ESG in the Consumer and Healthcare Sector

ESG in Consumer and Healthcare: The Challenge, Opportunity and Role for Treasury 1 Treasury and Trade Solutions Linking ESG practices to good business and enterprise value isn’t new. Fifty years ago, economist Milton Friedman suggested it could be in a corporation’s long-term interest to offer community amenities or improve government to attract employees, reduce wages and achieve other benefits. 1 How is this playing out now? Risk S&P’s Global Sector Risk Atlas captures relative ESG risks seen worldwide. It ranks consumer products and retail 13th and 15th of 34 sectors. Healthcare ranks 28th. These aren’t the worst offenders. But there’s room for improvement. Some 33% of food produced yearly is wasted across a USD1 trillion supply chain. Agriculture uses 70% of the world’s freshwater supply and 50% of its habitable land. And food including agriculture, processing, manufacturing and distribution emits up to 30% of greenhouse gases. Regulation As the ESG regulatory framework evolves, corporations must keep pace to avoid penalties for non-compliance. Typically 33% of profits risk state intervention. In consumer goods, we see this in obesity, sustainability, food safety, health and wellness, and labelling; in healthcare, in market access, generic drugs regulation, pricing, innovation funding, and clinical trials. Environmental, Social and Governance issues in Consumer and Healthcare Sectors The Challenge, Opportunity and Role for Treasury Governance and Environmental Taking ESG items individually, governance is key in emerging markets (EMs) and environmental factors in developed markets (DMs). Here “conscious consumerism” is the likely driver, visible in fast fashion as consumers learn of manufacturing impacts like water usage from irrigation of cotton-growing areas. This consciousness is seen on the high street and online. According to McKinsey, 70% of consumers would pay 5% more for a green product that performed as well as a non-green alternative. 2 Multinationals see the challenge and opportunity here. Circularity Unilever’s CEO challenged its business heads to justify products on a circular basis or risk their discontinuation to pre-empt future consumer activism. 3 Retailers also launched sustainable cotton and are marketing ethical collections. Witness H&M’s “Conscious Collection”, Zara’s “Join Life” ranges and the luxury sector’s use of recyclable textiles and eco-friendly materials like lab-grown diamonds, vegan leather and faux fur, where clothing perceived as durable, not disposable, supports circularity credentials. There are also online models from clothing resellers like The RealReal and Vestiaire Collective and clothing rental services like Panoply and Cocoon. Companies seem to be in a scramble to integrate ESG strategies into their corporate agendas and burnish their green credentials. Can treasury help? 1. A Friedman Doctrine: “The Social Responsibility of Business Is to Increase its Profits”, New York Times , 13 September 1970. 2. Five Ways That ESG Creates Value , McKinsey Quarterly, November 2019. 3. Circularity is an economic system aimed at eliminating waste and the continual use of resources. Peter Cunningham EMEA Head of Consumer & Healthcare Sector Sales, Treasury and Trade Solutions, Citi peter.cunningham@citi.com