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/ Autumn 2020/Issue 100

Companies will have to get creative to advance sustainability amid crisis

As COVID-19 plunges the world into recession, consumers will be more sensitive to price.

A version of this article appeared in the Autumn 2020 issue of strategy+business.

Before COVID-19, people all over the world had been more focused than ever before on the issue of sustainability. Coordinated climate strikes, beginning in the spring of 2019 and continuing through the end of that year, conveyed the growing environmental concerns of global citizens. Employees and customers had increasingly expressed an interest in businesses taking stances and action on sustainability. And consumer data showed rising salesPDF of products with sustainability features.

Fast-forward to today: The pandemic has exposed the fragility of the world and heightened people’s appreciation of sustainability. How many of us have appreciated cleaner air and paid more attention to labor conditions, given essential workers’ greater virus exposure? Consumer insights reflect this sensitivity. More than half of respondents to a recent survey conducted by management consulting firm Kearney said that as a result of their COVID-19 experience, they are more likely to buy environmentally friendly products. And unpublished PwC research shows that 75 percent of U.S. consumers surveyed believe companies should maintain changes they’ve made due to COVID-19 that have a positive environmental impact.

At the same time, though, the deep economic crisis the virus has caused is making shoppers more price-sensitive and forcing many companies to do whatever it takes to simply stay afloat. Companies, even those with sustainability in their DNA, might put some or all environmental, social, and governance (ESG) initiatives on hold to stem revenue losses. However, early data suggests that prioritizing sustainability could boost financial performance. As of early April, big ESG-focused funds were outperforming the S&P 500 for the year. This could reflect investors’ long-term view. Recent research by the Conference Board also highlights how a commitment to sustainability can help companies weather crises and recover faster. Companies will need to be creative and more focused than ever, though, to make their sustainability strategies financially viable, considering reduced corporate income and consumers’ renewed frugality.

Long before the pandemic, Unilever’s chief research and development officer, Richard Slater, highlighted companies’ lead role in mainstreaming sustainability when he said in an interview on NPR, “The onus is on us as consumer companies to innovate and come up with solutions that are great for people [and] convenient at the right price.”

Evidence that consumers care

A growing number of consumers — along with employees and investors — want to associate with brands whose values they identify with. According to a global consumer survey by the Conference Board, about two-thirds of respondents have bought brands because of their environmental practices, more than half have dropped brands because they don’t provide fair labor conditions, and a significant share have at some point either switched brands or moved away from brands because of the social causes they support.

Dichotomy in consumer motivation — between caring about a cause but also about functional features and price — makes pursuing a sustainability agenda complicated.

Soon-to-be-published global PwC research shows that consumers think government bears the biggest responsibility for encouraging sustainable behaviors and lifestyles. Those surveyed put themselves in second place, right after the government and ahead of manufacturers/producers, retailers, and other institutions. The survey also found an increase in the number of people making sustainability-conscious decisions year over year. The percentage of survey respondents who avoid plastics when possible rose from 41 percent to 45 percent, and the percentage of those who consciously choose sustainable ways to travel rose from 28 percent to 32 percent.

People’s purchasing choices don’t always fall in line with their attitudes about sustainability, but recent purchase data indicates that in some categories, words and actions more or less align. In the U.S., the percentage of overall store sales made up of sustainable consumer packaged goods (CPG) grew from 19.7 percent in 2014 to 22.3 percent in 2017, and is expected to reach 25 percent by 2021. Sales of products with on-package sustainability claims, such as USDA Organic or “no phosphates,” grew almost six times as fast asPDF than conventional products from 2013 to 2018 (up 29 percent), accounting for about half of all CPG growth despite the category’s small market share.

However, the Conference Board’s global consumer research shows that shoppers have considered sustainable features to be closer to an appreciated bonus than a core purchase driver. For example, environmental impact ranks only fifth among surveyed consumers’ decision criteria for daily mode of transportation, after speed to destination, cost, convenience, and safety. Warby Parker cofounder and co-CEO Neil Blumenthal put it this way in an interview with Inc. magazine: “While customers certainly love the fact that we give back, at the end of the day, it’s not a critical factor in deciding whether to buy a pair of glasses.”

