ESG Strategies of SMEs

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ESG Strategies of SMEs

Some trends related to ESG improvement are the alignment of corporate goals with those of the Paris Agreement, workers' safety and diversity, and the use of geospatial data. Three companies that have successfully managed their ESG improvement programs are Coca-Cola, Bayer, and Cargill.

Trends in ESG Improvement

1-The Alignment of Corporate Goals with Those of the Paris Agreement

  • The Paris Agreement is a treaty on climate change that aims to reduce global greenhouse gas emissions to limit the global temperature increase to no more than 1.5 degrees Celsius.
  • Following this trend is important because climate change has a great impact on economic activities worldwide.
  • Particularly in the United States, in 2020, 22 climate change-linked disasters cost about $1 billion.
  • Some reports say that those events caused $95 billion in damages, killed at least 262 people, and injured many more.
  • That is why President Joe Biden rejoined the Paris agreement on climate change and has announced his decision “to set the United States on the path to net-zero greenhouse gas emission by 2050.” To achieve Biden’s goal, the U.S. should decarbonize its power sector by 2035.
  • According to S&P Global Trucost, 60% of the companies in the S&P 500 have at least one asset at risk in case of a physical climate change event arises.
  • In 2020, S&P Global Ratings reported that, by 2050, 38% of countries will be affected by water scarcity due to global temperatures rising (a consequence of human-caused greenhouse gas emissions).
  • According to the World Economic Forum, $44 trillion of economic value generation is highly dependent on nature.
Example
  • One example of companies applying this trend is John Deere, the farming equipment company which goal is “to recycle 85% of materials and reduce carbon emissions on 90% of new products to create sustainable inventory.”

2-Workers' Safety and Diversity

  • This trend consists of equal opportunities for all workers despite gender and race. It accentuated when the COVID-19 pandemic arose since it brought about social unrest regarding income inequality and worker safety. To make matters worse, the death of George Floyd highlighted the unspoken racism in the U.S.
  • Figures have shown that gender diversity improves results at companies. For example, the S&P Global Market Intelligence’s Quantamental Research team looked at organizations from 2002 to 2019 and found that those in which Chief Financial Officer (CFO) was woman generated $1.8 trillion more in gross profit than other companies in the same sector.
  • In December 2020, NASDAQ proposed that its 2,500 companies should have at least one director identified as woman, Black, Hispanic, Native American, LGBTQ+, or as part of any other minority community.
  • In the chart below, we can see that, among the NASDAQ-listed companies, consumer companies have the highest percentage (29.30%) of female directors, followed by technology, media, and communication (TMT) companies with 25.66% and the healthcare sector with 24.29%, among others.
Example
  • In March 2021, NASDAQ itself became an example and followed its rules by appointing Controller and Chief Accounting Officer Ann Dennison as its new CFO.

3- The Use of Geospatial Data

  • Small satellites orbiting the Earth take high-resolution images and collect data that allow us to observe planetary-scale change.
  • Geospatial data is incorporated into financial decision-making by financial institutions and also civil society.
  • Big companies, start-ups, and entrepreneurs make use of this technology to collect huge volumes of data from anywhere on the planet, many times per day.
  • Satellites have sensors that track maritime vessels and airplanes and show localized weather patterns. They also measure asset-level greenhouse gas emissions and monitor economic activity day and night.
Example
  • For example, Planet is a company that uses satellite imagery to provide “real-time geospatial insights to support sustainable agriculture, emergency response or natural resource protection.”
  • Even in regions with frequent cloud cover, Planet’s 3.7-meter resolution imagery permits digital agriculture at scale.

