ESG in Packaging: Here to Stay

As sustainability consultants, we work with a wide range of organizations across sectors, from retailers to manufacturers. Many of our clients are companies that make, buy, or use packaging. And regardless of industry segment or size, there is a common thread linking them – one that these days is as ubiquitous as packaging itself: ESG.

Unpacking ESG

First let’s unpack this term. ESG (encompassing environmental, social, and governance issues) is one lens used to evaluate an organization’s efforts towards ‘doing good’. According to the Cambridge dictionary, ESG is described as “a way of judging a company by things other than its financial performance.”

The “E” is often the most visible element referenced under the umbrella of ‘corporate sustainability’ and environmental health and safety (EHS) or compliance programs. The environmental pillar encompasses a company’s physical impact on the natural world: the resources used, waste generated, and emissions released into the air. The last item of course has a laser focus these days due to the increasing threats of climate change — so much so that some organizations are now being accused of “carbon tunnel vision”, or focusing on carbon emissions exclusively at the expense of other important ESG topics.

The “S”, or social criteria, focuses on company actions around diversity, equity, and inclusion (DEI), fair labor practices, and community impacts. Although this pillar can get less widespread and consistent attention, in recent years social justice issues raced to the top of the corporate priority list; topics such as protection of workers are also a consistent focus, particularly in vulnerable supply chains and geographies.

The “G” pillar of ESG can be more nebulous but no less important, often hidden behind layers of corporate committees and process documents. Governance refers to the checks and controls in place for responsible management of internal affairs: the systems for decision-making, assessing and managing risks, complying with regulations, and ensuring transparency and accountability to all stakeholders (employees, customers, and consumers included). Governance is intrinsically linked to managing the other pillars – without effective governance, it’s all but impossible to make headway on environmental and social commitments.

ESG’s Roots

Perhaps counterintuitively, this framework for advancing non-financial good business practices is in fact rooted in the finance world. Stemming from the formation of the United Nations Global Compact for and a landmark 2004 report, the three-pronged approach commonly recognized today was not launched by environmental or social activists, but rather investment professionals and financial institutions such as the International Finance Corporation and the World Bank.

Why the focus on non-financial metrics? Some would argue that they are in fact inseparable. In that initial report and the nearly two decades following, an increasing number of studies show that companies behaving responsibly achieve better outcomes, whether through reduced capital costs, higher top-line growth, or lower operating expenses. These days consumers and workers also care more and more about sustainability and ESG topics, so smart businesses are looking to appeal to their downstream customer base and talent pool.

It makes sense that investors are focusing increasing attention, and dollars, on how companies navigate and respond to the pressing global issues of the day. In fact, a 2021 Global Investor Survey found that 80% of investors said ESG was an important factor in their decision-making, and nearly 50% were willing to divest from companies that weren’t taking sufficient action on ESG issues. The reasons for this are multivariable – the fact that ESG is increasingly recognized as critical long-term business risk, and that rising generations are more aware and concerned than ever before, both with their purchasing power and in the workforce.

ESG in Packaging Industry

So what does all this theory look like in practice for the packaging industry? Non-public companies may be wondering how the ESG framework is relevant to them – perhaps they don’t have to report to activist investors asking about their climate change or diversity goals in quarterly board meetings. But I can bet that they do have stakeholders who are paying increasing attention to these topics.

Let’s look at a few examples of leading ESG trends today, and how these are affecting the entire packaging supply chain:

Companies large and small are making ambitious commitments

As mentioned previously, climate change is the current leader in ESG topics, and it’s showing up in corporate commitments: more than 70% of Fortune Global 500 companies in the retail and food and beverage industries have set major climate goals[1] to align with science-based reduction pathways or achieve long-term net zero emissions. The majority of these goals include reducing emissions from the supply chain, and for good reason: on average, scope 3 (or value chain) emissions account for more than 80% of carbon impacts in these sectors[2].

This means that there is also a greater push towards supply chain engagement and pressuring suppliers to set their own goals. In some cases this is explicit – companies including Target, Albertsons, Keurig Dr Pepper, and Atlantic Packaging have goals for the majority of their supplier base to set science-based climate targets within the next five years[3].

But climate isn’t the only driver for ESG in packaging. Increasing commitments from brands to use recycled, recyclable, and responsibly sourced packaging are prompting a closer scrutiny of packaging materials and design, and importantly, increased collaboration within the industry to develop solutions. In particular, the Plastics Pact Network is one cross-sector initiative bringing together players from brands to producers to drive circular economy innovations in plastics.

Commitments bring with them a greater need for transparency and disclosure

The increased focus on ESG-related goals – climate and otherwise – is prompting a greater desire from internal and external stakeholders for quality data and reporting. Companies across the packaging value chain are increasingly reporting to platforms like CDP (formerly the Carbon Disclosure Project) at the request of investors, which includes questionnaires on climate change, water security, and deforestation, and addresses sector-specific issues for paper and pulp production and sourcing. (This year CDP also added a module on plastics for the first time.)

This drive for reporting is resulting in a ‘trickle-down’ effect, with brand owners in turn requesting data from their suppliers about materials use, emissions data, and actions toward managing ESG risks and strategies.

Demand for traceability in supply chains drive certified sourcing

Simultaneously with the increased demand for commitments and disclosure, we have seen increased scrutiny on these claims and data (perhaps driven in part by wariness of legal action for greenwashing claims).

In the packaging realm, this has meant the rise of third-party certification to verify claims of origin and characteristics. Programs such as the Recycled Material Standard and ISCC Plus offer a view to the chain of custody for recycled sourcing in plastics; the Forest Stewardship Council (FSC), Sustainable Forestry Initiative (SFI), and Programme for the Endorsement of Forest Certification (PEFC) verify that forest and paper products are grown, harvested, and processed using responsible environmental and social practices. Brands looking to substantiate their sourcing practices often preferentially source certified products — and are willing to pay a premium for them. These programs can serve to bolster all three pillars of ESG – ensuring ethical and environmentally beneficial materials, while establishing transparent and auditable governance systems.

In addition to attention on primary materials, the future may find more scrutiny of additives and smaller components of packaging. This will likely include a closer look at the coatings, inks, nanomaterials, processing aids and adhesives that may not have been considered as integral in the past. (Some tools to identify and track areas of concern include the Up Scorecard and US Plastics Pact list of problematic materials.)

Whether the push is coming from investors, customers, consumers, or internally, ESG isn’t going anywhere. It is already having an impact across the entire packaging value chain, from raw material suppliers to converters to brand owners. And while the risks of inaction are great, so too are the opportunities for the organizations that embrace the changing tide and take action to ‘do more good’ and integrate ESG into their business decisions.

Looking to expand your ESG efforts and not sure where to start? At Positive Scenarios, we believe there are many paths to positive change and specialize in finding the right-sized solution to drive progress. Contact us to figure out the next right step for you.

Resources

[1] Climate Impact Partners 2022, https://ifnotnowwhen.climateimpact.com/

[2] WRI 2022, https://www.wri.org/update/trends-show-companies-are-ready-scope-3-reporting-us-climate-disclosure-rule

[3] Commitments available at: https://sciencebasedtargets.org/target-dashboard