Managing Sustainable Challenges Report

Introduction

In the modern world, global changes are taking place that includes long-term social goals as a priority ‑ sustainable development of the economy and society as a whole, an answer to the challenges of the new industrial revolution. All this requires the creation of an economic model capable of ensuring the predominance of precisely such goals over short-term economic benefits. To achieve the Sustainable Development Goals (SDGs) set forth in the 2030 Agenda for Sustainable Development (adopted at the UN Summit in September 2015), business and financial markets have to play a key role to play in ensuring responsible activities and financing (Deloitte, 2018).

Businesses, whose social responsibility was traditionally been boiled down to their contribution to economic growth, job creation, and tax payments, are now invited to take on a larger, integrating role in the practical implementation of the 2030 Agenda, which is proposed to be considered as a “road map” not only for countries and organizations involved in the process of increasing responsibility for the prospects for sustainable development of society but also for business.

As the ideas of sustainable development were popularized, large companies, in particular multinational ones, began to adopt them as guidelines for their activities. The main place here should be taken by companies that put environmental, social, and management indicators (ESG) and ESG investments at the center of their business strategies. Namely, these companies should become business leaders, the main subjects of the practical achievement of the SDGs by translating their profits into sustainable and inclusive economic growth, protecting the environment, and combating climate change.

A Brief Overview of the Company

Nestle was founded in 1866 by Swiss pharmacist Henry Nestle, who created artificial nutrition for babies. Already in the early 1900s, Nestle had factories in the USA, Britain, Germany, and Spain. In 1904, reaching an agreement with the Swiss National Chocolate Company, Nestle added chocolate to her product range. In 1905, the company merged with its longtime rival, the Anglo-Swiss Condensed Milk Company (Shah, 2018a). Later the company began to produce milk chocolate, in the 1930s it became the first producer of instant coffee in the world.

After World War II, the assortment expanded: it included seasonings and soups Maggi, frozen foods, fruit juices. In the 1970s, the company became the largest shareholder of L’Oreal, one of the world’s leading cosmetics manufacturers (Shah, 2018). In 1984, an improvement in Nestle’s economic situation allowed a number of new acquisitions, including purchasing for $3 billion at auction Carnation (Shah, 2018b), the largest food company in America.

The signing of the Carnation acquisition agreement took place in 1985 and became one of the largest transactions in the history of the food industry. Today, the company owns 461 factories and industrial enterprises in 83 countries (Shah, 2018b). The corporation is ranked 42nd in Forbes Global 2000 as in May 2019 (Walker et al., 2019). Thus, Nestle represents a typical example of a multinational company.

The main buyers of the products of this company live in Europe and America (38 and 42% respectively); the share of developing countries in Africa, Asia and Oceania account for about 20% of total sales. The main products are drinks, milk, convenience foods, chocolate, medicines and food additives, mineral water, pet food, 17.5% of the world’s ice cream production (Walker et al., 2019). The production concept is based on the principle that a person from a young age to very old age can find for himself high-quality products of the company.

SDG Assessment of the Company’s Corporate Sustainability Strategy

The competitive advantages of Nestle include at least the creation of an initially unique product for the market (infant formula), high-quality modern products and a strong portfolio of brands; ongoing scientific research aimed at improving traditional foods, creating product lines for certain categories of consumers (athletes, the elderly, children, diabetics); economies of scale with maximum geographic coverage; effective management of human capital, creating incentives for work and corporate culture; adaptation of the product to the food traditions and needs of different peoples of the world (Nestle, 2018). However, Nestle has repeatedly been criticized for its irresponsible approach to food.

Henry Nestle himself was the first who was blamed for this ‑ due to errors in the dilution of his milk formula, the mortality of children on artificial feeding increased. The main object of attacks for a long time was the “unhealthy” nature of the company’s products ‑ breakfast cereals, sugary drinks, and other high-sugar foods. In the 2000s, Nestle reacted to the global trend of a healthy lifestyle and began an active struggle for its image. Messages about useful ingredients in each product appeared on the packaging, and by calling the hotline everyone could find out information about a balanced diet.

The “milk” business line of Nestle relies on the raw material base of the recipient country. The company is interested in sustainable agricultural growth and rural development. In this context, Nestlé, as a member of the union of 17 global partner companies ‑ New Vision for Agriculture ‑ at the meeting of the World Economic Forum in Davos (February 2011) proposed a new “road map” for all interested parties (Roadmap for Stakeholders) (Shah, 2018a).

It establishes a number of priority events and innovative models for cooperation between private business, the state, international and local organizations, farmers, aimed at realizing the potential of agriculture in the developing countries of Asia, Oceania, Africa, and the Middle East.

