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One small step for retail, one giant leap for sustainability

Some retailers are already seizing the opportunity to adopt the eco-score, a unified ‘front-of-package’ label representing the environmental impact of food. In this article, we offer an analysis of the logic of, and demand for, the eco-score, followed by our own convictions on the topic.

The background behind adopting the eco-score
The growing importance of environmental awareness
Nutri-score paved the way for eco-score
A multi-step, multi-criteria analysis

May 18, 2021

Sustainability has never played a more important role in people’s lives than it does today. Especially for younger generations who are asking for more ecological responsibility and transparency. Today, some retailers are already seizing this opportunity and have adopted the eco-score, a unified ‘front-of-package’ label representing the environmental impact of food products. Furthermore, the increasing importance of CSR policies in a company strategy and the upcoming pressure to move towards sustainability are other two potential reasons why eco-labeling could become a real asset towards future development for retail companies.

This article summarizes the motivation behind the eco-score, the logic that can be applied to compute it, and Sia Partners’ view on why companies will benefit from this transparent sustainability initiative.

Political context and ambitions

In December, as part of the Paris agreement, all members of the EU committed to a binding collective Nationally Determined Contribution [1] to reduce the net greenhouse gas (i.e. GHG) emission by at least 55% by 2030. Knowing that, for the past decade, over 10% of European GHG emissions originated directly from agriculture [2], the food sector cannot be ignored. Not least because the burden on the full supply chain, including aspects such as transport and packaging, is much higher. In total, the CO2 emissions generated by the food supply chain represents 26% of the world's anthropogenic GHG emissions [3]. Hence, initiatives must be taken to reduce the global emissions of the food supply chains.

In total, the CO2 emissions generated by the food supply chain represents 26% of the world's anthropogenic GHG emissions.

26%

Growing interest for sustainable choices

In recent years, sustainability has gained a lot of attention in the media. New technologies and social media play an important role in the evolution of sustainability. A recent insights study commissioned by Twitter[4], identified sustainability to be one of the six trends for brands to stay ahead.

A rapidly increasing tendency to move towards more eco-friendly behavior

· A study mentioned in Forbes claims that, given the opportunity, 87% of people would buy a product with a positive environmental impact [5]

· The Twitter insights study noticed a 10% increase in conversations regarding adapting behavior towards more conscious consumption habits [4]

· A Unilever study [6] indicates that 33% of customers choose to buy from brands they believe are doing social or environmental good. Even better, those customers tend to feel better after buying these sustainable products.

A study mentioned in Forbes claims that, given the opportunity, 87% of people would buy a product with a positive environmental impact

87%

The Importance of Corporate Social Responsibility

In addition, integrating Corporate Social Responsibility (CSR) into company culture and branding is not only perceived as valuable by business partners, but is also an asset in competitive markets. Complying with this trend will become pivotal sooner or later. Not only to attract or retain customers, but also to maintain a good relationship with other parties such as suppliers and employees. Employer branding has become important in the war for talent.

A survey by the European Commission [7] evaluating the feasibility of an EU-wide ecolabel for fisheries and aquaculture products showed that the main reasons to sell eco-labeled products are usually not related to pressure from interest groups or campaigns (39% agreement), but rather to support CSR policies, to increase customer interest/satisfaction and to strengthen the brand's image (70-75% agreement).

This makes sense as people's mindsets are changing and companies benefit by adapting their strategies. Companies often underestimate the role they should play in the quest for a sustainable lifestyle. Corporate involvement is not just appreciated anymore, it has become an expectation.

· A Nielsen survey [8] showed that 4 out of 5 people find it very or extremely important for companies to implement programs to improve the environment.

· The Twitter insights study noticed a 53% increase in conversations addressing companies to take accountability for their environmental impact. [4]

A Nielsen survey showed that 4 out of 5 people find it very or extremely important for companies to implement programs to improve the environment

4/5

While this expectation is common across all generations, it is noteworthy that mainly younger generations (especially millennials) are looking at businesses to take the lead. [6][8] They not only represent but also raise the future clientele and should therefore be considered in long-term strategic planning.

In the previous decade, consumers' food awareness has increased drastically. In general, our eating habits are shifting towards balanced, healthy diets. Academic research indicated that even Generation Y has more positive intentions regarding healthy food choices. A response to this trend was the adoption of the Nutri-score in French retail companies back in 2017. [9] The growing interest in environmentally sustainable products has lead to the creation of a unified label indicating the sustainability of food products, known as the “eco-score”.

The reasoning behind both labels has some important similarities. Consumers can deduce the nutritional value of a food product by simply looking at the Nutri-score ranging from A (high nutritional value) to E (low nutritional value). Similarly, the eco-score provides the consumer information on the environmental impact of the product, again ranging from A (low environmental impact) to E (high environmental impact).

Before the existence of such an indicator, the consumer had to read the whole food label or compare different brands on the internet to discover the origins of products and their corresponding impact on the environment. Defining a unified eco-score for every food label will help the consumer to deduce the environmental impact in an effortless manner.

