Going Green Is Catching On
The impact of sustainability on M&A analysis will be the focus of a presentation and panel discussion at The AWAVirtual™ Mergers & Acquisitions Executive Forum 2021 for the resin and fiber-based packaging, coating, and converting sector on June 7.
The topic caught my eye because it illustrates a major shift in how sophisticated investors are thinking about sustainability.
Until recently, dealmakers evaluated a target company’s sustainability in terms of measurable risks such as non-compliance or the presence of hazardous materials in groundwater, facilities, or operations.
But today, some acquirers are exploring how the sustainability practices at a target company can build value.
Here are six key reasons why this major cultural and economic shift has occurred.
1. Sustainability Investing Has Been Redefined
In the ‘60s and 70s, the concept of sustainability referred primarily to environmentally friendly manufacturing practices. The goal was to ensure that goods and services were produced in ways that did not use resources that could not be replaced and that did not damage the environment.
In those days, investing in sustainable manufacturing was risky because consumers refused to pay more for products made from recycled products or manufactured with re-engineered processes or innovative materials.
In response to growing concerns about climate change, the UN World Commission on Environment and Development defined sustainability as “development that meets the needs of the present without compromising the ability of future generations to meet their own needs.”
Some universities define sustainability as “the integration of environmental health, social equity and economic vitality in order to create thriving, healthy, diverse and resilient communities for this generation and generations to come.”
As the definition of sustainability has changed, so has the concept of sustainability investing.
The CFA Institute teaches investment professionals that “Sustainability investing balances traditional investing with environmental, social, and governance-related (ESG) insights to improve long-term outcomes.Sustainable investing considers diverse stakeholders, consistent with how companies are developing.”
2. Sustainability Education Has Expanded
Today, students learn about climate change, social responsibility, and economic inclusiveness from kindergarten through college. As these students graduate and join the workforce, they make it clear they don’t want to work for, invest in, or support companies that don’t share their values.
They use social media to spread the word about brands, companies, and organizations that appear to be acting irresponsibly with regards to the environment, people, communities, customers, and shareholders.
3. Consumer Behavior Is Changing
Capgemini Research published the results of a March-May 2020 survey of 7,500 consumers and 750 large organizations about attitudes toward climate change and the economic agenda.
- 79% of consumers are changing their purchase preferences based on the social or environmental impact of their purchases
- 64% of consumers say it buying sustainable products makes them feel happy when shopping
- 52% of consumers feel an emotional connection with a product or organization that is sustainable
4. Corporations Are Innovating
During a sustainability panel discussion at the FuturePrint Leaders Summit in March, corporate executives emphasized that instead of talking solely about our carbon footprints and climate offsets, companies engaged in packaging, labeling, graphics, decor, and textile printing are addressing environmental problems at the root.
Digital printing equipment companies such as Canon, HP, Ricoh, and Xerox have developed long-term agendas driven from high up in the corporate infrastructure. These agendas include devoting healthy amounts of R&D money to create innovative products that reduce waste.
Manufacturers of printing inks and materials are developing more environmentally friendly water-based inks, coatings, and adhesives as well as biodegradable alternatives to plastics that can be easily recycled or composted.
Corporations anticipate that the sustainability innovations they make today will support company prosperity in the future.
For example, in February 3M announced it expects to invest approximately $1 billion over the next 20 years to accelerate new environmental goals: achieve carbon neutrality by 2050, reduce water use by 25% at its facilities, and return higher quality water to the environment after use in manufacturing operations.
In making the announcement, Chairman and CEO Mike Roman said, “As we grow 3M, we will lead in environmental stewardship, social equity and justice, and corporate governance. We are taking action now to bend the curve on carbon emissions and water use, and improve water quality. Our investments will make us more effective and efficient and drive growth.”
5. Global Reporting Standards Are More Available
In a 2011 blog post, a Capgemini analyst noted that stakeholders were demanding cold, hard auditable facts about sustainability performance, a clear strategy to manage its impacts, and evidence that pragmatic plans were being implemented.
A variety of non-governmental organizations (NGOs) took action to respond to this request.
The Climate Disclosure Standards Board (CDSB) is an international consortium of business and environmental non-governmental organizations (NGOs) that offers a framework for reporting environmental information with the same rigor as financial information.
The Global Reporting Initiative (GRI) is an international independent standards
organization. Their Sustainability Reporting Standards are widely used to report ESG impacts globally.
Privately held small businesses should be aware of the key-performance indicators (KPIs) established by The Sustainability Consortium (TSC). The TSC wants the consumer goods industry to deliver more sustainable consumer products.
By studying “hotspots” in different types of supply chains, TSC developed specific KPIs for manufacturers in various industries, such as:
- packaging
- electronics
- pulp, paper, and forestry products
- food, beverage, and agricultural products
- clothing, footwear, and textiles;
The TSC urges brands and retailers to use these KPIs to ask all vendors and suppliers in their supply chains to report on the sustainability of their operations.
6. Big Investors Are Leading the Way
In January 2020, BlackRock Capital stated their commitment to make sustainability their new standard. The firm believes that sustainability risk — and climate risk in particular — is investment risk. They are evaluating how sustainability-related factors can affect economic growth, asset values, and financial markets overall and are making these factors integral to the way BlackRock manages risk, constructs portfolios, designs products, and engages with companies.
BlackRock asked CEOs of the companies in which they invest to report in alignment with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) and the Sustainability Accounting Standards Board (SASB)
But BlackRock Capital isn’t alone in making sustainability a priority..As you will hear during the AWAVirtual Executive Forum, sustainability in the packaging and label industry is quickly becoming more than a “feel-good” buzzword.
Small to Middle-Market Companies Need Guidance
At the FuturePrint Leaders Summit, Brendan Penning of the British Association for Print and Communications revealed that small to mid-sized commercial print businesses are lagging behind brands, retailers, and major manufacturers in implementing strategies for their businesses.
Of the 62% of survey respondents who said they had a sustainability strategy in place, 32% said they had yet implemented it. Of the companies that didn’t yet have a sustainability strategy in place, 51% said their customers rarely asked them about sustainability credentials.
The FuturePrint panelists suggested that print-service providers shouldn’t wait for customers to ask about sustainability. They should get actively involved in promoting solutions to their customers.
Not all printing companies are lagging. The Sustainable Green Printing Partnership publishes a list of print-service providers who are SGP certified for their verified achievements in meeting criteria such as reductions in waste, energy usage, and water usage and increases in use and recycling of environmentally friendly materials.
Doing Our Part
At the LaManna Consulting Group, we are advising print-business owners aware that they shouldn’t neglect environmental, social, and governance measures as they continue to grow their businesses.This includes increasing the diversity of their workforce.
When print-service providers help drive the demand for sustainable options, that can ultimately lead to lower manufacturing costs and reduced environmental impact.
I am honored to be moderating a session at the AWAVirtual Executive Forum June 7, and I look forward to hearing the sustainability presentations that AWA has lined up for the event. You can register for the Virtual Forum at https://awa-bv.com/product/mergers-acquisitions2021/
The packaging and label industry touches nearly every manufacturing segment of the economy. And consumers handle multiple packages each day.
Companies in the packaging sector can have a huge impact in reducing the amount of waste materials we find along our highways, in landfills, and in the oceans.
RESOURCES
How Sustainability is Fundamentally Changing Consumer Preferences: Capgemini Research