A new report from A.T. Kearney and the World Resources Institute concludes that consumer goods companies that fail to take steps to become more eco-friendly will see annual profits reduced by nearly half by 2018.
Rattling Supply Chains: The Effect of Environmental Trends on Input Costs to the Fast Moving Consumer Goods Industry, engages in some crystal balling - Kearney calls it "future analysis" - to determine how environmental legislation, variations in commodity costs and climate change will affect future operating costs.
"Ecoflation," as dubbed by Kearney, will hit companies particularly hard during slow growth periods.
Daniel Mahler, partner and global leader for sustainability practice at Kearney, told Brandweek that companies that take steps to reduce the use of plastic and paper are in a stronger competitive position during economic downturns such as the one currently being faced.
"Companies are desperate to save because they can't grow. The commodity price pressures have eased, but now the pressure is to save costs," Mr. Mahler said.
Kearney's report projects that corporate earnings will drop between 13 to 31 percent in the consumer packaged goods industry over the next five years and between 19 and 47 percent over the next ten if companies do not introduce significant sustainability measures.
CPG companies simply cannot continue the "business-as-usual" approach, Mr. Mahler said.
Joel Makower, executive editor of GreenBiz.com, said a focus on sustainability may mean that companies need to rethink products. In the end, he told Brandweek, "It has as much to do with improving business practices as it does with improving environmental practices. In fact, the two go hand-in-hand."
Discussion Questions: Has sustainability become a business imperative for CPG manufacturers? How closely tied are sustainability initiatives to corporate bottom line performance today? Where will it be 10 years from now?