Episode 17: ESG in times of Pandemic – The Case of Sobeys

TRANSCRIPT:

Michael Torrance:

Welcome to Sustainability Leaders. I'm Michael Torrance, Chief Sustainability Officer with BMO Financial Group. On this show, we will talk with leading sustainability practitioners from the corporate, investor, academic and NGO communities to explore how this rapidly-evolving field of sustainability is impacting global investment, business practices and our world.

Disclaimer:

The views expressed here are those of the participants, and not those of Bank of Montreal, its affiliate or subsidiaries.

John Uhren:

I'm John Uhren, Head of Products and Strategy at the Sustainable Finance Group at Bank of Montreal. On today's Sustainability Leaders podcast, we're joined by Vittoria Varalli, Chief of Staff of Sobeys and its VP of Sustainability. Welcome, Vittoria, nice to have you on the podcast.

Vittoria Varalli:

Thanks, John, it's great to be here.

John Uhren:

Now, COVID-19 has disrupted food security and supply chains around the world and it's had a profound effect on a number of sectors and companies, including grocers. In a moment we'll dive into Sobeys' response to COVID-19, but first some context.

Border closures, trade disruptions, restrictions on foreign workers, they've all restricted people's access to sufficient nutritious sources of food, with the world food program identifying 49 countries as being at a high risk of experiencing food crises as a result of COVID-19. For the almost 307 million food-insecure people living in these countries, disruptions to food supply could take these already strained food systems beyond their breaking point.

Disrupted food supplies come at a time when we're seeing the heaviest demand for food and other durable goods resulting from COVID-19, as people find themselves spending a lot more time at home. This has put significant strain on grocers as they attempt to service this elevated demand, all against the backdrop of heightened concerns around the health and safety of employees and customers. Enter Sobeys. Vittoria, I'm interested in learning a little bit more about Sobeys' response to COVID-19 and especially across the environmental, social and governance, or ESG spectrum. But first, how has Sobeys adjusted to being labelled an essential service, and what are the major challenges created by this label?

Vittoria Varalli:

Great question, John. I think collectively there's really a heightened awareness of how essential the grocery industry is to Canadians as a result of this pandemic. It's really ignited an important conversation around who our essential workers are, the role they play in keeping things moving forward every single day, even during a crisis, and I think that's something we need to continue to explore in the post-COVID world. But with a label like this obviously comes immense responsibility. A responsibility to our teammates, our customers across the country to ensure that our shelves are stocked and our stores are safe. So I think for us this experience really clearly reinforced how important it is to have a strong culture, clear values and passionate teammates to be able to navigate the challenges that this presented.

John Uhren:

That's great, Vittoria. And we're going to come back to that culture and the values points that you just made. You know, as we look out across the ESG spectrum, you know, COVID-19 has really presented immense social or ESC risk in ESG, and particularly as it relates to health and safety of employees, or teammates in your case, as well as customers, sick leave policies, supply chain and much more. But let's start with your teammates or your employees. What specific measures have you taken to protect the health and safety of both your employees, but also your customers?

Vittoria Varalli:

From the beginning, this was a health crisis, and we never lost sight of that. For us it was absolutely critical to ensure that our teammates and our customers understood that their safety was our number one priority, and that continues to be a priority for us. We won't let up, so it's really just a beginning as more and more safety measures come out or are needed, we'll continue to implement. So we're incredibly focussed on that.

Our teams actually internally met with grocers in Europe and Asia that were a few weeks ahead of us on the COVID-19 curve and we gathered the latest best-practices and quickly implemented them here at home to keep customers and employees safe. The list of measures that we implemented is really long: increased PPE, a senior shopping hour, increased cleaning in our stores, aisle markers to ensure physical distancing, temperature checks at our distribution centres. But perhaps I think the one that we're most proud of is the plexiglass in our stores, as we were one of the first grocers in North American to implement it.

John Uhren:

Well, congratulations to you and the Sobeys team. I mean, prioritizing the well-being of your employees, your teammates, you know, at the outset, and really taking the time to see what worked and didn't work in Europe and in Asia, that's really forward-thinking. So again, just shows your commitment to the health and safety of your employees, which really to me represents a very well-managed ESC or social risk from a health and safety perspective.

