The number of potential customers in emerging markets is another strong incentive to develop new products and distribution models that work in challenging socio-economic circumstances and address special nutritional needs, according to the Rating.

While leaders such as Unilever, Nestlé and Danone demonstrate strong initiatives across these areas, all companies in the sector continue to face significant challenges, particularly within their supply chains. The communications of laggards in the sector, however, indicate only limited awareness of these challenges.

The companies subjected to this Tomorrow’s Value Rating were the 10 largest food and beverage companies according to the Fortune Global 500 list, which ranks the world’s largest companies by revenue.

Key findings

1. Unilever tops the first Tomorrow’s Value Rating of the world’s largest food and beverage companies
Unilever’s comprehensive sustainability strategy is based on stakeholder feedback, governed by the company’s senior leaders and underpinned by solid management systems. Its performance on important variables such as carbon emissions and water usage has shown marked improvements over the years. It has also shown leadership by co-founding initiatives such as the Marine Stewardship Council and the Roundtable on Sustainable Palm Oil. It was an early supporter of fair trade and started rolling out nutritional labelling practices earlier than most.

2. Many companies are working together to address supply chain issues
While supply-chain impacts do receive considerable attention from the companies assessed, they nevertheless present major challenges. Recently, the media has raised concerns about human rights issues in the UK meat supply chain as well as endangered species of fish being served as sushi in California. Some commentators believe that increasing media attention will force a step-change in the sector’s approach to supply-chain management; a response not unlike that of branded clothing manufacturers over the last decade to revelations about child labour among suppliers.

With some of the companies having thousands of suppliers, tackling supply-chain issues is difficult. Many of them are working together to address them in initiatives like the Sustainable Agriculture Initiative (SAI) and AIM-PROGRESS (AIM), which consolidate efforts to train suppliers, enhance community welfare and level the commercial playing field by offering a forum to agree on commonly endorsed standards for decent working conditions or environmental requirements from supplies. All of the top five ranking companies, plus Kraft, are members of SAI and AIM.

3. Nestlé has the sector’s leading supply-chain management approach
Nestlé purchases most of its dairy, coffee and cocoa directly from more than 660,000 suppliers. Taking intermediaries out of the picture results in financial benefits, better traceability and enhanced long-term security of supplies, and improves Nestlé’s ability to influence suppliers’ farming practices and working conditions. The company works with partners like the Rainforest Alliance and national authorities on improving farmers’ use of water resources and on strengthening rural access to clean water and sanitation. All these initiatives seek to create ‘shared value’ as Nestlé describes it – ensuring quality supplies while benefiting sourcing communities. They will also put the company in a strong position when the effects of climate change and overpopulation start impacting commodity prices.

4. Danone has achieved the first successes with new business models
In 2006, Danone teamed up with leading microfinance bank Grameen to build a factory for nutrient-fortified yogurt in Bangladesh. It then awarded micro-finance loans to locals for the purchasing of milk cows or yogurt for door-to-door retailing. Borrowers sell their products at a profit, thereby earning a livelihood, and thousands of poor malnourished children get access to affordable nutritional products. For Danone, this has brought brand benefits, as well as a solid grounding in a future growth market. Despite some challenges since launch, sales have reached all-time highs, and a second factory is set to be launched in 2010.

5. Carbon emissions from transportation are receiving increasing attention
Carbon emissions resulting from the transport of supplies and the distribution of products are receiving increasing attention from companies in the sector. This is largely because of the potential costs these emissions would imply if included in cap-and-trade agreements or other carbon-pricing approaches. However, following the failed Copenhagen summit, this is likely to be seen as less of a priority for now.

6. Leaders are adopting global food labelling standards
While food labelling is now mandatory in most highly developed economies, expansion into less regulated emerging markets means that it remains a critical issue. Leading companies are responding with global labelling standards for their products along with considerable adjustments to the actual nutritional contents of their product lines.

7. Food waste is rising up the agenda
Campaign groups are increasingly vocal about food waste, estimated to amount to 8.3 million tons in the UK alone by the Love Food Hate Waste campaign. Again, food and beverage companies will be expected to contribute to awareness-raising efforts to reduce this impact.

8. Chemical additives remain a challenging issue
Chemical additives in food, for example those listed on ingredient tables in Europe as E-numbers, are another source of concern among campaign groups. Differing regulatory environments and conflicting priorities like the longevity of products and concerns about health effects can make this a complex issue for global companies to manage. Company policies with regard to these issues are often controversial.

9. Some strategically important stakeholders are excluded from engagement efforts
Stakeholder engagement is a weak spot in the sector’s sustainability efforts. For example, less than half of the companies in the sample provide a solid discussion of engagements with investors, retailers, regulators and trade unions.

10. Operational water usage is a priority issue for beverage companies
After some prominent conflicts with communities regarding local water supplies, operational water usage has become a priority issue for drinks companies such as Anheuser-Busch InBev, Coca-Cola and Pepsi. Coca-Cola, for example, now commonly works on a wide range of local initiatives, such as watershed protection, expanding community drinking water and sanitation access, agricultural water use efficiency as well as education and awareness programmes.

11. The sector stays largely silent on the subject of genetically modified organisms
There are some notable gaps in most companies’ sustainability reporting, for example the subject of genetically modified organisms. While this is a major issue and remains a potential touchstone for consumer activism, the sector stays largely silent on it.

Summary report

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