Interim Insights: A conversation with Michael Pennant-Jones, Independent Sustainability Consultant

We spoke to Michael Pennant-Jones, Independent Sustainability Consultant, on his sustainability career in the FMCG sector and what clients should be aware of regarding regulations and incoming EU due diligence.

1. What made you want to pursue a role within sustainability?

I started my career in the sustainability field over 25 years ago by accident really. My initial career ambitions were closed off to me, so I used the time after leaving university to travel in India. Using my contacts there, I worked with a community trade supplier for a well-known high-street beauty retailer. I spent almost two years in South India, and some of the key learnings I took from this experience was that businesses can be financially profitable, operate in a very poor area, with great ethical and environmental standards, as well as offer good pay and benefits, with a fantastic working culture whilst also producing environmentally sustainable materials that had a positive impact both socially and environmentally.

My next role saw me working for Typhoo when the sustainability industry was new and emerging. There I implemented their supplier programme. Working with the buying team, who were way ahead of their time in their approaches to purchasing practices and ethical supplier management. I travelled extensively from Papua New Guinea to Rwanda on field work and supported the UK as a founder member of the Ethical Trading Initiative. I then moved to a company called Finlay’s – at the time they were a vertically integrated tea, flour, horticultural, coffee and minor crops company, where I set up their sustainability department. With tea plants living for 40 - 60years, we had to look at a futures generated strategy, ensuring that these businesses were planning for their assets, in this case crops and plants, to keep them profitable and thriving into the future.

Latterly I moved into consultancy as a director leading the operations and technical teams with a focus on serious and difficult human rights issues. During this time, I established specialist sectoral teams in Heavy Industry, Food and Agriculture, Manufacturing and Investors, and developed communities of specialist practice. A pinnacle of work here was successfully leading for a client who were subject to a Withhold Release Order (WRO) form the US Government and an import ban resulting in its modification leading to resumption of normal trade.

At the end of the day, you have to enjoy what you do, and sustainability has provided me with huge variety of challenges across a wide scope of work.

2. What does a role in sustainability within Fast Moving Consumer Goods (FMCG) encompass?

I think there is a key set of criteria that helps make a successful and proficient sustainability consultant; these being:

• Driven and inquisitive. Understand where a company stands on its ESG journey, what they are actually doing, rather than what they claim to be doing, and to be clear on what they need to be doing.  It’s about building relevant knowledge and understanding, without this it’s harder to make real progress.
• Being a strong independent analytical thinker. Assess issues within the organisation, process multiple sources of information, working through the how and what of issues.
• Resilience. The role of the sustainability consultant can be challenging, and they can often be seen as the disrupters. They are often trying to implement new initiatives, change the status quo and ways of thinking within an organisation, as well as getting senior leadership teams to think outside the traditional planning cycle of three to five years, and to think further into the future in their business planning.
• Strong communication, stakeholder management and negotiation skills. Ability to confidently push back and constructively challenge what a client’s ESG strategy should be, backed up by relevant information. Liaising with all levels of the organisation.
• Strong prioritisation skills. ESG is a vast subject and sustainability consultants need to be able prioritise and push activities that generate traction. You can’t do everything.

A key area for the success of sustainability in any FMCG is culture. Creating the enabling sustainability culture is an important component for buy-in across the organisation, and it must address and speak to all levels of the firm.

Future thinking approaches are great in helping the senior leadership team to adopt a culture that enables sustainability to thrive as it looks at factors that could impact (positively and negatively) on the business. For example, a client may not place as much focus on the human rights found deep within their supply chain, instead focusing more on recyclable materials in packaging. However, by highlighting the impacts of legislation and due diligence potentially enabling activists, lawyers, and others to bring action against companies for these issues at any point in their supply chain, this then becomes a more impactful issue that needs mitigating and addressing.

To gain further traction, initiatives need to be accessible to all colleagues, promoting internally and externally what the business is doing in its ESG strategy.

Whether these initiatives include installing solar panels or heat pumps, reviewing the gender policy to ensure safety for women along the supply chain, improving health and safety for all, or actively working towards decarbonisations, employees are likely to feel more engaged with a business that they feel valued in, and that they feel is invested in the future. It however cannot be seen just as a sustainability department achievement – it needs to be recognised by all the people in the business that further the work.

3. With specific experience in tropical agriculture such as tea, fresh produce, coffee, rubber, and palm oil, how can clients ensure their Agri supply chain is sustainable?

One of the most obvious and often overlooked aspects of ensuring a sustainable business is to fully know your supply chain. Knowledge is power, a business can’t just search the ins and outs of their supply chain from the internet, nor can they use the internet to decipher the issues. You need to engage with the supply chain, understand the producers, their workers, the local priories and respond accordingly. Knowledge will allow you to develop tailored programmes that focus on the salient factors and root caused within your supply chain,

Climate chain will be an issue regardless of where you are in the world, whether this is affecting local viability or long-term supply options. Looking at your supply base through the lens of climatic change will provide you with a good insight into the challenges and implications emerging now and in the future. Climate change has implications on people, livelihoods and business practices. For example, if a farmer has sporadic crops because of climate change, they may not be able to afford long term or permanent labour, meaning they may need to use contractors. Workers especially the marginalised become more vulnerable, increasing the ethical risks.

