Emily Settle, Freeths’ Head of Corporate for Consumer, Philippa Dempster, Freeths’ Head of Retail and Tor Johnson, Grant Thornton Associate Director, consider key green growth trends and opportunities in the consumer sector.
There are challenges in the wider economy, but there are opportunities too. Here is our advice on how to make the most of key green growth opportunities.
General Trends
- General trends in mergers and acquisitions (M&A) and other investment
The economic outlook doesn’t have to stifle growth or investment for all. The M&A outlook for the rest of 2023 is challenging but there are green shoots. If your business and management team is strong, private equity could still be an option – and for small to mid-size transactions and fundraises, there’s still a lot going on across the investment landscape. We are particularly optimistic about the back end of this year, as we continue through Q3 look towards Q4.
- Greater scrutiny in transactions of all types and sizes
There’s more scrutiny from investors than ever across all areas, including financial information and strategy. We are seeing a growing focus on environmental and social governance (ESG) factors, too. Businesses need to be forward-looking, and looking at management’s approach to ESG is one marker of how future-proof a company is.
Key Opportunities for Green Growth
- Franchising
The franchising sector held up well over the Covid period and remains robust in the face of uncertainty. Over 1000 businesses are franchises in the UK and the number of successes is increasing. It’s a very agile sector as it combines the energy of entrepreneurs running their own businesses with the marketing investment and strategy of big business.
We are seeing this translate into franchise businesses being able to pivot quickly, which means they respond well to ESG trends. As well as strong growth in the UK, we are seeing a lot of international expansion; many are putting their toes in the water in the Middle East, the USA, Canada and Europe.
- Proactive approach to ESG
Every investor is ESG conscious to some extent, and it is increasingly being accepted that a good ESG strategy will impact the bottom line. Whether by increasing productivity through a mission-focused approach, helping companies to win tenders, or driving customer acquisition, ESG can be a win-win.
In the same vein, ESG can destroy value, for example, if you don’t have engaged employees united under a central mission, or you’ve got an environmental issue, or you’ve marketed something as net zero and it’s not. So it’s important to be mindful.
Investors are aware of a rise in conscious consumerism. Research shows that Gen Z places real importance on the sustainability of products and ethical business practices.
- Spotlight on the circular economy
A focus on ESG is also creating new markets. Reuse, resell and rent are drivers for growth in fashion, for example, with some companies doing it themselves and others acquiring resale platforms or partnering with service providers. There are lots of opportunities for growth in this space.
How to manage ESG to make the most of opportunities
- Make a start
Do what you can to move forward and manage risk. Sometimes changes will bring costs (at least in the short term), sometimes savings. Think “What can we do to make a difference?”
- Think progression, not perfection
No one out there thinks there is a perfect solution, but moving forward with progression is still important. This might mean starting with suppliers, or with your own internal systems.
- Control the controllable and measure it
The world is out of our control but businesses can control systems and data to report on ESG. Lay the foundations so that data is meticulous, ambition-led and auditable. If you can, get advice early on those data systems to help you break down what you’d like to achieve.
- Don’t wait for regulation
Laws are around the corner and no one wants to be playing catch up when they start to trickle through. Think carbon footprint, waste management, customer data, energy use and labour practices, for example.
