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Shopping for ESG

Published on 21/04/2022

For investors, supermarkets aren’t just a place to buy food, but also a place to get investment inspiration. But if you’re looking at these spaces through an ESG lens, how green are UK supermarkets?

Whether in inflationary times or not, the FMCG (fast-moving consumer goods) sector is a staple. You have your luxuries, like chocolate and alcohol, but you also have your everyday items, like tinned goods, bread and healthcare products.

Walk down the pristine aisles of any major supermarket and you’ll see brands like P&G (PG), Pepsico (PEP), Coca Cola (KO), Unilever (ULVR), Kellogg (K) and more. And then you have the supermarkets themselves, Tesco (TSCO), Sainsbury’s (SBRY), Morrisons (MRW), Ocado (OCDO) and Marks & Spencer (MKS)... there are stocks at every turn.

According to Which?, no UK supermarket sends food waste to landfill. Tesco and Ocado redistribute the majority of their surplus food to food banks, while the others send the majority for anaerobic digestion to be turned into biogas and compost. Green credentials all around.

Tesco is rated BBB overall for ESG (stats from ESG Enterprise), yet accounts for 1% of the entire UK’s electricity demand. That’s a lot of leccy. But, when you learn that, alongside M&S, they use renewable energy as a way to reach their net-zero targets, maybe that puts a bit more of a green spin on things.

In 2007, M&S famously launched their Plan A, because there is no Plan B strategy to tackle waste and climate change. They continue to update this strategy and have recently stated that they plan to make all of their food packaging fully recyclable by the end of 2022, with the others on track to hit that target by 2025.

Each of these supermarkets has very different business models - Ocado for example being exclusively built for delivery which set them in good stead for the early part of the pandemic, whilst their competitors were scrambling to get more drivers, vans and delivery routes.

This hasn’t hindered the big names too much though, as Tesco has a 27% share of the grocery market in the UK, followed by Sainsbury’s at 15% and Ocado at just 1.4%.

Which? also investigated the packaging of popular groceries over the past few years. Their latest, conducted in September 2020, looked at 89 best-selling FMCG brands and found that just over a third had packaging that was fully recyclable in household collections. Almost four in 10 of these brands had no labelling to show if they could be recycled. There were also big differences in packaging for very similar products, with some brands using easily recyclable packaging, while others offering almost-identical products with packaging that’s very hard to recycle.

All of the UK's listed supermarkets have signed up to the UK Plastics Pact, which launched in April 2018, following the 2015 UK government scheme to charge for single-use carrier bags.

But ESG isn’t just about the environment, it’s also about social and governance too. How diverse are their boards, how fairly are they paying staff and what are they doing to promote healthier lifestyles amongst their shoppers whilst remaining competitive? When you consider that obesity costs the UK £54 billion a year in time off and medical care, this last point becomes an important topic of consideration to ESG investors.

In 2021 a group of Tesco shareholders called on the company to disclose how much of its food and drink are “healthier” products, as defined by the UK Department of Health, and then develop a strategy to increase that share by 2030. The aim of the shareholders was to see if Tesco were really committed to the health and wellbeing of their customers. Despite these shareholders owning less than a 1% stake in the company, they agreed, with the first results being reported this year.

ESG continues to be a pervasive topic as we try to figure out how to live and invest in a more sustainable way and so having the inside scoop on the latest ESG facts is important.

At Upside we know investing with your values in mind is hugely important, and that's why we are building an app that makes this as easy as possible, whether it is sport, ESG topics, fashion or food you won't have to shop around for the facts.

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