Nestle Case Study

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Nestle:
a) What in your mind are the key environmental, social, and governance (ESG) issues facing this company? To what extent are these issues financially material for the company?
Ans) Environmental issues: Water issues, Agricultural land issues, checking deforestation
Social issues: Nutrition and Health, Food quality issues, Ethical sourcing
Governance issues: Labor relationships, Child Labor, Supply chain management, Customer relations
Nestle is consumer focused company which faces a great deal of ESG issues. The food and beverage major has the additional responsibility of taking care of ESG factors apart from giving financial appreciation to its shareholders, as its products are the part of day to day consumption of almost everyone from toddlers to adults. The ESG issues are of great importance for the financial health as overlooking any of these could hamper everything from production, distribution to sales.
The production activities draws from the environment in terms of water use, use of agricultural land, livestock etc. Ensuring efficient use and proper methods in terms of water recycling, water conservation, improving the quality of soil, proper livestock rearing are essentially for long term sustainability and hence could have an impact on the company’s financial well being.
Being a multi-national entity it has to be mindful of the source of its raw material as well. Sourcing material which is not at par of the company’s standards, or from lower quality grade, as that will eventually cause the consumer to shit to other brands.
Nutrition and food quality issues are also essential for the company ‘s financial health as the products meant for consumption will only sell if they are able to offer health, quality and nut...

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...e the value of ESG information to a skeptical credit research team?
After having worked in ESG research under equities I have realized that there may not be any magical numbers or metrics to turn around a skeptic. But I do believe that if someone is willing to look at the broader picture with long term investment in view there are considerable examples to prove the worth of including ESG issues in investment strategy. A befitting example that comes to my mind is the case of Home Depot, the company deviated from its strategy of being focused on employee/customer in early 2000 and according to new strategy there was a reduction in headcount, increase in part-time employee etc. these changes saw the share price tumble as the customer experience soured due to unavailability of informed and committed staff which is a first point of interaction for any retail experience.

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