Free DownloadESG strategy and management: Complete guide for businesses
This ESG strategy and management guide explains what ESG involves and how it can benefit companies. You'll also find guidance on creating an ESG strategy and measuring a company's performance on ESG issues, plus information on frameworks for ESG reporting and software that can help manage ESG initiatives. Throughout the guide, hyperlinks point to related articles that cover those topics and others in more depth.
How much do consumers care about ESG and sustainability?
Find out whether consumers make purchasing decisions based on sustainability, climate impact and other ESG issues and to what extent these factors drive their behavior.
Companies that ignore sustainability efforts might be losing out on sales.
As climate catastrophes make a too-frequent appearance on news feeds and awareness grows about global interconnectedness, people are taking notice and action. More consumers are using their purchasing power to vote for sustainability, although to what extent and in what categories varies widely. Buying behavior is complex, so it pays to examine research and what industry experts say to help set strategy and minimize ESG risks.
One of the challenges brands and retailers have is that their customers don't share a standard definition of what "sustainable shopping" means, said Scot Case, vice president of corporate social responsibility and sustainability at the National Retail Federation (NRF), a retail trade association headquartered in Washington, D.C.
For example, one consumer might declare that they "shop sustainably" because they buy organic fruit. Someone else might focus their eco-friendly buying on fashion purchases. Others might concentrate their environmentally conscious purchasing on the electronics or vehicles they buy.
"Every single purchase a consumer makes has hidden human health, environmental, social and community impacts," Case said. "But different consumers worry about different considerations at different points in their shopping experience."
To address that complexity, researchers and industry experts examine sustainability-shopping behavior through a variety of lenses, or segmentation approaches.
For Case, shoppers consider their sustainability-focused purchasing in these three primary categories:
"In me" -- products that consumers ingest, such as food and supplements.
"On me" -- personal care items such as clothing, creams, shampoos, and soaps.
"Around me" -- products that have an impact on the environment.
Regardless of the category, the degree to which consumers focus on sustainability can change.
Heightened awareness of sustainability due to certain factors -- media coverage of climate issues, product targeting or life events -- can prompt a more sustainability-minded shopping approach, whether permanently or temporarily, he said.
A television report on energy-efficient appliances could result in a temporary increase in the sale of washing machines that consume less electricity, Case said. While there will always exist consumers who prioritize energy efficiency when purchasing household appliances, those who don’t usually focus on energy might be more inclined to do so when it's a hot discussion topic.
More profoundly, life events can inspire consumers to consider what implications their buying decisions have on the planet, on future generations and on loved ones.
"New parents all of a sudden become very concerned with what's in that laundry detergent," Case said.
Likewise, a new college student might decide, thanks to their newfound independence, to buy more sustainable products than their parents did back at home. The same can apply to newlyweds.
"Those are points when consumer habits are formed and created," Case said.
Beware of greenwashing in its many forms
Business leaders must focus on supporting real, not surface, changes to support sustainability. Marketers must steer clear of meaningless statements and unsupported claims.
Consumers seek proof that the sustainability claims brands make are valid, Case said. When product messaging appears to be greenwashing, many won't buy that product.
As is the case with "sustainable shopping," perceptions vary about what constitutes greenwashing.
"Every consumer now seems to have their own definition of greenwashing, which may or may not be the legal definition of greenwashing," Case said.
Even when the brand is providing accurate, certified and verifiable information on the sustainable aspects of their product, it might not be enough in consumers' eyes. For example, if a company positions itself as sustainable based on carbon credits or carbon offsets, consumers are more likely to see that as subpar or a marketing spin in comparison to a company that focuses on proactive practices such as preventing negative impact, minimizing emissions and using circular practices.
Another example: A clothing company that claims sustainability on the basis of using some recycled material but depends on a fast-fashion model of high-volume sales will look different to consumers in comparison to a retailer that focuses on repurposing textile waste or upcycling old clothes destined for landfill to create small batches of clothing for which they pay workers a livable wage.
