FutureBrand Index 2022

Logging on from New York, our panel included Lynne Field, Head of Strategy at FutureBrand, North America, Pratik Raval, Partner and Head for ESG, Sustainability and Climate Solutions at Tata Consultancy Services, and Professor Tensie Whelan, the founding director of the NYU Stern Centre for Sustainable Business. And then in Singapore, we were also joined by Anita Varshney, Global Vice President, Strategy, SAP Sustainability Engineering at SAP.

The FutureBrand Index is an annual brand perception study of the largest companies in the world. FurtureBrand takes the PWC global top 100 companies by market capitalization and re-ranks them on brand perception strength based on a survey of over 3000 business decision-makers and informed professionals globally.

This year’s Index showed that climate change is seen as the fastest-growing threat to business success. The study shows that those taking meaningful action to address climate change are reaping the rewards as they all focused on innovation, tangible visible action related to green energy and sustainable solutions.

NextEra Energy, one of the world’s largest utility companies, were in the number one spot as a result of their investment in wind and solar energy. Number two was Reliance Industries, the Indian powerhouse across a variety of sectors following their investments in renewable energy and building out digital infrastructure. Number three was CATL, a Chinese battery manufacturer and technology company, the leading innovator in electric batteries. At number four, is TCS, Tata Consulting Services, the Global IT services and consulting firm.

TCS is a part of the Tata Group, which since its conception has been highly focused on the business’s impact on society with 66% of Tata Sons being held by Tata Trusts. Pratik explained that they are committed to being Carbon net-zero by 2030 using science-based targets. On the social side, out of 600,000 colleagues worldwide, more than one-third of their workforce is female and they are seeing an increase of women in leadership roles.

With climate action being such an important topic, SAP has increasingly focused on what capabilities it can bring to its customers. Anita said the company works with industry consortia and work on methodologies for getting ESG data out to the regulators and business leaders to enable them to take action.

Tensie founded the Centre for Sustainable Business at NYU Stern seven years ago, the focus of the centre is to help current and future business leaders embed sustainability core to business strategy, to drive better financial performance as well as better societal performance. This is implemented through educational programs, research, engagement with companies and thought leadership.

Of the 1,188 Fortune 100 board members NYU Stern found three had climate credentials and eight had cybersecurity credentials. Tensie understands it’s not that they need climate scientists on their boards, but they need to have board members who understand that this is imperative.

Anita explained it’s an opportunity to learn what kind of technologies the massive industry needs as it helps define the key capabilities that future leaders need. It’s good to have ambitions but it’s important that you’re truly nailing down how to make it accountable to each business executives, partners and the customers.

Lynne recognised the mention of partnerships and how competitors are joining together through consortia and initiatives to tackle sustainability. Giving the example of Eco Beauty Score consortium competitors Nestlé and Danone, part of an R&D consortium focused on innovation and sustainable packaging.

This area of ESG is unique because companies have realized that the only way to execute or implement the goals that they have set is through partnerships because it relates to an entire business value chain. In the past the supply chain has been about optimizing efficiencies, reducing cost and creating a transactional relationship.  Example attitudes which prevail are: ‘You give me the stuff at this price point at this time or otherwise go away’. This is a problem because the global supply chains are very sensitive, and non-resilient with the way they’ve been set up.

During the pandemic, those companies that created more of a sustainability engagement with their suppliers had more transparency in their supply chain and had more partnerships and collaboration. An example of Nespresso was given as they partner with Rainforest Alliance to build a sustainability standard, as well as partnering with the Federation of Coffee Producers to train coffee farmers, Fair Trade to get pensions to coffee Farmers and with IUCN to come up with an aluminium recycling protocol.

When looking at SAP’s partners, some of them were participating in and the others were just announced at COP 27. Anita explained – the first one is supply chain engagement. This is a very important topic for most of the supply chain actors that they work with as it’s a huge benefit for customers if there’s transparency on emissions across the supply chain. That is the WBCSD, where they have approximately 80 biggest brands who share their carbon data from the raw materials, the entire suppliers down to the final detergent. Scope 3 emissions are a high priority whether you look at SAP or its customers. The second partnership that they are working on is within the top four miners or the top automotive companies of the world who are all running SAP. SAP recognises the disparity of action between developed countries and developing countries which means it’s important to have different regional goals when it comes to sustainability.