Case Studies

1-Coca-Cola: Sustainable Agriculture

Overview
  • The giant American multinational beverage corporation cultivates its ingredients by taking care of environmental impact. In 2019, 54% of their priority ingredients were sourced sustainable.
  • The company believes that sustainable agriculture offers solutions to issues like water security, climate resilience, GHG emissions reduction, human rights, and women’s empowerment, among others.
  • Coca-Cola is working with a net of suppliers and partners to create a healthy supply chain that ensures the quality and integrity of its products.
  • Ingredients cultivated by the Coca-Cola company include sugar, fruit juices, sugar, coffee, tea, soy, nuts, herbs, and dairy.
Programs
  • The Coca-Cola Company, in partnership with World Wildlife Fund for Nature, ran its Catalyst program in Australia that has engaged more than 130 sugarcane farmers with the purpose to applied innovative sustainable farming techniques. As a result, they “reduced 180 metric tons per year of chemical runoff and improved the quality of 150 billion liters of water that will have positively impacted the Great Barrier Reef.”
  • Another program is the Meetha Sona Unnati which is intended to support smallholder sugarcane farmers in Uttar Pradesh, the most popular state in India. In this program participate more than 48,000 smallholder sugarcane farmers from which 17,000 are women. The Meetha Sona Unnati Project represents 54,000 hectares of land under agronomy best practices.
Metrics
  • The ingredients employed represent 20% to 25% of the company’s climate footprint and 85% of its water footprint.
  • The practices encouraged in Coca-Cola’s Sustainable Agriculture Guiding Principles (SAGP) have been designed to reduce greenhouse gas emissions.
  • The following chart shows a comparison between 2018 and 2019 compliance regarding sustainable sourcing goals.
Software/Tools Used and Implementation
  • For the Meetha Sona Unnati project, Coca-Cola implemented the Mobile Van Theater (MVT) tool which consists of video training classes on sustainable agriculture practices that reached more than 8,000 farmers a month. Training modules covered topics such as water savings, social and human rights applied to farming, and “alternatives to the age-old practice of crop-residue burning, which is a health hazard and a source of pollution.”
  • In general, Coca-Cola uses AI, Big Data, and Blockchain to collect data.
Communication to Internal and External Stakeholders
  • The company publishes its business and sustainability report to communicate transparent information to internal and external stakeholders. The first report was published in 2018.
  • They also respond to CDP climate and water questionnaires, which are publicly available here.
Financial Results
  • In 2019, the company continued to grow and gained a value share in 85% of its key markets.
  • Trademark Coca-Cola grew retail value 6% due to innovations such as Coca-Cola with Coffee launched in 35 additional markets.
  • In 2019, they removed 350,000 tons of added sugar from 275 product reformulations.
Pain Points
  • In 2019, the Animal Recovery Mission reported animal rights abuses at a farm supplying milk to fairlife. The company “immediately took action to remove the implicated farms from the fairlife supply chain.”

2-Bayer

Overview
  • Bayer is a German multinational pharmaceutical company, also involved in crop science, working to help farmers grow sustainable food.
  • Bayer delivers the best new solutions for agriculture and encourages diversity and transparency inside and outside the company.
  • The company has 40,000 dedicated crop science employees that rely on science and data collected. Bayer welcomes employees of all genders, ethnicities, abilities, and backgrounds to contribute to their commitment.
Programs
  • They have the Bayer Carbon Program in which farmers enrolled to be paid for the climate-smart practices they have already implemented or plan to implement. First, farmers have to sign up and enroll to participate in this program. Second, they “share enrolled acres through the Climate FieldView Digital Ag Platform,” an application that allows farmers to analyze all data in one place. Third, farmers “begin or continue practicing no-till/strip-till and/or cover cropping on your enrolled acres”, and fourth, they get paid yearly for having implemented the said practices.
  • Another program is the Water Efficient Maize for Africa (WEMA now operating as TELA maize project) through which Bayer is helping harvests in water-limited conditions. It helps smallholders acquire adapted maize (more than 100 drought-tolerant) hybrids without paying royalty fees so that they can feed their families and communities. Hybrids are commercialized in Kenya, Mozambique, South Africa, Tanzania, Ethiopia, Nigeria, and Uganda.
Metrics
  • In 2020, Bayer spent about $6 billion to achieve more sustainability through innovation.
Software/Tools Used and Implementation
  • Bayer uses remote sensors, unmanned aerial vehicles (drones), automated agricultural helpers (robots), and satellites that can monitor plant health, temperature, soil conditions, nitrogen utilization, and many more.
  • Artificial Intelligence (AI) tools analyze data at high speed and deliver it to farmers for their making decision.
  • Bayer uses AI and machine learning to help farmers in the process of harvests. Among the elements analyzed by digital farming, we include environmental conditions, the presence of pests, and seed genetics.
  • Among other techniques, Bayer uses podcasts to train farmers to take advantage of data provided by the already mentioned technology.
  • Bayer also has developed the Climate FieldView app that allows clients to see all data in one place.
Communication to Internal and External Stakeholders
  • The company communicates its activities to internal and external stakeholders through its Bayer Societal Engagement (BASE) principles, released in 2019 for the first time. It is publicly available for anyone can consult about their activities worldwide.
Financial Results
  • Bayer’s total operating performance amounted to $52.8 billion in 2020.
  • In 2020, group sales reached $50 billion, Bayer's EBITDA before special items was $13.9 billion, and core earnings per share were $7.73.
Pain Points
  • Due to the COVID-19 pandemic, Bayer signed an agreement with the biopharmaceutical company CureVac N. V for the development and provision of the vaccine. Bayer will contribute to vaccine production and plans to supply 160 million doses in 2022.
  • Besides, the company supported more than 1.5 million smallholder farmers in 15 countries with seed and crop protection products to prevent hunger.

