Three strategies in CPG to capitalize on sustainability regulations

Today’s landscape

Social and environmental sustainability regulations are evolving rapidly worldwide at national, regional and intra-country levels. Whether rules are imposed or withdrawn, CPGs bear significant costs in ensuring compliance. Those necessary reporting obligations and costs can actually become a compelling business advantage, if organizations use the requirements of the regulations themselves as a framework.

• 1.3-3.3% of a CPG company's wage bill is typically spent on regulatory compliance. 
• 78% of consumers polled still consider sustainability important in their purchasing decisions.
  Yet…
• 26% of younger consumers completely distrust sustainability claims and seek data to verify them.

And as consumers embrace the circular economy, they’re turning away from the take-make-waste model of consumption. This is impacting CPG companies’ volumes and placing their sustainability values under scrutiny.

• Only 20% of consumers believe brands accurately portray their sustainability efforts in their marketing materials.

How should CPGs respond?

CPGs must be more transparent about their products’ sustainability credentials. Collecting this data for compliance purposes is one thing. With the right support, CPG firms can go beyond that, creating the right data foundations and deploying AI to make better decisions throughout the value chain, from product innovation to end-of-life.

The necessities of sustainability-based regulations can be leveraged to inform circular economy initiatives, regenerative supply chain practices, and social impact reduction programs that, in turn, provide differentiated opportunities to create sustainable and sustainability-driven competitive advantage.

• 23.8% market share has been captured by branded products marketed as sustainable.

Ready to move the needle? Three strategies for success:

1. Shift the corporate mindset from sustainability “as cost” to sustainability “as value.”

• Embrace transparency as a business opportunity, not an obligation.
• Empower commercial teams to become strategic partners to retailers, to unlock untapped revenue from sustainability-oriented consumers.

Outcome: Your organization is better positioned to meet consumers' continued appetite for sustainable products.

2. Prioritize sustainability beyond compliance

• Rethink compliance reporting, shifting its emphasis from risk mitigation to opportunity creation.
• Proactively embed sustainability considerations and regulations into business strategy.

Outcome: Sustainability strategies become ingrained across the value chain.

3. Build infrastructure and solutions that drive data-driven actions

• Take an ecosystem approach, expediting outcomes to best-in-class standards.
• Go all in on AI to automate processes, test scenarios and accelerate decisioning.

Outcome: Supply chains become stronger and more sustainable.

Sample scenarios where sustainability compliance can act as a growth engine:

How EY can help

EY teams combine deep strategic and operational experience in regulatory risk, consumer behavior, supply chain development and sustainability with a full spectrum of services and global partner ecosystem to help your organization build the data foundations and AI-based solutions that transform the cost and risk of sustainability compliance into a long-term advantage. Recent projects around the world have included:

• Design and deployment of an AI-ready data platform
• Monitoring and management of environmental impact with unified data that’s powering actionable insights
• Improved sustainability scenario testing and promotional investment planning
• Enhanced sustainability reporting and progress mapping
• Creation of a solution to identify, model, assess, approve, measure the impact of, and track decarbonization projects