The Nestlé Corporate Business Principles, certified by the signatures of the Chairman of the Board of Directors and the Executive Director, form the basis of the corporate culture and reflect the company’s values: honesty, fairness, respect for people, and the environment.

An updated version of the Corporate Principles was developed in 2010 and was translated into 50 languages. In order for these principles to become a measure of activity for each employee of the company, the necessary communication and a number of training tools have been created. Employee compliance is monitored using the CARE program, which is based on an external independent audit, as well as an internal audit of the Nestle Group of Companies (Shah, 2018b). The basic principles of activity within the framework of the UN Global Compact, as well as the principles of creating common values, include the following: human rights and labor relations, environmental programs, labor protection, and occupational health, and many others.

Nestle is also actively involved in internal CSR. According to the management, the main competitive advantage of the company is employees (Nestle, 2019). The corporate culture and motivation system existing in the company are able to rally the team and allow each employee to reach any professional heights. Nestle can rightfully be called an attractive and responsible employer. The company promotes the development of young professionals, conducts training, organizes internships for university graduates with the possibility of further employment.

A new environmental project for heat recuperation was successfully implemented at the factory for the production of ketchup and sauces TM Torchin in Ukraine. Its goal is to achieve energy savings, namely, natural gas and water, and reduce greenhouse gas emissions. The essence of the project is to use the thermal energy that is released during the cooling of tomato products to heat the water used in the process of their preparation (Shah, 2018a). Thus, a double effect was achieved: in one part of the system, product cooling was obtained, while in the other, almost free pre-heating of water for steam production due to the exchange of thermal energy.

SDG Strategic Priorities

Any long-term business that follows business principles and long-term prospects, creates value for its employees and society in its daily activities, providing jobs for its employees, paying taxes, etc. However, the creation of shared values involves entering a new stage. The company consciously determines those areas of activity in which the interests of the company and shareholders intersect, and there is the possibility of creating long-term values for both parties. As a result, the company invests funds, both human and material, in those areas where there is great potential for the joint creation of values with stakeholders in society (Agarwal et al., 2017).

By analyzing the Nestlé value chain, one can identify areas for creating shared values with society ‑ water management, agricultural development, and nutrition, which are fundamental in their business strategy and vital to improving the well-being of people in those countries where the company functions. After analyzing its value chain, Nestlé selected three priority areas for social investment. These are nutrition, rural development, and water management.

At the same time, in order to assess what challenges and business opportunities each of the 17 Goals presents, attempts are made to combine these goals on the basis of their impact on the business. For example, three conditional groups of goals can be distinguished: “macroeconomic SDGs” (designed to address macroeconomic issues ‑ poverty, employment, economic growth); “Sectoral SDGs” (relevant for core industries), as well as the SDGs, which have long passed into the category of “compulsory for business” behavior practices.

The last group includes Goal 5 (gender equality), Goal 12 (responsible consumption and production), and Goal 13 (combating climate change) (Pedersen, 2018; PwC, 2016). At the same time, the authors of the classification argue the thesis that goals from all groups contain potential opportunities for realizing competitive advantages for the private sector.

Among the main priorities (commitments) of Nestle indicated in the integrated report of the company, there are tastier and healthier food, healthier lives, nutrition knowledge, rural livelihoods, human rights, employment and diversity, caring for water, climate change, environment. The overall idea of its integrated report is “Innovating fast to ensure long-term growth” (Nestle, 2019). All of the above initiatives and ideological searches of Nestle indicate that the technology and scale of production of TNC imply the creation of an adequate socio-economic environment in rural areas of developing countries ‑ sources of cheap raw materials. The company has in mind not only a narrowly commercial goal: ‑ penetration and consolidation in the territory of another state ‑ but also an ideological motive: to prove that its business is a source of the well-being of the whole society.

Nestlé’s measures to interact with Latin American farmers have undoubtedly led to positive changes in the efficiency of agricultural production and in the quality of labor. There is a decrease in poverty, the creation of initial infrastructure (Schönherr & Martinuzzi, 2019). However, one cannot fail to see that at the same time there is a steady monopolization of the market for the purchase of raw materials and the food market as a whole (Schönherr & Martinuzzi, 2019).

Minimal stimulation of rural development from a very low “start” goes in parallel with the increased intensification of farmers’ labor. Moreover, the region’s development potential and the farmer’s well-being are limited by the needs of transnational corporations and, in principle, cannot be close to the level of economically developed countries. The recipient country is ‘assigned’ a raw material specialization camouflaged by the export of finished products produced at plants of foreign TNC.

