What is ESG? Tracing Its Origins and Opportunities for the Coffee Industry

The concept of ESG - Environmental, Social, and Governance - has evolved from a niche consideration into a global movement shaping how businesses operate, invest, and thrive. This blog explores the origins of ESG, its development over time, funding trends, and the coffee industry’s potential in embracing these principles. We also look at how Coffee Analytica (CA) can start adopting ESG for a sustainable future.

The Origins of ESG: Where It All Began

The term ESG was first popularised in a 2004 report titled Who Cares Wins, which was published as a result of a collaboration between the United Nations Global Compact and key financial institutions. The goal was to integrate environmental, social, and governance considerations into financial decision-making. The report was presented at the UN Global Compact Leaders Summit in Geneva, Switzerland, as a response to growing concerns about corporate accountability and sustainable development.

Prominent proponents of ESG include institutions such as:

• United Nations Principles for Responsible Investment (PRI), which now has over 5,000 signatories managing assets worth more than $120 trillion globally.
• Global Reporting Initiative (GRI), which offers frameworks for ESG reporting.
• Influential asset managers like BlackRock, with its CEO Larry Fink championing ESG through annual letters urging businesses to prioritize sustainability.

The Evolution of ESG: Ebbs and Flows

Since its inception, ESG has experienced waves of adoption:

1. 2000s: Early days of awareness and reporting frameworks.
2. 2010s: Growing recognition as investors began linking ESG performance to financial performance.
3. 2020s: A surge in popularity driven by climate crises, social justice movements, and regulatory frameworks in Europe and beyond.

Despite occasional backlash from skeptics, ESG is now a core consideration in global financial markets. Companies are increasingly under pressure to report on ESG metrics, particularly in regions like the EU, where mandatory reporting standards are being introduced.

Funding Trends: ESG’s Financial Impact

Since ESG became a focal point, investment in ESG-compliant funds has skyrocketed. Here are some recent figures:

• In 2022, ESG-related assets surpassed $35 trillion globally, according to Bloomberg Intelligence. By 2025, ESG assets are expected to represent over a third of all managed assets worldwide.
• Europe leads the charge, with $20 trillion in ESG assets under management, followed by the US, where ESG funds reached $8.6 trillion.
• In 2023, over $500 billion flowed into sustainable investment funds globally (Source: Morningstar).

Key institutional investors and VCs have also embraced ESG:

• BlackRock, Vanguard, and Fidelity are among the largest ESG asset managers.
• Startups and companies with strong ESG alignment have received significant VC funding, with sectors like renewable energy and sustainable agriculture leading the way.

The Coffee Industry and ESG

The coffee industry, with its extensive supply chain and environmental footprint, is uniquely positioned to benefit from ESG principles. Prominent companies like Nestlé (Nespresso) and Starbucks have committed to sustainability initiatives, including carbon neutrality goals, ethical sourcing practices, and community development projects for farmers.

Challenges:

• Environmental: Coffee farming is water-intensive and often contributes to deforestation.
• Social: Farmer exploitation and low wages remain prevalent.
• Governance: Transparent supply chains and ethical trading practices are still evolving.

Opportunities in the Coffee Industry Through ESG

1. Environmental Opportunities

• Carbon Neutrality: Implementing renewable energy in processing and logistics.
• Regenerative Agriculture: Supporting practices that enrich soil and reduce reliance on synthetic fertilizers.

2. Social Opportunities

• Farmer Support: Fair trade certifications and direct trade models.
• Community Development: Investing in healthcare, education, and infrastructure in coffee-growing regions.

3. Governance Opportunities

• Supply Chain Transparency: Using blockchain or similar technologies for ethical tracking.
• Circular Economy: Upcycling coffee grounds into products like scrubs or compost.

Comparing Coffee with ESG-Driven Industries

ESG in the Fashion Industry

• Patagonia: The outdoor clothing brand has pioneered the use of recycled polyester and organic cotton in its products. Their “Worn Wear” program encourages customers to repair, reuse, and recycle old items, reducing waste and creating a circular economy model.
• Adidas: Adidas partnered with Parley for the Oceans to produce shoes made from upcycled plastic waste collected from oceans, showcasing innovation in sustainable materials.

• Everlane: This brand champions “radical transparency,” publishing the true cost of its products and detailing wages and working conditions in its factories. They emphasize ethical production and fair wages for workers in every part of the supply chain.
• Eileen Fisher: This brand focuses on fair wages and working conditions for garment workers while supporting programs that empower women in the fashion industry.

• Stella McCartney: A leader in sustainability, the brand uses blockchain technology to trace its supply chain, ensuring materials are ethically sourced and produced.

Benefits in the Fashion Industry:

• Enhanced Brand Loyalty: Customers increasingly value brands that align with their ethics. Patagonia’s reputation as an environmentally conscious brand has fostered strong customer loyalty.
• Improved Efficiency: Adidas’ use of ocean plastics has reduced waste while creating high-demand, eco-friendly products.

Disadvantages in the Fashion Industry:

• Higher Costs: Brands like Stella McCartney face significant costs in sourcing sustainable materials and implementing blockchain technology for transparency.
• Regulatory Complexity: Compliance with sustainability certifications, such as Fair Trade or GOTS (Global Organic Textile Standard), requires rigorous audits, adding time and cost to operations.

What Coffee Can Learn from Fashion

The coffee industry can mirror these practices to integrate ESG principles into its value chain:

• Recycled Materials: Use recycled and sustainable materials for packaging and coffee gear, similar to Adidas’ use of ocean plastics. For example, offering biodegradable coffee pods or upcycled coffee grounds-based products.
• Fair Wages and Ethical Labour: Collaborate directly with coffee farmers to ensure they receive fair compensation. Coffee brands like Blue Bottle Coffee has led the way in transparency and ethical sourcing.
• Transparency: Employ blockchain to track the journey of coffee from farm to cup, much like Stella McCartney’s traceable supply chain.

By borrowing and adapting these strategies, the coffee industry can improve its environmental footprint, foster stronger connections with ethical consumers, and set a standard for sustainable practices.

How CA Can Adopt ESG Principles

Coffee Analytica can start small and scale ESG initiatives:

Step 1: Environmental Focus

• Offer only sustainable, durable coffee gear (e.g., MAVO’s Olive Wood French Press aligns with this).
• Reduce packaging waste by using compostable or recyclable materials.

Step 2: Social Responsibility

• Partner with CASE to collect used coffee grounds and upcycle them into products like body scrubs.
• Support ethical sourcing by working with manufacturers that prioritize worker welfare.

Step 3: Governance Improvements

• Create a transparent reporting system to showcase CA’s ESG progress.
• Build a Founders’ Collective to foster collaboration on ESG initiatives across the coffee industry.

Conclusion: ESG as a Strategic Advantage

Adopting ESG isn’t just about compliance - it’s a strategic move that ensures long-term success. For Coffee Analytica, embedding these principles into our business not only aligns with our vision of creating value without waste but also positions us as a leader in the sustainable coffee gear market.

By starting small, sharing our journey transparently, and inspiring our partners and customers, we can contribute to a better future - one cup at a time.