by Michael Connor

With more and more companies now reporting regularly on environmental, social and governance issues – often through the publication of annual “corporate responsibility” or “sustainability” reports – there’s growing and understandable skepticism about corporate motives and outcomes. Critics argue that the documents are too often used by firms to “greenwash” sustainability shortcomings while allowing a host of fundamental weaknesses on other issues to be portrayed as critical future challenges.

Kelloggs_bran_flakesThat happens, of course.  But it’s fascinating to watch, particularly as some major global enterprises engage, however imperfectly, in the process of reporting on matters that only a few years ago would have been left for legal counsel to explain and defend in courts or regulatory hearings.  If nothing else, the process can sometimes set the board for playing the great “What Would You Do?” game – putting oneself in the shoes of senior management, juggling near-term bottom-line financial imperatives while aiming for long-term corporate sustainability and increased shareholder value.

Case in point is the 2010 Corporate Responsibility report of Kellogg Company, the cereal and convenience food giant.    Without being familiar with Kellogg’s business and operations, it’s impossible to really judge the company’s performance from this report, its second annual.   Yes, Kellogg has been financially successful ($1.2 billion in 2009 net income).  Yes, it’s cutting back on energy consumption, greenhouse gas emissions and water usage.  Yes, it provides data on its operations through the Global Reporting Initiative, which is not true for most U.S.-based companies.   And yes, it has a board of directors with its own Sustainability Committee.

Searching for Salt Substitutes

But how should the food company handle a sticky health problem involving salt? Or a supply chain issue – perhaps the worst in a decade – involving peanuts?

“One of the most challenging nutrition issues for Kellogg and other food manufacturers is finding ways to reduce the sodium in our foods while maintaining great taste,” the Kellogg report explains. “Although there are satisfactory substitutes for sugars and fats, there currently is no acceptable salt replacement for use in the development of commercially viable—and palatable—lower-sodium foods. Potassium chloride is the most frequently used salt substitute, but its inherent bitterness limits the development of appetizing products.”

Consumer preferences on salt also vary widely by region. In India, for example, Kellogg says consumers overwhelmingly rejected cereals in which the company lowered sodium content. But in Southeast Asia and China, consumers preferred the reduced-sodium versions of Corn Flakes, Frosties and Cocoa Frosties cereals.

And for those who recognize the “I-won’t-eat-it-if-you-say-it’s-good-for-me” syndrome in themselves or their children, Kellogg reports: “Historically, the packaged foods industry has found that promoting a sodium reduction on product labels typically leads to a drop in sales because consumers erroneously equate ‘reduced salt’ with ‘reduced taste.’ Yet when we don’t advertise or promote a sodium reduction, most consumers continue to buy the product, never realizing that the sodium content has changed.”

Nonetheless, Kellogg reports, it has successfuly reduced sodium levels in some of its leading brands worldwide and “will continue to aggressively pursue sodium reductions while keeping up to date with new alternatives for sodium and salt substitutes.”

Peanuts have been another challenge for Kellogg.  A January 2009 U.S. recall of peanut products from a supplier, Peanut Products of America, “ranks among the biggest challenges Kellogg has faced in the last decade,” the company reports.  After learning about tainted peanut ingredients from the supplier and “out of an abundance of caution,” the company recalled more than 7 million cases of peanut butter sandwich crackers and other products, at a cost of approximately $65 million to $70 million.

“While we addressed the situation swiftly, we – and the entire food industry – face an ongoing challenge of ensuring a safe and secure supply chain,” Kellogg says.

And so it goes for a giant, global food company with a supply chain involving 1,500 products, manufacturing operations in 18 countries and sales in 180 countries.  While preparing and publishing a corporate responsibility report doesn’t, in itself, solve problems, the process helps to identify issues, highlight appropriate metrics (or the lack thereof) and establish a vocabulary for ongoing discussion and debate.   It’s far better to have a report than not.