Greenwashing is a perceptual issue, not just a legal one, Case said. This is why many retailers are working to provide accessible sustainability information so consumers feel comfortable making a purchase.
New products require energy and materials, are dependent on some sort of supply chain and have end-of-life environmental impacts. And companies that put sell products are in business to make money. Consumers who pay attention to such realities might question companies' motives and truthfulness.
Some consumers are suspicious of any claims a for-profit company makes, said Thomas Husson, an analyst at Forrester Research, a market intelligence and consulting firm headquartered in Cambridge, Mass. While those consumers might trust certain scientists, institutions and nonprofit organizations, they might be more skeptical of companies whose primary mission is to turn a profit. This makes it difficult for even the best-intentioned brands to communicate their sustainability efforts. Some chief marketing officers are reticent to do so for fear of being accused of greenwashing.
To counter this, companies should demonstrate their commitment to sustainability, Husson said. They can do this through their actions and the products they offer as well as through their communities of customers, employees, and partners -- those who will attest to the organization's dedication to being sustainable. That multipronged strategy helps consumers view brands as authentic.
Following all those steps is not easy, but it's the best way to avoid greenwashing, he said.
ESG and the power to drive sales
Awareness is growing around the high environmental costs of greenhouse gas emissions, microplastics, overconsumption, single-use packaging and energy convenience. As that awareness grows, more consumers are reassessing the concept of cost beyond mere dollars. They're balancing price and convenience against investing in the future. Although there are wide variations in business trends related to ESG and the degree to which sustainability concerns drive buying behavior, change is happening.
Every single purchase a consumer makes has hidden human health, environmental, social and community impacts.
Scot CaseVice president of corporate social responsibility and sustainability, National Retail Federation
Products featuring ESG and sustainability claims had a 28% cumulative sales growth from 2017 to 2022, according to a joint study titled "Consumers care about sustainability -- and back it up with their wallets" from McKinsey and NielsenIQ published in a February 2023. In comparison, during that same period, products that did not feature such claims grew by 20%. Sustainability claims focused on issues including animal welfare, such as being cruelty free; environmental sustainability, such as being compostable; organic certification; social responsibility, such as employing workers who are provided a fair wage; and sustainable packaging, such as using a biodegradable wrappers.
ESG claims appeared to have a greater influence in some categories -- for example, food and personal care -- as compared to others -- for example, beverages -- according to the report. In addition, the consumer profiles of those buying products with these claims vary greatly across income levels, age, race, stage of life and geographic location.
That said, the overall trend of growth across a wide array of demographics was clear.
"The appeal of environmentally and socially responsible products isn't limited to niche audiences and is making genuine headway with broad swaths of America," the study's authors wrote.
Research doesn't just show that consumers have an interest in buying more sustainably. Some buyers also have a willingness to pay more.
"Consumers want it all: Hybrid shopping, sustainability, and purpose-driven brands," published by the IBM Institute for Business Value and the NRF in 2022, examined the relationship between pricing and sustainable shopping:
62% of consumers said they are amenable to making changes to their buying behaviors to decrease the impact they have on the environment.
31% said that their last purchase was made up of primarily "sustainable" or "environmentally responsible" items.
35% said that they would buy even more sustainable products if they were priced comparably to those that aren't.
50% declare that they're willing to pay more for sustainable products.
Companies can use this interest to their advantage and focus on offering consumers more sustainable choices, for example, communicating that foregoing an express delivery can save on carbon emissions.
That communication is key since a customer might not even realize a more sustainable choice exists. This point also underscores the need for companies to give employees solid ESG and sustainability training since awareness comes from education.
Interest in sustainability and the degree to which it's a purchasing factor can vary widely, according to Forrester Research's "Green Consumer Segmentation, 2024" report published November 29, 2023. However, the company's findings suggest that younger consumers do care more about sustainability and that environmentally-focused purchasing will only continue to become more important.
"As younger consumers gain purchasing power in the coming years, winning brands will be those that lead with environmental messaging and actions and that make it easy to buy from them," the authors wrote.
Companies need to make it easy for consumers to buy sustainably, Husson said.