3-Cargill

Overview
  • Cargill is committed to helping the world thrive. The company brings food, agricultural, financial, and industrial products to people worldwide.
  • It was founded 155 years ago, it has 155,000 employees and working in 70 countries/regions.
  • The company provides partners with valuable insights (risk management, data analytic, expertise, and financial solutions).
  • They also transform raw material into finished goods and finally they move products through roads, rail, rivers, and oceans.
Programs
  • The Childhood Nutrition program: It aims to “support organizations that improve access to nutritious food and increase healthy food consumption” for students ages 2-12 to learn. The Cargill Foundation is seeking programs that improve access to low-cost nutritious food. The program is intended for “non-profits with experience in developing childhood nutrition curriculum” and community organizations helping low-income populations, among others.
  • Cargill BeefUp Sustainability Program: There is a global demand for protein that farmers and agribusiness are trying to address. Cargill has launched BeefUp Sustainability in an attempt to satisfy this need. By 2030, the company and its stakeholders project to reduce 30% greenhouse gas (GHG) intensity across its North American beef supply chain. The 30% reduction of GHG would equate to removing 2 million cars from the United States highways for a year.
  • Besides, the company created the Soil & Water Outcomes Fund through which farmers in Iowa receive $30 to $50 an acre for adopting techniques that improve the quality of water, soil, and air.
Metrics
  • Over the last two years, Cargill’s ocean transportation business has reduced gross CO2 emissions by around 800,000 metric tons.
  • In 2019, in aquaculture, the soy used in salmon feeds was certified sustainable and organic.
  • In the cocoa business, 50% of the sustainable beans are now traceable back to the farm.
  • For palm oil, they achieved 93% traceability to mills and 48% to plantations.
Software/Tools Used and Implementation
  • Cargill launches Feeding Intelligence, a platform that will give support to farmers in all related to animal nutrition and health challenges.
  • Other software and tools farmers are incorporating are dairy cow facial recognition, animal feed formulation software, and cloud-based platforms that combine production and environmental data.
  • Big data increases efficiency makes food production more sustainable.”
Communication to Internal and External Stakeholders
  • Since Cargill has many stakeholders, they communicate the message according to the context and domain of each stakeholder. For example, they use different means of communication such as branding, films (by using 360-degree cameras), presentations, live events, and a virtual lab among others.
Financial Results
Pain Points
  • Due to the COVID-19 pandemic, Cargill had to launch a $15 million employee disaster relief fund to help them to face unexpected hardships.

Research Strategy

We carried our research by looking for all the available information regarding current trends in ESG improvement. We provided three trends and stated why it was identified as a trend, we provided an explanation of what the trend is and one example of brands driving the trend. Then, we built three case studies of companies that have successfully managed their ESG improvement programs. We focused on large companies in the agriculture-commodities industry. For each case study, we provided information on how they managed the programs, how metrics were defined and tracked, what software/tools were used in the program, and how software/tools were implemented. We also provided data on how each company communicates its ESG programs to internal and external stakeholders, what are the financial results from these programs, and the pain points and challenges the company faced during the program. Since the majority of data correspond to 2020, the COVID-19 pandemic arises as a common pain point for the companies analyzed. In some cases, we had to convert euros to dollars.
Sources
Sources