Now, continuing on that theme, you know, supply chain disruptions – and I alluded to it a little bit at the beginning – they've been very real and prominent. We've seen them both locally here in Canada, but given the interconnectedness of supply chains around the world and how just very minor disruptions can cause significant interruptions to supply chains. I'm curious to learn a little bit more of what you've done and what measures you've taken at Sobeys to minimize those interruptions in your supply chain.

Vittoria Varalli:

I think that the transforming of business to operate as an essential service virtually overnight has to be one of the biggest sort of interruptions that a company ever faces, and we had to embrace the interruption and really just remain laser-focussed on what we needed to do, which for us was to keep our employees and our customers safe and healthy, keep our shelves stocked and continue to support our communities and our charitable partners. I think we learned quickly and successfully to adapt to doing business in a very different way, a new normal, if you will. We really haven't faced a test like this before as a company and we were able to change and innovate to meet everyone's evolving needs as this crisis went on.

We got really creative and nimble when it came to solving challenges and found new ways to speed up our supply chain, taking goods to stores directly from suppliers and working with our great supplier partners to divert any unused food staples from any closed restaurants to our store shelves. We also over-hired at store level and had our office teammates transition to working in our stores to ensure we always had people to operate the stores. Essentially, we did everything we had to do to be able to safely serve or customers.

John Uhren:

Yeah, that's great. And perhaps even above and beyond the things you had to do to really be proactive and a leader in the space. You know, you talk about being nimble and being agile and really responding in real time to challenges that were developing and presenting themselves afresh, and I think you did a really good job and your grocer has in being proactive and minimizing disruptions.

I want to pivot a little bit. Now, you talked about having a laser-focus that was required for the overnight transformation to deal with some of these social risks that we've just identified and discussed. Certain programs and certain initiatives like your extensive PPE buying policy, the Hero Pay Program, I'm not sure if you've mentioned that specifically yet, but perhaps you want to elaborate, and community action fund in terms of some of the resources and investments that you made into the community. These are all, from my perspective, you know, governance-type decisions and implementations that require important decision-making within Sobeys. So these are big, kind of real-time decisions that need to be made quickly because you're responding in real time to what you're seeing. Tell me a little bit more about the governance of the G in the ESG structure at Sobeys and how it allowed you to make the necessary decisions to effectively respond to the threat of COVID-19.

Vittoria Varalli:

It's true, a company of our size typically is, I guess, not used to this type of rapid decision-making, but for us, it's funny, our internal purpose is that we're a family supporting families across the country, and I really do think that our strong shared values enabled our teams to make decisions really quickly and to move fast. One of the first things we did was that really clear priority for our crisis team that enabled them to stay focussed and act quickly to solve the unprecedented challenges we were facing, and I mentioned these priorities earlier. They were really quite simple, it was about keeping our shelves stocked, keeping our teammates and our customers safe and healthy and supporting our communities and our charitable partners.

Tactically what we did is our teams met in the morning, by noon decisions they made reached the executive level for approval, and by the next day, the changes were rolling out nationally. So we were really, truly able to move at unprecedented speed.

John Uhren:

Wow! That's amazing. And I think I was reading Sobeys has 123,000 employees globally, and any decisions you were making and implementing within 24 hours, basically, have such a wide range of where they need to be implemented and some jurisdictional differences, I'm sure, come into the picture as well. You mentioned those three themes that were really relevant to some of your decision-making around keeping the shelves stocked, protecting employees and supporting communities. Were those priorities or values, where those values of Sobeys pre-COVID as well, or was that just something that in real time you adapted and became your three main priorities?

Vittoria Varalli:

I think at our core they really were our values. We've always been sort of about supporting each other and the communities that we serve, and I think what this crisis really did was help us to crystallize those values into the three that I mentioned. So I think that fundamentally they were always things we were focussed on, but it really just became crystallized through this experience that these were the three areas that were going to matter most to us as we navigated this pandemic.

John Uhren:

Yeah, good point. And, you know, when you said families supporting families was kind of the origins of Sobeys, but that has permeated your operations even today and probably all across your 123,000 teammates. I'm sure that those values are ingrained and make adapting to significant shocks and changes like COVID-19, it makes it all the more seamless. So that's great to hear from a governance perspective.