4. What do you think are the wider challenges faced by clients within the FMCG industry in their journey for decarbonisation, and what do they need to consider when setting up their ESG Strategy?

4.1 What are the impacts of shipping, deforestation, and water usage that clients should also consider?

Decarbonisation is a very technical subject; it comes back to how do you reduce long-term impacts on your business in response to climatic change. This could be both in response to direct climatic change on the business and the regulatory burden to decarbonise.

Carbon management needs to be part of any credible climate change strategy, with the biggest challenge often being how to change the business model without creating significant costs. It can be expensive to decarbonise the direct business operations, such as facilities and logistics, and this will often require significant board support

Assess whether you partner with logistics companies that are committed to decarbonisation of their shipping and fleet etc, and what changes are they implementing. Whilst working at Swire, I was very lucky to be involved in shipping, and learnt that several companied are taking this very seriously, by looking at ship efficiencies from design through to operation whilst also engaged in more transformation carbon technologies.

When addressing decarbonisation and carbon offsetting, I would look at a priority list, internal direct activities and then vulnerabilities in the supply chain where clients can focus their efforts to mitigate climate and carbon related issues.

Make carbon real and tangible. Carbon credits and offsetting are somewhat intangible. Carbon strategies can really engage, clean energy, reforestation , biodiversity, land management, efficient logistics creating a great narrative, adding to sustainability culture of the business and morale of employees.

4.2 What are the main human rights elements that clients need to consider in their supply chains?

One of the main issues currently is around modern slavery. What constitutes modern slavery is often not fully understood by a lot of companies, but anyone that pays a bond or pays recruitment fees is at significant risk of modern slavery, with migrant workers often being particularly vulnerable to forced labour. This is not a phenomenon that happens at the start of supply chains, with the National Crime Agency estimating the number in the UK in modern slavery to be in the tens of thousands annually.

There are multiple different and increasing legislative issues linked to this where you could fall foul to due diligence; in the USA, this falls under the Paris Act, and your supply chain could be subject to import bans and actions by the US Government, and within the UK we have the modern Slavery Act.

Clients need to be aware of modern slavery and gender issues within their supply chains, as well as being aware of the emerging and increasing legislation of New Working Practices and the Flexible Work Bill. It is also important to recognise that each point of the supply chain may have different classifications and standards it considers fair working conditions.

4.3 With increased consumer pressure to buy from sustainable and ethical companies how can clients promote true and transparent ESG strategies?

I think that a level of honesty should be a pre-requisite. At Swire we had the motto of “to be, rather than to be seen to be”.

There must be an admittance that no one is perfect in this journey and the better the companies think they are the bigger the risks to their reputation and their listed investors.  Being honest about what your starting point is and what you are doing makes it much easier for consumers to buy into as you are not promising the world. When companies claim to be perfect, and are later hit by scandals, it undermines everything else they have achieved.

There is also a degree of responsibility around how clients report things, what you report and how this is communicated to clients and consumers. Being honest and open about where you are on the journey and what you are doing also makes it harder for activists and others to portray you in a negative angle.

5. What should clients be aware of regarding regulations and incoming EU due diligence, and how can they minimise risks within their supply chain?

In summary, increased regulatory controls, focus on salient issues, lower burden of proof and increased transparency.

The change from material to salient risk is significant. Previously, the risk focus was on the direct impact an organisations had – for example did their actions directly employ child labour, cause deforestation, or provide poor human rights for workers. However, this is now not the case, we are moving to a scenario where it does not matter if the client directly caused the environmental or human rights issue If this is present at any point of the supply chain the client has the responsibility to identify and rectify it. This is a fundamental change, and the company systems, strategies and due diligence processes will need to adapt to reflect this, and companies will need to build allies along their supply chains who want to make the changes as well.

Another key thing to be aware of, seen in the USA and the US Tariffs act, and now under the EU due diligence, is the ability for activists and others to now submit evidence against a company if they do not think they are acting to reduce salient risk in their supply chain.

We need to be considering a lower burden of proof that what audits provide. An example of this was seen in the case of Sime Darby. A US Lawyer interviewed 25 people out of 30,000 and provided enough evidence to the US government to say there was forced labour present in these operations. An import ban was then imposed on the company in the US, prohibiting any US company from importing this product. Another example of this can be seen by a well-known high street furniture retailer who have recently been taken to court in Germany, based on the operations in Bangladesh factories. There have also been increasing cases of UK companies being targeted abroad and trying to get them prosecuted in the UK.  

Alongside EU due diligence is the increasing requirement to have product traceability, the recent EU deforestation law is the beginning of this, targeting specific crops. However, in time we can expect that each component of product be documented for where it was mined, made or extracted,

This can be quite a difficult thing to achieve, especially when buying off a spot market or purchasing a blended product. I believe the requirement to have full traceability and to be able to demonstrate this will increase going forward. Where there is traceability there is transparency and increased visibility.