Impak Battles, a new ImpactAlpha series with impak, a Montreal-based impact ratings agency, assesses the positive and negative impact of corporate operations. Each month, the agency will use its impak Score rating methodology in a head-to-head assessment of two representative companies. Kicking off the series: a comparison of the two European agri-food giants. Let the battle begin!
Global food powerhouses Nestlé and Danone have been buffeted by the COVID storm: long lines for food, flour shortages and other supply-chain disruptions, and pressure to improve wages, benefits and working conditions for low-wage food workers now considered essential.
How do Nestlé and Danone stack up on sustainability and impact? 
This month, we have a closer look at the 2018 impact statements and impak Score of two agri-food companies. Data are based on both companies’ 2018 public financial and extra-financial statements, compiled using impak’s rating methodology and aligned with the Impact Management Project, or IMP, framework.
The methodology follows the IMP classification: A (Act to avoid Harm), B (Benefit stakeholders), C (Contribute to solutions), and Z (Does or may cause harm).
The impact Nestlé and Danone generate give us insights into how the two companies may adapt and overcome the many issues exacerbated by the global crisis.
COVID-19 response
Danone and Nestlé’s recent COVID-19 efforts are not included in our 2018 analysis, yet it is highly relevant to note them. Danone implemented financial support mechanisms of €300 million to its ecosystems’ farmers, suppliers, smaller customers and their Venture portfolio’s entrepreneurs. They also established many measures for employees and their families: secured jobs and wages until June 30, bonuses to key workers and extensive insurance coverage worldwide.
Nestlé provided $10.3 million to the International Federation of Red Cross and $1.03 million to the Coalition for Epidemic Preparedness Innovations to support vaccine research. The company also supports businesses offering free meals to key workers and vulnerable people, and match 1:1 donations made by their employees to the Red Cross.
*Underperformance of Danone’s stock price in 2019 can be explained by slower than expected growth of bottled water sales in Europe, due to cooler temperatures in August, as well as weaker sales of yogurt in the US and Russia, due to the popularity of plant-based alternatives and cheaper competing products. Third-quarter sales growth of 3% missed the 3.8% analysts estimate.
Positive impacts
Danone: 75/500 *Winner*
Danone generates two positive impacts linked to U.N. Sustainable Development Goals. One is related to SDG No. 17: Partnership for the goals through its activities of creation, management and financing of social innovation funds which represent around 0.23% of its assets.
The second impact relates to the research, development and sales of medical nutrition, which accounts for 7.5% of revenues, which is linked to SDG No. 3: Ensure healthy lives (non cumulative, see methodological notes). Danone’s investment fund supports other organizations tackling hunger and access to water, among many issues, but it is not considered material.
Nestlé: 0/500
Only one positive impact has been identified for Nestlé, linked to SDG No. 3, representing 1.08% of its activities. The activity behind this outcome relates to the production of medical nutrition products available only through healthcare providers.
Negative impact mitigation
Danone: 131/300 *Winner*
Danone has eight material negative impacts, but none that “does or may cause harm” (a Z rating, according to the Impact Management Project). This means that the company has performed an in-depth analysis and implemented mitigation strategies for all of its negative impacts.
Nestlé: 53/300
For Nestlé, here is where the gap widens. Ten material negative impacts have been analyzed, among which four are rated with a Z (again, meaning they do or may cause harm). Two of the Zs are related to convictions: one on a food safety incident and the other on harassment in relation to labor conditions. The third Z flows from the fact that the company doesn’t mitigate the negative impact generated by energy consumption in its whole supply chain and product lifecycle, and that its energy consumption has consistently increased. The last Z is related to the negative outcome of “water withdrawal endangering local populations’ access to water”, which is crucial to its stakeholders. The company doesn’t mitigate the issue, hence the Z rating. Additionally, Nestlé is engulfed in several scandals related to water, an issue that has been highlighted by the current coronavirus crisis.
Finally, both Danone and Nestlé inherently contribute to a negative impact endemic to their sector, plastic pollution. Even if they have initiatives to mitigate this major global impact, they are still among the world’s largest plastic polluters as both sell bottled water.
Governance
Danone: 132/200 *Winner* Nestlé: 90/200
Danone pulls away further in the governance department. The French company’s mission clearly includes addressing social and environmental issues. Nestlé’s mission does not, according to the public information available.
Including stakeholders and/or independent impact experts in the decision-making process is good governance. Nestlé provides no information at all on such inclusions, while Danone is beginning to proceed to such inclusions. Danone is also working towards its B Corp certification and part of its activities is already certified, which shows a stronger alignment towards a social purpose.
The winner: Danone (impak Score: 338)
The conclusion of this battle seems rather evident when looking at the number of Zs, and the significant gap in sub-scores and impak Score between the French Danone and the Swiss Nestlé. The relatively low percentage of activities linked to SDGs in both cases surely gives room for improvement.
This is what Danone intends to do, as reflected by its May 20th declaration to become the “first listed company to adopt the French legal framework of ‘entreprise à mission’ [mission-driven company]”. As for Nestlé, the company has set ambitious sustainability goals, such as specific activities to mitigate all of its negative impacts. Nonetheless, so far and at time, Danone is the winner of this impak Battle.
What about hunger?
Why doesn’t SDG No. 2: Zero Hunger appear in the battle despite the theme being the agri-food sector? Well, agri-food companies do provide food, but not all of us suffer from hunger. In this case, both companies show a lot of potential, but not enough data is available that would show actions specifically targeting people suffering from hunger or people that would benefit from specific nutritional value of offered products.
Methodological notes
The methodology follows the IMP classification: A (Act to avoid Harm), B (Benefit stakeholders), C (Contribute to solutions), and Z (Does or may cause harm).
The impact Nestlé and Danone generate give us insights into how the two companies may adapt and overcome the many issues exacerbated by the global crisis.
It should be said that both companies count a few other potential positive impacts that were not taken into account because of a lack of information or because they represent less than 0,01% of the companies’ total activities.
Note that according to our methodology, the level of penalties in case of a Z is based on 3 different factors: the type of Z (does cause harm or may cause harm), the repetition of the Z throughout time and, only in the case of a Z ”does cause harm”, whether or not corrective actions have been taken.
Two positive impacts can overlap—for example, if the same product is certified Fair Trade AND Organic. The percentages of activities linked to these impacts are therefore not cumulative.
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impak, the independent impact rating agency, regularly publishes content providing transparent data on the social and environmental impact of companies. By doing so, it aims to accelerate the transition towards a stakeholder economy generating an overall more positive contribution to society.
