the ‘inflection point’ at which companies must start to shift their business and operating models to reflect these demands? Would it not be more prudent to shift their supply chains now, to prepare for the eventuality that the bulk of their customer base will begin to care?

  7. Thank you for your balanced argument.

    Similar to IKEA, Nestle has a big role to play in driving sustainable practices across its value chain. However, the key difference between Nestle’s situation and IKEA is that IKEA had a bigger leverage on the value chain and could significantly influence sustainability practices because of its scale – IKEA accounted for 1% of world wood consumption (according to case fact). I doubt if Nestle has such level of influence. I, therefore, agree with Bismah that Nestle’s silo efforts won’t cut it here, an industry effort is required if meaningful results are to be achieved. It’s commendable that Nestle is already engaging with the European Commission to standardize how sustainability is communicated to consumers. Actually, I’d say they need to think global.

    One big effort Nestle has pushed aggressively as part of its sustainability effort, at least in Africa, is increasing local sourcing of inputs in its markets where its products are sold. This surely minimizes CO2 emission from transportation. Another commendable effort!

    As far as corporate responsibility for sustainability goes, shareholders or the investing community at large also have a role to play. Sustainability usually requires a gradual transformation of supply chain usually costly in the short term, forcing managers to make a trade-off between keeping their “profitable” status-quo or investing in sustainability for future gains. This leaves managers in a dilemma in a world where investors and capital markets reward short-term performance. Case in point, Paul Polman (Unilever’s CEO and poster-child of sustainable business practices in the consumer goods industry), faced a lot pressure earlier this year when 3G Capital (profit-driven investor and owner of Kraft-Heinze) made a hostile take-over bid for the company. 3G Capital believed it could extract more value from the business than management currently does. Had 3G been successful, the company’s long history of sustainable practices might have been jeopardized.

    https://www.ft.com/content/a2f1fe90-f792-11e6-bd4e-68d53499ed71

  8. Appreciate your question at the end regarding whether or not having a sustainable label sway consumers one way or the other. I would give Nestle the benefit of the doubt because it is truly impossible to have zero emissions as a result of making a product, be it a perishable good or a manufactured good. While Whole Foods has been certified by several “green-minded” foundations, their operations may hide the fact that organic products require specialized transportation techniques to reduce perishability. Gaining the stamp of approval doesn’t mean that your products are 0% “green”, it is rather a question about the source of the inputs and the techniques deployed to make the product.

    At the same time, Nestle’s impact in the world is several times the average output of a single person or producing field. By being one of the top arbiters of consumer product creation and development, having an active campaign there could trickle down positive behaviors throughout the supply chain. Similar to Walmart’s campaign, Nestle will be using positive reinforcements to enact their green campaigns. I would ask you a follow-up question though: Do positive reinforcements alone urge companies to focus on negative externalities? If not, what can they do to truly motivate change across their complex supply chain networks?

  9. Nestle’s commitment to sustainability will be tested and judged by how they scale their actions to drive sustainability across all markets in which they are active. Nestle’s revenue from Europe, Middle East and North Africa make up 30% of revenues, with the remaining revenue coming from the Americas, Asia and rest of Africa [1]. With factories in most countries in which they market their products, and with a local sourcing strategy, it becomes essential for Nestle to expand sustainability standards beyond Europe. They may however face challenges in implementing some of the initiatives in Europe elsewhere due to deprioritization of environmental sustainability especially in many emerging markets.

    [1] https://www.statista.com/statistics/268894/food-sales-of-the-nestle-group-by-region/

  10. In addition to the example of LCA mentioned in the article, there are other options that Nestle may need to consider: a reduction in green house gas emission during manufacturing or transportation, utilization of environmentally sustainable packaging, and minimization of deforestation from its raw material suppliers. In order to maintain as a leader in “greening supply chain,” it would be crucial for Nestle to maintain partner relationships with its suppliers and proactively collaborate with suppliers to identify new opportunities for continuous improvements.

