Food Brands Prioritize ESG Compliance, but Struggle With Validating Ingredient Suppliers

Though almost two-thirds (64%) of food brands consider environmental, social, and governance (ESG) compliance essential, 41% say they’re falling short of reaching complete compliance, according to the new “State of ESG Compliance for the Food and Beverage Industry Report” from TraceGains.

The report, based on a survey of 343 food and beverage companies, found that many brands are turning their attention to ESG compliance, driven by a changing regulatory environment (32%), consumer demand (27%), and competitive forces (18%). Half (50%) of respondents would even halt production on a product that they can’t align with ESG goals. 

Nearly half (46%) of respondents are prioritizing working with ESG-compliant ingredient suppliers to reach their goals. But doing so is proving challenging:

• Nearly 40% reported not having the resources over the past six months to search for ESG-compliant partners. The 60% that attempted to find such partners ran into roadblocks.

• With unclear guidelines and a lack of transparency in the validation process, most respondents say they count on word of mouth (23%) or suppliers’ claims alone (35%). Just 16% of brands use software solutions to validate ingredient suppliers.

• Most (60%) companies can only guarantee compliance for 25% or fewer of their partners.

Despite these obstacles, 42% of brands plan to increase their use of ESG-compliant ingredients over the next six to 12 months. Many (67%) are also willing to pay more for such ingredients — 35% would pay up to 10% more and 32% would pay up to 20% more.

In addition, food companies are investing heavily in technology, motivated by a need to support supply chain transparency and traceability (55%), manage supplier and vendor standards and compliance (48%), and reduce their carbon footprint and greenhouse gas emissions (43%).