ESG in the Consumer and Healthcare Sector

Treasury and Trade Solutions 2 Figure 1: ESG materiality weightings: DM vs EM Social Across EMs and DMs, social factors are most relevant, with labour conditions a particular focus area (employee pay, working conditions, healthcare benefits, training, parental leave, etc.). Pursuing policies here not only delivers on the “S” (of “ESG”) but also reduces supply chain disruptions from employee absence and churn. The relative importance of ESG items between DMs and EMs across key consumer and healthcare sub-sectors (figure 1) play out in an ecosystem focused on five themes (figure 2). Altruism or capitalism? ESG can be both. The case for ESG investments falls largely into two buckets: avoiding future costs (for example, from tax and/or penalties for breaching pollution targets or failing to comply with regulatory standards) and leveraging or monetising credentials for more consumer share of mind. But the cost of change needs to be quantified. Asking how much the supply chain needs to be reconfigured to adhere to circularity principles is one way to do this. Part of this sits in the commercial organisation itself, which can look at its manufacturing footprint, particularly at how physical goods move through its supply chain throughout the production process to the end consumer, and what the associated CO2 footprint and water usage are. Less obvious is the role of the treasury. Yet, beyond issuing green bonds, how a company hits its ESG targets rests as much on the actions it takes unilaterally as on the performance of its trading partners: areas where treasury can make a difference. E S G Total Developed Markets (DM) 32% 46% 22% 100% Europe 33% 38% 29% 100% Luxury 30% 35% 35% 100% General Retail 30% 50% 20% 100% Food Retail 40% 30% 30% 100% Travel & Leisure 32% 38% 30% 100% North America 28% 42% 30% 100% Apparel, Footwear & Textiles 10% 60% 30% 100% Leisure & Restaurants 35% 35% 30% 100% Food Retail 40% 30% 30% 100% Japan 25% 60% 15% 100% General Retail 25% 60% 15% 100% Australia 40% 45% 15% 100% Consumer 40% 45% 15% 100% Emerging Markets (EM) 14% 46% 40% 100% Latin America 20% 35% 45% 100% Retail 20% 35% 45% 100% China/Hong Kong/Macau 13% 43% 45% 100% Consumer 15% 40% 45% 100% Leisure & Gaming 10% 45% 45% 100% Korea 10% 60% 30% 100% Consumer 10% 60% 30% 100% Global 23% 46% 31% Source: Citi Research