  11. Another consideration that I would have if I were Nestle is how greenwashing products could impact customer’s perception of price. In many people’s mind there is a strong correlation between being sustainable and being expensive. Even if Nestle manages to “green” its supply chain without any large increases in price I’d be curious to figure out how much customer’s perception of price changes when the “greening” is emphasized. Given that Nestle produces a lot of more economic priced goods I do think that they’ll need to make sure that they’re conveying their value proposition clearly to customers. On the other hand if a company like Nestle is able to successfully introduce sustainability into their manufacturing supply chain then I think it’ll be a huge impetus for similar companies that are on the more premium end to be forced into making similar moves.

  12. Methinks the lady doth protest too much. I think you’re right to key in on Nestle perhaps not doing as much as it suggests for the climate, though I’m not sure it will actually impact their bottom line. Sure, blog posts condemning them may be written, perhaps an errant tweet may hurt their reputation, but the people actually buying their products are unlikely to take their negative environmental consequences into account when they buy their food, candy, water, etc. If companies make it easy for a consumer to pat themselves on the back and make them feel like they’re saving the environment, they may tend toward that product. But I don’t believe that many consumers will avoid purchases due to environmental consequences unless the buyer is highly educated and well-researched, or unless the company has egregiously and publicly hurt the environment.

  13. This article and its questions were interesting. I doubt that consumers take sustainability into account on purchases — perhaps there are a few who do, but the overwhelming majority do not. If they did, meat consumption (a big causer of carbon emissions) would be drastically reduced, but that’s not the case. Nestle’s foray into sustainability, as mentioned in the article, may simply be for good PR and a marketing ploy. If this was the case, it makes sense why they have gone so far into “greenwashing” — after all, they can now use the idea of sustainability to drive sales even more. I would be curious to see if sales have increased due to consumer perception of sustainability with Nestle, and if so, what has the increased production volume done to the environment.

    In regards to large companies convincing shareholders for sustainability — the solution is simple: show how investing in sustainability would result in greater returns. PR, lowered costs, and a sustainable supply for the future are all reasons.

  14. My reading of Nestle’s actions suggests that, despite any marketing advantages from a greener supply chain, the company is genuinely committed to reducing its eco-footprint (and those of its suppliers). Of course this is likely motivated in part by fears of declining crop yields, and this could very well be the major driver for joining peer firms in lobbying for stricter climate/eco-protection measures. That said, I think the company ought to prioritize its efforts in these regards and perhaps forego some of the suggestions mentioned earlier until a later date.

    For example, compostable packaging and the gradual elimination of plastic water bottles are all well and good, but I think consumers may be more immediately moved by efforts toward “truly” healthy food products in advance of the aforementioned improvements. While this would not entirely obviate criticisms of greenwashing (“these plastic containers and bottles sit in landfills for trillions of years!) I do think it more quickly addresses Nestle’s actual product, food, and customers’ motivations for seeking Nestle products in the first place (again, to eat food). Thus, I would advocate an approach focused on eliminating added sugar (while maintaining taste, if that’s even possible) first and then adding this “no added-sugar” messaging to the “whole grain” copy on the “green labels” atop certain products. With that accomplished and successfully communicated to (presumably) happier consumers, I think Nestle could then focus on improving packaging and communicating that win, too.

  15. I think it is very encouraging for big corporations like Nestle to advocate for climate change and importance of sustainability. Surely their efforts across the supply chain contribute to the battle against climate change. However I agree with the point you raised that greenwashing creates a sense of ingenuity and takes away from the effectiveness of these sustainability efforts for more conscious customers. That being said, I think environmentally conscious customers are unfortunately still a minority among all customers and hence greenwashing might not be that negative for the brand after all. I also agree that defending environmental sustainability and then offering products that hurts health sustainability seems almost deceitful. Yes I still appreciate Nestle’s efforts but in order for me to consider them as a sustainability focused company, they need to adopt sustainability philosophy in all aspects of the business: packaging, supply chain, product composition etc. Pepsi’s “Performance with Purpose” initiative is a very good example of that.

  16. Interesting article on a topic I know little about, but should know more about given the mass reach of Nestle products. On the whole, I don’t think consumers take sustainability into account when making purchase decisions. The average consumer cares about how they can fill the shopping cart in front of them given their financial means. Not the impact that the box of cereal they buy will have on agricultural yields in 2050. So I think big companies like Nestle bear much of the responsibility of convincing not only their suppliers, but also their consumers.

Leave a comment