In 2018, McDonald’s became the first restaurant company in the world to set a greenhouse gas emissions reduction target, aiming to prevent 150 million metric tons of emissions from being released into the atmosphere by 2030.
That same year, Starbucks announced a global greener stores commitment, while Chipotle released its first sustainability report, and Wendy’s began formalizing an ESG strategy.
Although studies on the correlation between environmental, social and governance work began popping up a few years earlier, Liliana Esposito, Wendy’s chief corporate affairs and sustainability officer, said “a light switch flipped” in 2018. That year, global sustainable investments reached $31 trillion – a 34% increase over the preceding two years.
ESG work has continued to evolve in the five years since, while shareholder activism against companies without a credible action plan has also increased. Arjuna Capital is one such group seeking to enact environmental progress through investments. Julie Cedarholm, senior associate of ESG research and shareholder engagement at Arjuna, said the restaurant industry is starting to become more productive on ESG work in part because of this increased pressure, in addition to more regulations.
“More companies now know they can’t just house ESG in a small department in the corner anymore. They’re embracing this as the business case behind ESG has progressed,” Cedarholm said.
Laurie Schalow, Chipotle’s chief corporate affairs and safety officer, acknowledges that more of her company’s investors are demanding such action.
“ESG is what investors are talking about. They’re more focused on environmental issues now than ever,” she said. “We’re all more focused now.”
Of course, much has changed since that “light switch” year in 2018. More companies, including Chipotle, readjusted their approach a bit because of Covid, sharpening their focus where they could most effectively make an impact as global temperatures continue to rise. For many, that meant following McDonald’s lead and shifting resources and attention to emissions reduction.
“The last two or three years is when this work has escalated where asset managers are pressing companies within their portfolios to adopt aggressive mission reduction targets,” Cedarholm said. “It takes a lot of work to hit a science-based target and companies that haven’t made a commitment yet are going to be left behind.”
Indeed, since 2020, such commitments have picked up from a trickle to a stream, with Starbucks, Yum Brands, Restaurant Brands International, Chipotle, Wendy’s, Brinker, Shake Shack, Panera, The Cheesecake Factory, and Dine Brands, among others, announcing a goal toward some level of carbon emissions reduction. In late 2021, McDonald’s announced it is going a step further, with plans to achieve net-zero emissions by 2050. Domino’s has set that same ambitious goal.
Progress toward a low-carbon economy touches several areas in the restaurant industry, from beef production to restaurant design to packaging. For its part, Starbucks this week announced the verification of 3,500 stores as part of its Greener Store program. The company is on its way to achieving its goal of 10,000 Greener Stores globally by 2025. Chipotle is pursuing closed-loop packaging solutions, reducing waste, and exploring carbon-reducing practices in its supply chain. It also just introduced a new “responsible restaurant design,” with all-electric features. Wendy’s is working to reduce emissions through more energy-efficient store designs, sustainably sourced packaging, and by working with supply companies to identify ways for reduction.
“The industry has to take an honest look at where we can have an impact and what will be necessary to do that. For us, we’re looking at science-based targets. That’s front and center now,” Esposito said. “The vast majority of it is in our supply chain.”
Yum Brands, which was recently named one of “America’s Most Responsible Companies” for its ESG work, said it’s working on “a variety of projects” to reduce greenhouse gas emissions which have so far resulted in a decrease of approximately 20% in franchisee restaurants since 2019. The company, for instance, is leaning heavily into its new packaging policy as to-go orders have increased exponentially since the pandemic. It is also looking at its restaurant designs across all four of its brands – KFC, Taco Bell, Pizza Hut and The Habit Burger Grill. A KFC in California recently unveiled a solar-powered drive-thru, for example, while Taco Bell is installing electric vehicle charging stations across the U.S.
“We have been specific in looking at our packaging – it is something our consumers and team members tell us they want us to focus on. And with emissions, we’re such a development machine – how do we make sure the restaurants we build are built in a way that doesn’t harm the environment?” Tracy Skeans, Yum’s chief operating officer and chief people officer, said in a recent interview. “We always want to be out front leading on those initiatives and making sure we find the right ones to make more of an impact here.”
Yum isn’t alone in wanting to lead on this work. Schalow said the industry at large should be leading and it can do so through more collaboration.
“This is something that is now expected in our industry because of our footprint. We have plans in place, and we need to work together to create partnerships to make sure we can achieve a low-carbon economy. We have to improve the trajectory we’re on. Individual companies, we can keep ticking away at this, but if we work together – share best practices and leverage technology – we can make more, better, progress,” Schalow said.
Making the business case
That’s not to say it’ll be easy, even with more collaboration. Many companies forging this path– aside from Chipotle and Starbucks – are heavily franchised, for instance, and it can be a challenge to get individual franchisee buy-in on some of these initiatives. All of them are businesses that must prove the business case behind such investments. However, those cases have become clearer in recent years, which has helped prioritize this work.
The Starbucks Greener Stores program is a good example here. According to the company, the program’s practices, such as the addition of solar panels and high efficiency appliances, have saved the company nearly $60 million in annual operating costs. Those savings include 30% water savings and 30% energy reduction when compared to historic store practices.
For Wendy’s, Esposito simply notes that the very definition of sustainable includes “economic.”
“If we’re not economically sustainable, we’re not going to endure,” she said. “For example, for a science-based target, there’s a broader responsibility for companies to play their part to mitigate climate impacts and one of the ways we’re seeing progress in that is by reducing the amount of energy we use.”
Esposito adds that the ability to prove a return has reduced some trepidation that may have previously existed with franchisees.
“We can get our franchisees on board with energy reduction because they care about their utility bill. Our newest restaurant design is a smaller footprint, less expensive, a smaller piece of land,” she said. “We estimate that it's 10% more energy efficient than our former most efficient building design. That means the electric bill is 10% lower. That’s where we can find the win/win.”
Of course, there is also a strong business case in meeting consumers’ increasing demands for environmental stewardship. New research from McKinsey and NielsenIQ finds that more than 60% of U.S. consumers say they would pay more for a product with sustainable packaging. And, according to the National Restaurant Association’s State of the Industry 2023 report, 72% of all U.S. adults say they’re more likely to visit a restaurant that uses sustainable and environmentally friendly business practices.
“There is a growing expectation that companies reflect the values we have ourselves. Increasingly, that is environmental and social,” Esposito said.
This work will continue to evolve and even accelerate as more consumers demand as much from corporations. More restaurant companies are answering the call by tying executive bonus structures to the achievement of certain goals. As Esposito notes, “it’s the right thing to do and it tends to get more people interested in this.”
Schalow adds these incentives help Chipotle make better business decisions tied to its ESG goals.
“If you set a goal and you have targets around it and tie it to compensation, you’re going to make sure you have a solid strategy in place to make it happen,” she said. “This has become very top of mind for everyone. We’ve moved from qualitative to quantitative, which has been very important to investors – to all of us.”
That said, Schalow adds it’s important that this work not come from a mandate and that it be feasible.
“You have to do it for the right reasons. It shouldn’t be something a company is forced to do,” Schalow said. “I’m not going to set a goal that will be someone else’s problem in the next generation. We have to allow companies to strategically map out how they’re going to achieve these targets.”
It’s early days here and much work needs – and can be – done within this vast industry, but having a focused strategic path is one way to get there.
“There is some progress and it’s exciting,” Cedarholm said. “We can celebrate them being on the journey. This isn’t overnight work.”
Contact Alicia Kelso at [email protected]