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This report is commissioned to analyze the Social, Economic and Environmental issues that Diageo faces in their day - to - day business operations. The report covers those issues that pose a risk to the company's operations, reputation, and profits.
Diageo is the world's largest producer of premium spirits, beers and wines. Formed with the merger of Grand Metropolitan and Guinness in 1997, it further acquired various brands. Today, the company has 14 strategic brands(including Smirnoff, Baileys, Johnnie Walker, etc) which it believes to be their driving force and also other brands like Tusker lager, Senator Lager, Blossom Hills, Sterling Vineyards.
The report draws attention to following issues:
Environment: The key ingredient for the company is the fresh source of water. Company has few of its production plants in water stressed areas. Also, company's production hampers the climate and resource demands. This report will highlight the methods, the various programs and initiatives that the company takes to sustain the environmental issues.
Social: Drink and Drive, under aged drinking, health hazards of drinking are some of the social issues that may have an impact on the company's reputation. The report presents company's efficiency in educating it's consumers about these issues. Report also specifies the labor problems and how to deal with negative publicity of alcohol.
Economic: The report highlights the impact of different markets on the company's sales. Report also details various initiated programs the company took to become economically stable. Report mentions the major financial risks faced by the company.
Lastly, the report also provides recommendations for achieving long term goals and sustain the ever changing consumer's, business's needs.
Sustainability is the minimum condition that the planet needs to continue to maintain all life and systems in the future. It is generally described as the maintenance of environmental, social and economic factors, also known as the triple bottom line. It can be applied to a range of examples, but in recent times focus has been on the need for sustainability in human lifestyles. This includes all facets of human life, from the extraction of natural resources to the production of goods and services that we consume. http://www.fwrgroup.com.au/why-sustainability-important.html. So its important for the companies in future to become sustainable in terms of Social, Economic and Environmental aspects.
There is general consensus that a concerted effort by all individuals, governments, businesses and sectors is required if the goal of sustainable development is to be achieved. Increasing awareness and understanding of sustainable development and the associated challenges and opportunities, has therefore been a fundamental goal of policy makers and interested parties across the globe. http://www.trendsinsustainability.com/ . Diego like other businesses need to maintain their environmental, social and economic factors otherwise they will be prone to future problems and risks. It's a challenge for Diego like most of the other companies to get out of the traditional mode and make their business sustainable for the future.
This report is going to examine the issues faced by Diego in the ever changing volatile environment of the world. Most importantly it will also give a deep insight on what steps Diego undertake to make their business sustainable socially, economically and environmentally. The report will also talk about Diego's successful attempt of becoming a social citizen, its commitment to corporate social responsibility. Along with this the report will also show how Diego aligned their corporate social responsibility with the other main business strategies of the company to get maximum benefit for their shareholders. The outcome of all these initiative was an integrated set of strategies for sustainability of Diego which showed clear planning and methods to achieve it. This report is not intended to generalize the problems of other beverage firms with Diego. It will not focus on the problems faced by other similar firms. Therefore the report will be specific for Diego enterprise focused on its strategies for achieving sustainability.
As quoted by Diego Chief executive "Sustainability is good business because it protects the firm and its cash flow and ultimately as a commercial enterprise that's what it's about for the long haul".
Various methods were adopted to understand the problems being faced in the company. Sustainable consultants were hired who did a strong analysis of the beverage industry in general, thereby identifying the industry trends and prioritizing the impacts which it can have on Diego in future. A methodology was used to measure the sustainability impacts like economy, society and environmental plus the impact which it will have on the business in terms of revenues, risk etc. All this was done to get a total impact of the industry trends impact on Diego.
For implementation purpose twelve key executives were interviewed in the company. Based on their responses a corporate social responsibility framework was created. In this framework seven key principles were highlighted to implement which have been mentioned in the next section. Apart from these principles to make the business more profitable certain more key areas were put into the framework like driving revenue, reducing cost, mitigating potential risk and building intangibles such as brand, goodwill and reputation. Therefore the purpose of the framework evolved was to make business more profitable, increase shares and stakeholder value and more importantly put Diego ahead in terms of corporate social responsibility. Company also got a detailed plan made to implement the above mentioned framework. It had action steps which evaluated each key area in detail to get the expected outcome in the desired timeline.
Based on the framework above seven key principles were identified for corporate social responsibility. These were the key elements to be implemented:
Some more key elements were identified to make business more profitable without sacrificing the corporate social responsibility framework. These key elements were as follows:
Mitigating potential risk
Brand, goodwill and reputation.
As stated by the Diego's CEO the above framework will "creating value for shareholders must be a principle concern of any business". http://srreport2011.diageoreports.com/overview/ceo-introduction.aspx. Therefore it can be inferred that by focusing on the above areas Diego can make significant changes in terms of Social, Economic and Environment and thereby become a better sustainable enterprise.