At the same time, it should be remembered that due to the need to meet new requirements, competition in the business environment will increase, which proves the importance of the desire of companies to contribute to achieving the maximum number of SDGs and create innovative breakthrough sustainable development models to enhance their competitive benefits and maintain their own stability. Under these conditions, it is advisable for Nestle Corporation to determine SDG Strategic Priorities, which may consist primarily of breakthrough innovations in agricultural and food technologies and their active diffusion.

Given the potential of Nestle, it seems possible and appropriate to use the factor model of the country’s innovative development through the formation of an innovative landscape that takes into account the degree of development of the economy of a particular country of presence, its level of innovation, diffusion of innovations and unique factors influencing innovative development, thus realizing the principle of boosting local innovation, as declared by Nestle.

The dissemination of innovations in the contextualization of sustainable development goals is a process of expanding the territory covered by technical, technological, social, political, and other innovations, i.e., it reflects the territorial aspect of scientific and technological progress (Shan & Khan, 2016). At the same time, for planning and evaluating the effectiveness of diffusion of innovations, it is possible to use the Hagerstrand model, which shows that the distribution of innovations throughout the territory has its own laws and can be modeled.

Recommendations

The Global Compact helps align companies’ strategies and operations with universal principles in the areas of human rights, labor relations, the environment, and anti-corruption, mobilize the global movement of sustainable companies and stakeholders to create the “world we want.” It is a mechanism for disseminating the best practices of corporate social responsibility, an effective platform for discussing with the business community the most important tasks in the field of sustainable development, finding common solutions, and establishing a dialogue between the state and business (Cordova & Celone, 2019).

It creates a universal language of new corporate responsibility, the basis for managing enterprises oriented towards sustainable development. In this context, diffusion of innovation seems to be a very effective mechanism and can be recommended for Nestle as a means to achieve the proposed SDG strategic priorities.

Integrated reporting should contain all relevant data on the organization’s strategy, corporate governance, performance indicators, and prospects reflecting its economic, social, and ecological environment. Integrated reporting is a powerful machine designed to “help us all make better decisions regarding the resources we consume and the life we lead” (Dodds, 2016, p. 43). Currently, Nestlé’s integrated reporting is not linked to the goals of sustainable development, although the real activities of the company in the formulation and implementation of CSR are largely consistent with a number of these goals.

At the same time, the inclusion of a section on SDG compliance in the integrated report could potentially increase the attractiveness of Nestle in the eyes of consumers, institutional investors, and stakeholders. All the more so, research suggests that investing in companies with strong sustainability strategies can lead to the same, if not better, outcome than others, as this increases the company’s value in the eyes of society (Ailawadi et al., 2014).

Particularly due to financial market incentives, the transition to investment in sustainability can become a stable trend. A financial system is gradually being created that is capable of simultaneously ensuring sustainable economic growth and achieving the SDGs, combining profit maximization with achieving long-term economic, social, and environmental goals. Leaders must take a leadership position on the SDGs, both inside and outside their organization, actively incorporating Goals into the foundations of their business strategy, requiring clear comments from all the business units of the corporation about how its results help meet these targets.

References

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Ailawadi, K.L., Neslin, S.A., Luan, Y.J., Taylor, G.A. (2014). Does retailer CSR enhance behavioral loyalty? A case for benefit segmentation. International Journal of Research in Marketing, 31 (2), 156- 167

Cordova, M. F. & Celone, A. (2019). SDGs and Innovation in the Business Context Literature Review. Sustainability, 11, 1-14.

Deloitte (2018). Sustainable Development Goals A business perspective. Web.

Dodds, F. (2016). Negotiating the sustainable development. Routledge.

McKinsey&Company (2017). A practical Guide for Business Leaders to working with the SDGs as a competitive factor. Web.

Nestle (2019). Annual report. Web.

Nestle (2018). Nestlé in society: Creating shared value and meeting our commitments 2017. Web.

Pedersen, C. S. (2018). The UN Sustainable Development Goals (SDGs) are a great gift to business! Procedia CIRP, 69, 21-24.

PwC (2016). Navigating the SDGs: a business guide to engaging with the UN Global Goals. Web.

Schönherr, N. & Martinuzzi, A. (2019). Business and the Sustainable Development Goals: Measuring and managing corporate impacts. Palgrave Pivot.

Shah, S. A. (2018a). Creative and innovative management: Nestlé: A case Study. Web.

Shah, S. A. (2018b). Professional development for strategic managers: Nestle’: A case study. Web.

Shan, J. & Khan, M.A. (2016). Implications of reverse innovation for socio-economic sustainability: A case study of Philips China. Sustainability 8, 1-20.

Walker, J., Pekmezovic, A. & Walker, G. (2019). Sustainable Development Goals: Harnessing business to achieve the SDGs through finance, technology and law reform. Wiley.