Same Origin

Just like the eco-score, the Nutri-score was developed by French academic experts for three main reasons:

- To respond to a growing demand for food-awareness

- To ensure a trustworthy food label

- To counter different individual nutrition labels

A successful launch in France led to voluntary adoption of the Nutri-score in five other European countries (Belgium, Germany, Spain, Luxemburg & The Netherlands). Furthermore, the European Commission has launched the “Farm-to-Fork” strategy as part of its European Green Deal with the intention of promoting healthy food choices with a ‘Proposal for a harmonised mandatory front-of-pack nutrition labelling in each member state, by 2022. [10]

The eco-score could go through a similar evolution as the Nutri-score. After its creation in France, it is now inspiring other European countries to be part of upcoming EU regulations.

The logic behind the eco-score is based on the lifecycle analysis (LCA). LCA is a method for quantifying the impact of a product on the environment throughout its life cycle (e.g. agriculture, transport, packaging, etc.). [11] It is developed as part of the Agribalyse Project by ADEME, the French national agency for ecological transition. It is a project dedicated to the creation of methodologies and reference data on the environmental assessment of food products since 2010. On top of considering all the stages of the product lifecycle, this method also takes into account environmental issues such as climate change and air quality.

The LCA is the backbone of the eco-score. It represents a scale between 0 and 100 points to which bonuses or penalties are added in the end to reach the final eco-score.

The LCA calculation is based on 16 indicators. These indicators are recommended by the European Commission in order to produce a single Environmental Footprint (EF) score. [12] An indicator could be the depletion and scarcity of water sources, for example consuming a liter of water in Morocco has a greater impact than in Belgium. [13] Each indicator is assigned a specific weight in the total LCA-score based on the associated environmental impact. After weighing each indicator, the total score has to be normalized to come to a final dimensionless LCA-score. The normalisation factors follow a nonlinear logarithmic curve, different for food and drinks because of their different volumes.

Now that the basic LCA rating has been calculated, bonuses or penalties still have to be added to arrive at the final eco-score. The bonuses or complementary indicators were introduced into the eco-score to account for environmental issues that are not covered in the LCA. Multiple complementary indicators are taken into account, such as:

Production system & labels
Local supply
Environmental policy
Packaging
Protected species

For example, the recyclability of the packaging will lead to a bonus.

	Necessary information	Treatments	Result (score)
01. LCA score	Name, NV, Ingredients	Identification of the Agribalyse category and LCA score calculation	Score: 0 to 100
02. Labels	Labels	Addition of bonuses for valued labels	Bonus: 0 to 20
03.a Ingredients origin	Place of origin and proportion of ingredients	Calculation of transport scores according to origins	Bonus: 0 to 15
03.b Producing countries	Producing countries	Calculation of the country's environmental score	Bonus/Penalty: -5 to 5
04. Endangered species	Ingredients	Presence of palm oil or other elements having an impact on endangered species	Penalty: -10 to 0
05. Packaging	Packaging format and materials	Calculation of scores for each packaging	Penalty: -10 to 0

At this moment in time, the LCA already gives a thorough representation of the environmental impact of food products. However, Agribalyse already identified some limitations that need to be addressed to reach an improved coverage of all environmental challenges. Some examples of this are:

A more precise description of water consumption at an agricultural level
A better description of the transformation processes
The use of by-products in the agro-food industries. [14]

Eco-labeling should not be seen as an individual operation or tactical stunt. It can be a statement towards a larger long-term strategy. Future customers are going to buy transparent eco-friendly products that fit their new lifestyle. Now is the time to take action. Not only because of its value or expectancy, but also because the social context and political timing are perfect for companies to show their leadership in sustainability. Investing in eco-labels such as the eco-score will boost brand image, customer trust and satisfaction, leading to long-term benefits and safeguarding a good relationship with the younger communities.

As of now, the calculation of the eco-score is based on the lifecycle of the product and the additional indicators which allow us to take some additional information into consideration. However, additional items are currently not taken into account such as the impact of agriculture on biodiversity and other agroecological systems, the transparency of supply chains (especially for transformed products), and the geographical influence. Technology can help in overcoming some of those limitations. IoT and Blockchain can be used to improve product traceability.

Sia Partners has developed an advanced AI solution to help organisations with product transparency. In particular by automatically assigning an eco-score of a given product. The algorithm reads textual information (e.g. a list of ingredients) and numerical values (e.g. proteins per 100g) in order to predict the most likely LCA score. This is possible thanks to a predictive machine learning model. The final eco-score can then be obtained after recognising and taking into account the additional bonuses (e.g. MSC label) and penalties (e.g. packaging).

Finally, environmental indicators such as an eco-score not only represent useful information to support the customer’s decision process but can also be used by retail companies to develop additional functionalities and to develop new services. Indeed, identifying customer interest for environmentally-friendly products can lead to the creation of specific loyalty programs or product recommendations.

At this stage, the eco-score has a lot of potential for food products where information can be accessed from the supply chain. In the future it is highly probable that the environmental impact of an increasing amount of product types will be monitored.

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