Analyzing the impacts and risks of Social economical and environmental issues faced by Diageo:
The company has identified potential risks and understands if any of these uncertainties happen it can affect the group adversely. Some of the prominent risks are as such given below:
Economic issues and steps taken by Diageo to resolve them if any:
Competition that will reduce its market share and margins - Company faces stiff competition from international, local and regional companies. Some unanticipated actions like consolidation or realignment of companies with which Diego deals. This will lead to lowering of prices and a decline in market share of the company.
Government regulatory decisions and always changing regulatory and legal environment - Companies operation are subjected to enormous regulatory requirements like production, marketing, importation, labeling, packaging, advertising and environmental issues. Changes in law will cause company to have more material additional costs or liabilities. Any time company can face new regulations on labeling, advertising or promotion activities which can impact sales.
Failure to maintain distribution, supply, manufacturing or license agreements - All the legal agreements done for Diego's various brands are for a fixed period. There is no assurance that Diageo can renegotiate its rights when the contract expires.
--- Diageo makes sure it doesn't have any disputes with distributors, suppliers which can have adverse effect on sales and operating profit.
Protection of intellectual property rights - Diageo has a strong brand reputation and has invested a lot in protecting intellectual property rights which includes trademark registration and domain names. It also has patents cover for some of its process and bottle marking technology. Despite the security steps taken by Diageo to protect its rights, there can still be avenues for duplicate products with Diageo name being sold. If Diageo cannot maintain its rights against infringement then it will harm its future financial results and hamper their business growth.
Fluctuation of pension funds, exchange and interest rates - Diageo has considerable pension funds. The funds can get affected by their owned asset's performance, Also the assumptions used in calculating surplus or deficit plans particularly used for discount rates can be a liability if there is a significant downfall in financial market. The market value of the assets owned by Diageo's pension funds decline then pension expenses will increase and could badly hurt the companies finanacial performance. Exchange rate is also important as the business results are accounted for in pounds sterling. As stated by Diageo "Approximately 36% of sales in the year ended 30 June 2011 were in US dollars, approximately 15% were in Euros and approximately 12% were in sterling". Therefore exchange rates used to translate foreign currencies into pounds sterling has a significant impact on Diageo's reported results of operations every year.
Alcohol in Society - "One in every ten deaths is alcohol-related. Twenty percent of the total national expenditure for hospital care is alcohol related, and 12% of the total national health expenditure for adults is for alcohol abuse". Alcohol also tends to increase traffic accidents, homicide and suicide. http://www.iica.org/index.php?option=com_content&view=article&id=57:alcohol-and-its-impact-on-society-&catid=34:articles&Itemid=27 . Diageo therefore needs to handle this tactfully.
Resolution - In 2008, Diageo launched an award winning website called DRINKiQ.com. It promotes responsible drinking by enhancing public awareness. It strives to bring solid educational information to the public. Website has got expert's views, tips on responsible drinking, nutritional information of its brand etc. Most importantly it targets four stakeholders who are retailers, educators, parents and law enforcers and provides information to deal with alcohol abuse.
Diageo made it compulsory to include responsible drinking reminders, allergen information during all its product launches and promotions.
Diageo realized it has control over its own marketing. They came up with three principles - Following their own code which were 'Diageo marketing code' and 'Digital code of practice', sticking to industry codes, disseminating marketing information to consumers. By using these codes they market their brands responsibly to adults through awareness, communication and training.
Expensive or shortage of labour - There is an increased competition in the market for skilled labor. Diageo's employees are their strengths and company needs the capability of their employees to succeed. There is no guarantee in future if Diageo will be able to retain its employees, provide trainings or use their capabilities if they quit.
Diageo came up with 'Learning for Life' program which was launched in 2008. This provides employees an opportunity to learn and engage with the company thereby creating a bond. It will help Diageo to retain its key employees.
Change in consumer preference and taste - Diageo in order to maintain its competitive position in the society needs to provide products which appeals strongly to the customer.Consumer preferences can change due to various factors like change in social trends or demography, health regulations, change in vacation activity patterns or downfall of economy.
---- Through the launch of 'Perfect Plan Program' Diageo creates an environment of effective improvement which leads to quality manufacturing. Using DRINKiQ website more smartly to engage customers for long time.
Negative publicity of health issues - Alcohol drinking normally has a negative mindset. Diageo so has concerns of negative publicity regarding theories of negative alcohol consumption, dietary impacts or customer's complaints done against Diageo or other companies.
Promote responsible drinking and partner with NGO's and other related organizations.
Climate changes and limited raw materials - Rapid climate changes happening worldwide will directly have a negative impact on agriculture food productivity. Diageo gets indirectly impacted due to less availability or fair pricing of raw materials which the company needs for its products such as sugar and grapes.
