The COVID-19 pandemic accelerated many things in the business world, but one item that temporarily fell off the priority list was sustainability. In a survey of 750 executives, Deloitte found that nearly two-thirds of organizations had to cut back on environmental sustainability efforts due to the pandemic and resulting economic downturn.
But ongoing pressure from consumers, employees and even regulators has forced businesses — especially retailers — to reprioritize sustainability along with broader corporate social responsibility (CSR) strategies. Retail TouchPoints recently partnered with Amazon Web Services on a survey of 500 retail and brand executives and found that the vast majority (84%) have incorporated CSR in some way into their business strategies, largely because they think it is the right thing to do (72%). But that isn’t the only reason. There are a multitude of internal and external factors motivating action, including the desire to protect their company’s reputation (50%) and even to reduce costs (35%).
Experts indicate that CPG brands in particular could effect the most tangible changes in the industry and drive sustainability even further to the forefront. Even during the pandemic, the NYU Stern Center for Sustainable Business and IRI found that sustainably marketed CPG products outperformed conventionally marketed products across 36 categories and represented 16.8% of purchases.
“The industry growth continues to grow by 50%, and that’s a signal to the industry that they’re looking for [these products],” said Larry Levin, EVP of Consumer and Shopper Marketing at IRI in an interview with Retail TouchPoints. He provided a clear-cut example: an increase in sales for products like Beyond Sausage, which include “plant-based” in their positioning.
IRI also continues to see outsized growth in attributes like “non-GMO,” said Levin, adding “I think those trends will continue, especially as we see more retailers focused on [the whole sustainability agenda], whether it be Amazon or Sephora.”
Consumer Demands Accelerate Sustainability Priorities
While many executives wax poetic about sustainability and how they believe it is the “right thing to do,” it’s actually consumer demand that can make the business case for sustainability initiatives.
“Over the past two years, we’ve been helping more clients, especially CPG brands, drive initiatives around sustainability,” said Scott Clarke, VP, Consumer Products Industry Lead at Publicis Sapient EMEA/APAC in an interview with Retail TouchPoints. “On one level, there is the recognition that if you want to compete in today’s market with an unforgiving consumer, you need to stand for something and have a clear purpose. There’s also the recognition that being competitive in today’s marketplace starts with relevance and connecting with consumers in meaningful ways. All things around sustainability, including social justice, social equity, or even lowering carbon emissions, matter to consumers and should matter to brands.”
Although consumers had been increasingly focusing on sustainability for several years, some experts point to the pandemic as a key driver for directing attention toward environmental issues. “There are some theories that consumers started to make the connection between the global pandemic and global supply chains,” explained Scot Case, VP of Corporate Social Responsibility and Sustainability for the National Retail Federation. “With extra time on their hands, consumers began to explore these connections, so despite these trends being around for the past 10 to 15 years, they were just recently accelerating.”
Research from EY reaffirms that consumers, especially millennials and Gen Z, are more likely to pivot their purchase behaviors based on sustainability factors. Of all consumers, millennials and Gen Z shoppers were more likely to:
- Check sustainability ratings for a product or service they were looking to purchase (25%);
- Pay a premium for products or services with sustainability claims on their packaging or in their advertising (25%);
- Stop purchasing or purchase less from a brand that wasn’t doing enough to ensure products were ethically produced (25%); and
- Visit a website to find and actively look at an organization’s sustainability policies and credentials (25%).
Consumers of all ages appear ready to change purchase behaviors in light of companies’ stagnation, or worse, negative actions. When EY asked how they would respond if an organization did something socially or environmentally inappropriate, 31% of consumers said they would never purchase their products again, and 24% of consumers said they would even tell their friends and family not to use the organization.
The numbers paint a clear and urgent picture, but every executive knows there’s always a gap between what consumers say they’ll do and what they’ll actually do. Clarke noted that most people may say they intend to buy more sustainable products, but they’re not necessarily doing so in practice. “They’re not, either because they’re not aware of which products are more sustainable among options available, or because they’re favoring the low-priced option,” he noted. To close this gap, Clarke offered three solutions:
- Provide clear guidance and visual cues: A consumer may interact with two or three different brands of the same product at the store shelf, Take hand soap for example: each of brand will have a different carbon footprint. “Stick a logo on the back that says this is the right option and explain why,” Clarke advised. “It’s important for the consumer to know what the logo represents and [how it ties to] carbon variability.”
- Communicate the value: “People think sometimes that [buying sustainable products] is going to cost more,” Clarke said. “Or they think they’re going to get an inferior-quality product. You have to provide the information consumers need to realize that making the sustainable choice doesn’t mean they have to compromise quality or increase in price.”
