The business case for environmental sustainability

Sustainability is a hot topic. It is now well established that climate change is fast becoming a reality, and that human influence is the culprit. As such, there’s widespread acceptance that steps need to be taken to prevent further long-term damage to the environment we must all live in.

But what’s less clear is where responsibility lies for society’s response to climate change. When UK households were asked who they believe should be making changes to their behaviour, they pointed squarely at manufacturers (rather than themselves or the government)¹. Of course, manufacturers tend to be share-holder owned businesses. Fundamentally their primary priority is to turn a profit, which is potentially at odds with any environmentally-friendly initiatives.

For example, if we look at laundry products, it is widely understood that many of us use too much when using ‘free pour’ formats like powder and liquids – and that capsules/tablets guarantee the correct quantity is used. We can prove this with simple data: a fabric conditioner buyer purchases 316 washes of fabric conditioner per year, but only 223 washes of clothes cleaners. Assuming they are not stockpiling at home (which long-term is unlikely), the likely reason is they are using an excess of product averaging 42% per wash. While this kind of wastage is not beneficial for the environment, it is fantastic for laundry manufacturers; every time consumers use too much product, the manufacturer benefits from their faster return to the store to stock up again.

That said, laundry is also one of the most successful markets at adopting concentrated product formats: concentrated liquids have reduced transport costs, opened up more space on shelf and have facilitated a reduced environmental footprint without the need to alter consumer behaviour (which is infamously difficult to influence).

However, concentrated formats are not a sure-fire route to success in all categories. Unilever’s launch of compressed deodorants in 2013 has not led to the market-wide transformation the sustainability-conscious might have hoped for – despite cutting carbon footprint by 25% per can. Today, only 3.1% of deodorant sold is in compressed packaging. Despite sharing technology with other manufacturers, considerable media campaigns educating the public, and a market leader endorsing the product, compressed deodorants are losing share (down 57% YoY).

There are many examples of sustainable successes and failures, the consistent lesson from which has been that having an environmental benefit is not enough to guarantee success. A benefit such as compression is only effective when all manufacturers follow suit, and fundamentally, compression is a difficult concept for shoppers to buy into. All things being equal (price, proposition etc), the core difference comes down to on-shelf perception – concentrated formats are smaller and require consumers to trust that it is truly like-for-like. Education campaigns can only do so much, and the UK consumer is often suspicious.

Is a sustainability benefit going to help me win?

While it might be an uncomfortable thought, sustainability on its own is not enough to ensure commercial success. If there are two equivalent products with no difference other than environmental benefit, this does not automatically mean that a shopper will pick that product off the shelf. While 53% of UK shoppers state “I feel better in myself when I buy products that I know are sustainable or better for the environment”² providing this altruistic glow is not enough to guarantee you will win consideration.

Stan Sthanunathan, Unilever’s EVP of Global Consumer and Market Insight, brings all of this together in two sentences: “Sustainability alone is not enough, consumers want it all. It is not enough for a product to be sustainable but less good than the best the category can offer in terms of quality and value for money. People are not prepared to compromise on efficacy or pay more for the privilege. Consumers want it all. What we are now seeing is that sustainability drives brand love and therefore brand preference.”

With that in mind, it starts to make sense why some sustainable launches are so successful – and why some are not. When environmental wins are translated into consumer-centric benefits we can quickly uncover a plethora of more successful stories, in which brands have often been able to justify price premiums, such as:

• Plant-based packaging reduces exposure to microplastics, a health risk many are now concerned about – a recent study found more than 90% of bottled water contained microplastics, leading to a WHO investigation.³
• Unilever’s water-smart laundry products which reduce the amount of water needed to clean – in water-scarce environments, this is a huge consumer benefit.
• Local provenance, leading to shorter-distance supply chains (reducing transport impacts) while providing a perception of quality and local pride.
• Inclusion of natural ingredients which are better for the environment and perceived by consumers as healthier.
• Concentrated laundry formats which are lighter, and less cumbersome for shoppers.
• Multi-purpose personal care products which help save time while reducing the number of products needed (and therefore plastic packaging).

The case for intervention

As such, there are some FMCG environmental gains that are unlikely to ever become prevalent without intervention. A ready meal in plant-based packaging will likely cost more to produce than a plastic-based one, meaning a higher price point or poorer margin – with no clear consumer benefit beyond the knowledge that you have ‘done your part.' And while Iceland, for example, has voluntarily committed to eliminating all plastic from their own-label ranges by 2023, this will only affect 1% of all UK grocery volume.

From research we conducted earlier this year, we know 44% of consumers are now more concerned about single-use plastics than they used to be and 70% plan to switch or use less⁴ – yet soft drinks, one of the most obvious sources of single-use plastic packaging, are in 4.6% YoY volume growth (52 weeks to 9 September 2018).

There could be an argument for a ‘plastic tax’, not dissimilar to the sugar levy. This would create an incentive for manufacturers to research plastic alternative packaging (and hopefully eventually bring down cost of production) while simultaneously generating the ultimate consumer benefit: competitive pricing. We now have to pay 10p every time we use a new plastic carrier bag at a supermarket, which means this has become far less attractive to consumers compared with the alternatives. The result has been a more than 85% drop within six months of introduction of the original 5p charge – 6.5 million bags taken out of circulation, all because of a shift in consumer benefit.

This kind of intervention is going to be necessary in cases where there’s no natural consumer or manufacturer incentive to change. The government is considering banning sweets and fatty snacks from being listed at check outs and removing all multibuy deals from these types of products, and many supermarkets have made it their policy not to sell energy drinks to children in anticipation of an upcoming ban. The plastic bag charge and soft drinks sugar levy have both proven to be effective – the average sugar content of soft drinks is down 14% at 20 weeks post-levy compared with last year. So why could the same logic not be applied to plastic packaging? Indeed, the government is already considering banning plastic straws and cotton buds altogether.⁵

Looking to the longer-term, all of this could well become moot if we, as a society, are not able to make a collective move toward more sustainable habits. A recent BBC FutureNow article summarised this neatly: “Climate-related disasters like droughts and hurricanes, for example, are hitting pocketbooks and insurance premiums – even for people living on the other side of the world. Meanwhile, the complicated supply chains of a globalised retail industry mean that a disruption in one place can cause consequences elsewhere”.⁶

In other words, we may find the potential long-term business costs of not reducing our environmental impact far outweigh short-term investments into R&D.

So, does purpose pay?

Yes, but only if it pays for both the manufacturer and the consumer. This means sometimes we will likely have to force that to happen (and long-term it will cost everyone a lot more not to!)

References

1. Edelman Trust Barometer 2016, retrieved 18/10/2018
2. Unilever Making Purpose Pay, Kantar Worldpanel
3. WHO launches health review after microplastics found in 90% of bottled water, retrieved 01/11/18
4. Worldpanel Plus
5. Plastic straws and cotton buds could be banned within a year, retrieved 01/11/18
6. How Climate change will transform business and the workplace, retrieved 18/10/2018