--- Diageo is establishing new ways to measure and report impacts of environment by getting actively engaged with Beverage Industry Environmental Roundtable. Company also engaged its employees by launching GREENiQ program. This marks employee responsible and supports the cause by online networking and awards programs.
Problem due to quality and scarcity of water - Water is the most important ingredient for Diageo's products. Water being a scarce commodity in many parts of the world faces stiff challenges from poor governance, pollution and climate change. In future as water reserves become scarcer and the quality of water decreases, Diageo will have to face high production costs and will adversely affect the profitability.
Strategy used - To deal with this problem Diageo came up with 'Blueprint Water Framework'. This strategy is based upon three fundamentals:
Operations - Reducing the impact of water in the production units by:
Improving water efficiency in their facilities.
Reducing water usage at places where water is scarce.
Taming the waste water of pollutants released.
Helping water-scarce countries with strategies for sustainable agriculture.
Community Involvement - In 2006, Diageo launched 'Water of Life' programme. The aim is to provide sanitation and clean drinking water in the areas where they operate.
Collective Action - Diageo collaborated with the UN Millenium Development Goals for water sanitation. With this they raised awareness and achieved key initiatives.
Diageo invested in energy efficiency projects like buying new brewery equipments, using efficient compressors and using low-carbon emitting sources.Diageo also produced bio-energy plants to generate renewable energy. Diageo purchased electricity only from low-carbon renewable sources thereby bringing carbon emission by 35,000 tonnes each year.
Carbon emissions data
Sources of energy (TJ)^
Energy efficiency (MJ/litre packaged)^
Direct and indirect carbon emissions by weight^
Direct and indirect carbon emission efficiency (CO2e g/litre)^
Affect - Diageo since 2007 reduced carbon emissions by 13.9% which includes 7.1% reduction in the year 2010 using bio-energy .
Incidents of spills - Diageo had a bad incident in 2010 with an air permit at one of its facilities for which it had to pay a fine of US$40,000. Also there were spill incidents where approximately 219,000 litres were lost primarily alcohol.
Sixteen spills occurred in 2011 but company dealt with the problems quickly thereby avoiding any fines as reported on June 30, 2011.
Biodiversity - Diageo needs to pay attention to biodiversity as 22 of its 106 production sites are located at regions where biodiversity values are high as identified by United Nations.
Measures adopted was to encourage farmers to reduce pesticide use and implement water management. Also expected suppliers to do impact analysis to protect biodiversity.
Out of various sustainable issues faced by Diageo there are some key issues to be handled. Alcohol abuse in society is a fundamental issue due to its negative effects. Diageo has come out with really good initiatives to confront the problem by launching DRINKiQ website and promoting responsible drinking.
Diageo focuses on three areas to compensate the misuse of alcohol:
1. Setting high company standards for responsible marketing and providing relevant information to consumers about their brands.
2. Launch programs for raising awareness and by working with other groups to alter social behaviour and lower the vices of alcohol abuse.
3. Making their alcohol policies more effective and indulge in stakeholder dialogues globally.
Diageo launched its own foundation named Diageo foundation which is a registered charity and
is fully funded by Diageo. This foundation has helped the company in many ways:
Got contributions from external sources and own business.
Employees were encouraged to contribute and volunteer.
Shaped relationships with various NGO's.
Foundation also provides expertise for managing several sustainable projects.
In 2006, Diageo launched its amazing 'Water of Life' CSR program. It was the company's initiative to address the issues of water by implementing their 'Blueprint' strategy which involved community involvement, direct operations and collective action.
In 2008, Diageo launched 'Skills for Life' program which included reputed learning
organizations who trained people with arts, entrepreneurship and teaching skills. Thereby
Diageo helped people find employment and equipped them with skills to become better
contributors to society.
Diageo also did other community investments like 'Employee-led activities' where it launched
the 'giving for good' website that gave employees opportunies to financially contribute towards
environment programmes. Globally it encouraged its employees and guided them to partner with
Diageo also collaborated with Bridge Foundation in US where it anticipated natural disasters and
dealt with the disasters pro-actively.
Towards environment Diageo launched its GREENIQ program for employee engagement. Also
it took various steps to cut down on greenhouse gas emissions by generating renewable energy
and using low-carbon sources.
Diageo came out with various measures to minimize wastes. Their own GREENIQ program
helped them achieve it quickly.
Diageo has taken steps to make its packaging premium and sustainable. Company came up with
guidelines for sustainable packaging and also how to recycle and reuse it.
Looking at the economic issues Diageo confronted them by bringing into practice responsible
procurement, Sustainable agriculture, establishing partnerships with suppliers and industry
Diageo also fostered strategic relationship with customers and spead the message of social
To provide consumers with high quality Diageo came up with 'Perfect Plan' program which
fostered a culture of continuous improvement and improvising manufacturing processes.