- Reward consumers for behavior changes: When in doubt, provide a perk! Clarke explained that providing incentives or discounts can support customers as they try to make smarter, healthier choices. Even the smallest adjustments can make an impact, and it’s important for consumers not to feel overwhelmed into making any behavioral changes.
Investors and Regulators Add to the Pressure
Consumers aren’t the only ones putting pressure on the retail community to maximize their sustainability investments. NRF’s Case noted that investors are more likely than ever to ask about a business’ environmental social governance practices to prioritize their investments: “In the investment community, there are widely accepted sustainability metrics they use on which stocks to hold in their portfolio, so that’s definitely driving impact,” he noted.
The rise of purpose-driven digital and direct-to-consumer (DTC) brands has likely contributed to sustainability’s rise as a business imperative. Beginning with TOMS and Warby Parker’s “buy one, give one” models, this category of business has expanded to include companies like Allbirds, Everlane and Brilliant Earth, which have acquired passionate customers, as well as investor and Wall Street attention, due to their strong sustainability and social justice missions.
But new regulations also are turning sustainability into a top priority for retail leadership teams. Although the CSR survey from Retail TouchPoints found that only about one-quarter of retailers said they were motivated to invest further in CSR because of new regulations, Case believes we’ll only see more brands and merchants take notice.
“Governments around the world are passing new rules and regulations in this space,” Case explained. For example, the European Union’s Green Deal Agenda requires businesses that sell products in the EU market to meet specific sustainability standards and help create a carbon-neutral Europe. “We’re seeing global retailers be exposed to these new laws and realize that, from a financial perspective, it makes more sense to embrace some solutions globally instead of regionally,” Case noted.
In March 2021, the EU’s Sustainable Finance Disclosure Regulation (SFDR) also went into effect to encourage EU asset managers to disclose how they’re considering sustainability in their investment decisions. Companies seeking additional support from the EU investment community will need to provide transparency into their practices and future objectives, which is why sustainability has come to the forefront of strategic discussions between leadership teams and boards of directors.
In fact, 64% of directors surveyed by PwC said that their business strategies are now tied to environmental, social governance (ESG) issues, while 54% said ESG issues have a financial impact on company performance.
Europe has made the most significant moves in creating more specific sustainability requirements from sourcing to reporting, but progress is being made in North America as well. Earlier this month, New York State Senator Alessandra Biaggi and Assemblywoman Anna R. Kelley unveiled the Fashion Sustainability and Social Accountability Act, a bill designed to effectively hold fashion brands accountable for their role in climate change. The bill is backed by a multitude of nonprofits in the fashion and sustainability worlds, according to the New York Times, including the New Standard Institute and the New York City Environmental Justice Alliance. Even designer Stella McCartney has shown support for the Fashion Act, which will require all fashion retail sellers and manufacturers that do business in New York to disclose environmental and social due diligence policies.
Supporting Sustainability Across the Value Chain
As sustainability moves closer to the heart of purchase decisions, brands and retailers alike have the opportunity to make tangible improvements across the value chain. Experts offered recommendations to support these actions moving forward:
- Align on definitions and requirements: NRF’s Case noted that because “sustainability” can have so many different definitions, retailers and brands need to align on what sustainability really means to them, and what it could mean to their consumers.
- Collaborate to drive accountability: Clarke of Publicis Sapient noted that he’s seeing increased collaboration between retailers and CPGs to ensure everyone is adhering to the same set of sustainability goals and guidelines. “They’re putting pressure on each other to take responsibility for how products are sourced, produced and shipped,” he explained.
- Ensure consistent marketing and messaging: IRI’s Levin revealed that 75% of the categories his firm examined performed better online than in-store. While this data indicates the power of digital content to drive commerce, it also shows the opportunity for brands and retailers to align to reinforce messaging in stores.
- Assess partners across the supply chain: With the rising cost of energy, Case recommends that retailers and brands alike closely assess their supply chain and logistics partners, as well as practices at the distribution center and facility levels. “Simply asking suppliers about their carbon footprint or energy use, you know whether this is a supplier that really understands these issues and whether it’s a supplier you can work with in the long term,” he said, adding that there are also economic benefits: “A more efficient supplier is likely to have lower costs long-term than a supplier not concerned about that efficiency.”
- Find ways to reduce costs in stores: More retailers, especially in grocery, have increased their investments in energy efficiency. “Freezer cases are more energy efficient and the lights inside are more energy efficient, which lowers the company’s electric bill, lowers the carbon footprint and makes it more affordable for retailers who actually start using renewable energy to power their stores,” Case explained.