No longer considered "nice to have," Environmental, Social and Governance (ESG) initiatives are fast-becoming essential to long-term business strategy and growth. These initiatives not only strive to create corporate transparency while aligning businesses with what's best for the planet and people, but they also drive brand affinity and consumer trust.
As someone who has witnessed the steady rise of ESG initiatives within the food service and hospitality industries over the past 10 years, I can tell you this: Businesses that don't take steps now to integrate it into the core of their strategy may face difficult consequences in the not-so-distant future.
It's not enough to state that ESG and corporate social responsibility (CSR) are intrinsic to your mission; we've reached a point where government agencies and societal forces require proof. In food service, in particular, the importance of ESG is increasing as consumer demand for transparency grows and as regulatory requirements emerge around responsible sourcing, sustainability and food waste.
A recent research report from Deloitte sums up the business and brand affinity implications of ESG: "Increasingly empowered consumers and more activism-oriented investors are pushing organizations to address ESG issues concretely and transparently…They are fueled by the transparency afforded to them in the digital age and they are increasingly putting their money where their values are."
Many companies are responding by implementing quality management, monitoring and compliance programs that enable them to more closely manage and even automate supply chain processes and data collection. These processes might include supplier self-assessments, audits and reporting requirements for ESG and related initiatives, detailed ingredient sourcing information, product inspections and certifications and more.
The aim is to ensure compliance, make the data these programs yield directly available to consumers and establish proof that they are working with ethical, responsible business partners. For transparency to be realized, food service brands need to be able to identify, track, trace and monitor their suppliers and the physical sources of ingredients that go into the products they bring to market — from the farm all the way to the table. They must also be able to precisely identify every actor in their supply chain and each action that touches and transforms those ingredients along the way.
Increasingly, we are seeing brands share ESG-related data with consumers via QR codes or other digital forms of identification on product packaging. Using their mobile devices, buyers will scan those codes to discover the origin of the products they are considering for purchase — including all of the ingredients — along with the places each ingredient has been along its journey to market. In the near future, the bar code could also include evidence of product testing and supplier auditing, along with proof of storage at the recommended temperature, even during transport.
It’s not hard to imagine that this could also lead to consumers gaining access to recall information relevant to the product and to all supply chain partners' food waste policies and sustainability practices, too. As people want to know more about what goes into the food they feed their families and want more insight into the companies they buy from, brands will need to adapt. Many consumers today already show allegiance to businesses that meet their requirements around these emerging concerns, according to a recent Cargill survey.
Commercial lenders, financial ratings, credit ratings and other business metrics may also soon be tied more closely to ESG as regulations for climate-related risk, responsible sourcing, clean food, reduced food waste and other sustainability-related issues rise in importance. In California and Vermont, legislation already exists that requires grocery stores to donate any excess food they would otherwise throw away. By 2024, hotels, restaurants, schools and other businesses in California will face similar requirements.
Many companies are lagging behind when it comes to these concerns, but others are actively championing the advancement of ESG, CSR and sustainable business practices. For example, one of my company’s customers — a large global casual dining company — optimizes shelf-life and inventory control with proper cold chain management, but when the shelf-life extension is not possible for highly perishable foods, the choice to donate is made without hesitation. The company’s many restaurants have partnered with community organizations around the world to find people who can use their excess food, and donations are ongoing.
As consumer sentiment and government regulations around ESG and CSR initiatives increase, quality management principles will become even more important, not only for compliance but also for brand protection and maintaining consumer trust.
To address these emerging challenges, here are six foundational principles employed in hospitality and food service that can be applied to other industries as well.
Because food service businesses must often track thousands of ingredients, to implement these principles effectively — with speed and at scale — outdated, manual methods like spreadsheets and siloed software systems need to be replaced. Companies have already started adopting fully integrated and data-driven approaches that enable agility, real-time insights and more informed decision making.
In addition, to account for today's increasingly global markets, many organizations are turning to remote and virtual auditing and inspections of their international suppliers to gain an accurate, centralized view of supply chain partner compliance. This has become especially valuable at a time when traveling to supplier locations isn't always possible. Above all, it’s now clear that quality management needs to be elevated within the organization: Board, CEO and C-suite alignment is critical for ESG and CSR initiatives to flourish.