Okay, crystal ball time. I'm curious to hear your thoughts on sustainability and ESG at Sobeys in the grocery industry more broadly. And let me sort of start off focussing on the environmental or E opportunities. So when I look at Sobeys, I know you've been a leader in environmental management. You were the first Canadian grocery store to ban plastic bags. You have meaningful energy reduction targets and a lot of different policies around sustainability. Will companies like Sobeys, and do you think over grocers, continue to prioritize environmental stewardship in a post-COVID-19 world?

Vittoria Varalli:

I can speak for Sobeys and I can say that environmental sustainability remains important to us and to our customers and will continue to be a priority. Admittedly, since the onset of the pandemic and the increased safety and hygiene concerns that have resulted, it's really caused a shift towards single-use plastics. Customers really perceive foods packaged with single-use plastics as safer and free from contamination, but I really believe this shift won't last forever. I think despite the short-term impact, there are other areas of the environmental agenda that we continue to be focussed on. But the reduction of food waste and energy and GHG emissions, it's my thinking that the relative importance of ESG topics is likely to continue to shift through the phases of the pandemic, but ESG will remain important to all of our stakeholders, to our customers, to our employees, to our investors. And I think these stakeholders will remember how a company acted through this time as it relates to ESG, making this a real opportunity to establish trust in a real differentiated position.

John Uhren:

I totally agree with you. I think this is a moment in time, but everyone's watching right now, from consumers, to regulators, to investors, to all stakeholders, and I think those companies that demonstrate that they're committed to dealing meaningfully with ESG risks, and yes, there's a focus on social risks right now, but what does a company do coming out of COVID-19 from an environmental perspective. And, you know, when I think of Sobeys and some of the policies and some of the initiatives you already have in place, I think there is a really good opportunity for you to continue to be a leader in the ESG space and sort of pivot and transition more so even on environmental sustainability. And so I'm really encouraged to hear that from a food waste perspective and energy and greenhouse gas emissions, you'll continue to keep those as priorities and focus on those going forward, and that's the type of leadership across all North American companies that we'll be looking for coming out of COVID-19, so that's great to hear.

Okay, back to just food security for one minute. And again, crystal ball. Given the interconnectedness of the global supply chain and the impact that disruptions can have on food security, do you see in the future a move to more local production and local consumption?

Vittoria Varalli:

So tough to predict the future. But I was looking at some data recently and it did indicate that there are nearly half of Canadians that are least saying they intend to buy more locally-sourced items in the future. I think this is great for us, because at Sobeys we began as a local supplier in Atlantic Canada, so supporting local is truly in our DNA and we strongly support local producers, growers and suppliers across the country, so this is definitely something we'll continue to do.

John Uhren:

I think that's great. I can imagine a world where there is sort of a proliferation of local virtual farmer's markets or sustainably-raised animal share apps or things like that. So those already exist, but I wonder if they'll become even more commonplace? I guess we'll see. And, you know, certainly Sobeys, just given your commitment to local production, I think could be a leader in that space as well, so that's exciting.

Well, thank you, Vittoria, for joining the Sustainability Leaders podcast today. I look forward to seeing continued leadership from Sobeys as it relates to food security, both through these times and then, of course, in a post-COVID world. Thank you.

Vittoria Varalli:

Thanks so much for having me.

Michael Torrance:

Thanks for listening to Sustainability Leaders. This podcast is presented by BMO Financial Group. To access all the resources we discussed in today's episode, and to see our other podcasts, visit us at BMO.com/sustainabilityleaders. You can listen and subscribe free to our show on Apple Podcast or your favourite podcast provider and we'll greatly appreciate a rating and review and any feedback that you might have. Our show and resources are produced with support from BMO's Marketing Team and Puddle Creative.

Until next time, I'm Michael Torrance, have a great week.

Disclaimer:

The views expressed here are those of the participants, and not those of Bank of Montreal, its affiliate or subsidiaries. This is not intended to serve as a complete analysis of any material fact regarding any company, industry, strategy or security. This presentation may contain forward-looking statements. Investors are cautioned not to place undue reliance on such statements, as actual results could vary. This presentation is for general information purposes only and does not constitute investment, legal or tax advice and is not intended as an endorsement of any specific investment product or service. Individual investors should consult with an investment, tax, and/or legal professional about their personal situation. Past performance is not indicative of future results.