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Choc-maker Mars profits from going green
MARS Inc, the maker of its namesake chocolate bar and Wrigley's chewing gum, is spending US$1 billion on sustainability with a strategy to make greener practices increase profits.
"There is a very concrete business case to this," Barry Parkin, chief procurement and sustainability officer at Mars, said in a phone interview. "We're going to get a payback on that billion several times over."
The company is closely held by the founding Mars family and generated US$35 billion in revenues in 2016. It has about 85,000 employees and does a lot more than just candy. Its five businesses span food products such as Uncle Ben's rice, drinks, petcare, as well as a division that researches nutrients in cocoa known as flavanols.
The Paris climate deal struck in 2015 by representatives from almost 200 countries sent a signal to the global economy that decarbonisation is rising on the political agenda. Industries from oil to finance are starting to assess the risks of inaction on environmental issues. Mars's effort is an example of large corporations responding to the pressure.
Mr Parkin is allocating about a third of the funds to making the company's operations more efficient users of energy and water. Another third of the money is going to simplify its supply chains, making an effort to buy directly from farmers. The remainder will be used to recreate its recipes without artificial ingredients.
"It's the end of the commodity era, the nature of a commodity is that it's the same everywhere and you can just buy on price and no one asked or knew where it came from," he said. "That's no longer acceptable."
Mars is working to reduce its exposure to environmental, social and governance risks, known as ESG, because it's next to impossible to track exactly where the huge amounts of raw materials that it uses are from, according to Mr Parkin. The company buys 0.2 per cent of the world's palm oil, sourcing it from thousands of mills.
"You cannot possibly have a compliance programme that ensures there are no issues when you have that level of complexity," Mr Parkin said. "Deforestation is probably the biggest environmental issue and on the social side, it is forced labour and extreme poverty. Those are the challenges of sourcing anything from the developing world."
Mars is funding programmes to help boost yields at hundreds of thousands of farms producing everything from cocoa to vanilla and signing long-term sourcing agreements. The company has a target to reduce the greenhouse gas emissions from its operations to zero by 2040, cutting them by 30 per cent to date. The next step is to trim pollution across its supply chain.
"Partly because it's the right thing to do but also partly because there's already a price on carbon and we only expect it to increase," Mr Parkin said. "With 26 million tonnes of CO2 in our extended supply chain, even if you took a conservative US$20 per tonne view on that, that's half a billion dollars of cost. When we have a significantly smaller footprint than our competitors, we'll have a cost advantage." BLOOMBERG