Tensie’s article recently published in the Harvard Business Review spoke about ESG reports and acknowledging that they’re not a replacement for real sustainability. Emphasising that it’s not a tick-the-box approach and giving the example of the apparel sector’s chemical management policy which is a SASB metric. It is treated the same as a company that has created a biobased dye that reduces chemicals, therefore, reducing risk, reduces energy use and water use. This then creates a competitive advantage because it can be sold to the brands and would show up the exact same way in the SASB metric because of the reporting focus. Companies need to focus on understanding SASB or ISSB as it gets developed to provide insight on what material ESG issues are for their industry. Also identifying risks and opportunities to embed these into their business strategy. KPIs are net zero commitments, water reduction commitments, and DEI commitments and these can be numeric or qualitative which they’ll be tracking.

An article in the Economist in early 2022 said ESG should be boiled down to one simple measure, emissions and the E for the environment of the ESG, just isn’t precise enough.

At SAP they look at the E in a holistic way and it strongly resonates with the brands who want to seriously make a change, who intend to change their business modes in a systematic way to cause less harm to the environment by considering water footprint and social footprint. Not those who intend to just publish a report. The statement the economist made comes from greenwashing or not being able to leverage the importance of ESG from the investment community. Pratik recognises that the E of the matrix being environmental will be different for an oil company than a financial services company, however, the social part is very regional. Tensie agrees that it’s too simplistic and she offers examples in this area.  Firstly, they worked with Pulp and Paper which use an enormous amount of water and they undertook an analysis which showed that all that massive amount of water being moved around the mills heated, cooled, and disposed of, required an enormous amount of energy and an enormous amount of waste disposal cost to the tune of $1.5 million annually per mill for all that free water. She reinforces that people are not assessing or understanding the intersectionality of these issues, but also the opportunity to look at these issues through a new lens.

Emissions sit top of mind within the performance of the companies on the Index and it’s a huge driver of performance. It sits within a broader ecosystem and interrelationship of the E, S and G.

The manufacturing and industrial sector companies are much more advanced in figuring out supply chain related ESG data management. There are many opportunities across sectors where they could learn from the idea of partnerships as this has opportunities for significant momentum in cross-sector partnerships. For example, insurance companies connect with auto companies directly at the dealership level to offer embedded insurance. This enables behaviour-based incentives for a sustainable lifestyle.

The energy and utilities sector is also referenced as the events in Russia and Ukraine bring concerns about where energy comes from now and in the future. In 2022, performance in this sector rose due to the focus on green energy which was NextEra. The second was fossil fuel heritage seen as getting credit for being in the process of pivoting successfully to a more sustainable approach. This was seen by Aramco and PetroChina.

While running Rainforest Alliance, Tensie kept hearing about the Green Gap. For example, people say they’re going to buy more sustainable products and then not willing to pay premium. Rainforest Alliance partnered with IRI, a market research firm that collects all of its barcode data at retail in the US. They started this five years back and have been doing it every year and they found out that one out of every two new products introduced and sold into CPG in 2021 had sustainability attributes.

Turning to climate, they saw that in 2021, $3.7 billion of carbon labelled products were sold and in 2020, it was 1.3 billion. In 2019, it was almost zero so there’s been rapid growth in this sector and demand by customers. Their research also showed customers are far less price sensitive to sustainable products. For example, 70% of all yoghurts claim to have a sustainability element yet sustainably marketed yoghurt is growing at 8% and conventional yoghurt is growing -10%. So even when you have such penetration, people are still choosing to buy the sustainable product at a 50% premium.

There is a huge debate going on around how to incorporate ESG in investment decision making and in the financial sector asset managers, investment advisers and banks are recognising this as something they need to critically think about.  Pratik explained that the financial sector is the most important when focusing on the risk from climate change as they can clearly communicate to all stakeholders.

Tensie followed by explaining to make this an integral part of business, she is going to make sure companies, board members, corporate leaders and investors understand sustainability is a must have and will drive better performance for the company. Research has found when you embed sustainability, you drive innovation, drive operational efficiency, drive risk mitigation, drive employee engagement, drive customer loyalty, drive supplier resiliency. In fact, sustainability is that next wave of total quality management, when implemented well, not when done as a reporting exercise.

The key lesson brands can learn from the 2022 FutureBrand Index is put purpose into practice.

ESG is more and more part of the public consciousness as shown in the Index. It’s clear that it’s no longer enough to have a meaningful purpose to say you will take action. Today, it’s critical to both embed sustainability and be seen as a company that fulfils its promises, that’s fair and honest, treats people fairly, and actively contributes to society and to the health of the planet at large.