How companies can respond

This dichotomy in consumer motivation — between caring about a cause and wanting functional features and price — makes pursuing a sustainability agenda complicated. Yet doing so can help to differentiate a brand, delight customers, and ultimately create brand and financial value. Those looking to market sustainable offerings should consider the following suggestions.

Couple sustainability features with other benefits. Companies can innovate, creating sustainable products and services superior to unsustainable alternatives. For instance, recycling company TerraCycle offers a circular packaging and delivery system called Loop that sends customers products in well-designed containers that can be returned for cleaning and reuse. Many companies, including leading ice cream, shampoo, and mouthwash brands, are part of the program. Consumers have to pay a deposit that’s sometimes double the product price, but people don’t mind. Why? Two-thirds of Loop shoppers indicate that the higher-end aesthetics and functionality of the containers are actually more important to them than the program’s sustainability benefits. For example, Häagen-Dazs’s dual-layered Loop cups keep ice cream frozen but aren’t too cold to hold comfortably, and the containers’ rounded bottom corners make scooping easier. The fact that the Loop system is eco-friendly is a bonus.

Paul Gaudio, global creative director for Adidas, explains the sustainability-as-a-bonus philosophy this way: “I don’t want people to buy it because it’s recyclable. I want people to buy it because it’s awesome. And oh, by the way, it’s recycled.”

Minimize the sustainability price premium. Price can deter people from buying sustainable offerings, according to the Conference Board’s research. And in this time of pandemic-induced crisis, with many consumers suffering financial losses, price might be more important than ever. So achieving cost efficiency is critical to keeping prices low. Companies can do this through innovation and partnerships — including with competitors.

For example: Even pre-crisis, Procter & Gamble, Unilever, and Colgate-Palmolive were committed to making their discoveries and technologies for recycling plastics accessible to others in the industry. This helps increase the supply of recycled plastics for all participating companies, while saving other businesses needless development costs. Plus, it advances companies’ sustainability goals and addresses consumer interests. Companies can also launch pricing plans that reward repeat purchases of sustainable products or services. Take Adidas’s circular economy service, Infinite Play, which is available in the U.K. and gives people gift cards or loyalty club points in exchange for their used Adidas items.

Educate consumers about sustainability features and build trust. Many consumers find it time-consuming to gather information about a brand’s sustainability features — additionally, they don’t trust claims, or they find them confusing. According to the Conference Board’s survey, this lack of understanding is a key barrier to consumers buying sustainable brands, especially when it comes to awareness of fair labor conditions and wages.

So, brands need to clearly communicate with their customers in concrete terms, disclosing information such as the amount of packaging saved or how they’ve enhanced certain working conditions. The COVID-19 crisis has inspired companies to do exactly that: It has put employee-related policies and crisis response in the spotlight, so businesses across the board have been communicating frequently with the public about these issues. To strengthen consumer awareness and trust, companies can also seek independent certification and inclusion in app-based directories that provide information about products’ sustainability features.

Give sustainable consumption social currency. Like luxury goods, sustainable products often involve premium quality, craftsmanship, storytelling, and significant intangible value. For example, two different in-store experiments, one with fair trade–labeled coffee and another with a Banana Republic women’s suit bearing a tag touting socially responsible practices — ordinary items, but not the cheapest in their categories — showed that the sustainability labels enhanced demand.

Sustainability features also seem to grant emotional benefits, including the satisfaction of consuming more consciously and subtly signaling status. Brands can support, facilitate, and even encourage this status signaling with tools similar to virtuous behavior badges, such as “I voted” stickers, pink ribbons, or fitness trackers. For example, research has shown positive effects on hotel guests’ towel reusage when they can show their “green support” by wearing a pin or hanging a card on their door.

All crises offer new opportunities. The current one may be a test for sustainability, but it could also inspire a new level of corporate creativity and innovation along the sustainability value chain.

Denise Dahlhoff

Denise Dahlhoff is senior researcher for consumer research at the Conference Board. She is also a senior fellow at the Wharton School’s Lauder Institute for Management and International Studies.

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