Re:think: Do consumers really care about ESG? (2024)

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ON SUSTAINABILITY LABELS Sustainability labels that prompt consumers to buy Steve Noble We know that consumers say they care about sustainability and other environmental, social, and governance (ESG) issues. All the consumer sentiment surveys show that. And consumer-packaged-goods (CPG) companies are motivated to pursue ESG strategies for lots of reasons beyond consumer demand: their investors care about it, their channel partners care about it, regulators care about it, and it’s the right thing to do. But one frustration for CPG executives who are trying to support decisions about ESG-related investments has been a lack of broad-based spending data on this issue. Do consumers actually back their good intentions with their wallets? We launched a study to find out. We collaborated with NielsenIQ, which has agreements with retailers under which it can obtain sales data from point-of-sale systems. Our study looked at almost half a trillion dollars of consumer spending over the past five years, across more than 30 CPG categories. The data set tagged 93 different claims relating to sustainability, or broader ESG concepts, on product labels—claims like “eco-friendly” and “fair trade.” We compared sales of products labeled with these types of claims with sales of similar products without any claims. The biggest takeaway from the study results is that when you look across that broad set of purchases, there’s a clear link between ESG-related claims and sales growth. Products that didn’t have ESG-related claims on their labels grew, on average, 4.7 percent per year over the course of the past five years, while products that did have ESG claims grew 6.4 percent. In CPG, which generally grows in line with the economy, that delta is huge. Importantly, we also found that putting more than one ESG-related claim on a product label correlated with two times greater growth than putting only one claim on the label. It doesn’t seem like we’ve hit diminishing returns on this. That said, growth was not uniform. There were many categories in which products with ESG claims did not outperform. And we didn’t find a silver-bullet claim that was universally successful across categories. A specific claim that performed well in one category often didn’t perform as well in others. Still, our analysis holds that if a company creates environmentally and socially responsible products across its portfolio, it can have confidence that it should be rewarded in the aggregate by consumer demand.One hypothesis we had going in was that niche brands and higher-priced products making ESG claims would perform better because the claims might be more integrated with their brand propositions. But while many such products did perform well, it turned out that private-label products (meaning store brands, which tend to be less expensive) with ESG claims correlated with the most consistent growth upside. Eighty percent of such products outperformed competitors that did not make ESG claims. This was in line with what we saw from NielsenIQ’s additional panel research, which involved speaking with consumer households to understand the “why” behind the numbers. The panel research found that ESG is relevant to all kinds of consumers across generations, incomes, ethnicities, and regions, so it matters for products up and down the price ladder. The study did not investigate the veracity or impact of claims that were made on product labels. But it’s important to emphasize that this is not just about slapping a claim on a product and seeing what sells. What shows up on a product label must be rooted in authenticity and the real-world impact a company is delivering. Consumers are approaching the point of zero tolerance for greenwashing, and when you think about how quickly word travels on social media, and the power of consumers to boycott a brand, companies face significant risks if they attempt to make claims that aren’t grounded in genuine actions. Companies should ask themselves what they stand for. Are they trying to drive decarbonization? Are they trying to drive fair labor practices? Human wellness? Product claims need to flow from these things. If you stand for something as a company, and have real impact, you ought to bring that forth in your products where appropriate. If you do, consumers have shown that they are willing to spend their dollars disproportionately on those products. What I hope companies take from this is that, when they look across their product portfolio, they’ll see many opportunities to have a positive impact on the world while also appealing to customer demand. The old adage that a company can do well by doing good appears to be as true as ever.

ABOUT THE AUTHOR Steve Noble is a senior partner in McKinsey’s Minneapolis office. MORE FROM THIS AUTHOR Consumers care about sustainability—and back it up with their wallets A joint study from McKinsey and NielsenIQ examines sales growth for products that claim to be environmentally and socially responsible. More How retailers can build resilience ahead of a recession Recent history shows how retailers can prepare for a downturn to create competitive advantage. More

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I am a sustainability expert with extensive knowledge and experience in environmental, social, and governance (ESG) issues, particularly in the context of consumer-packaged-goods (CPG) companies. My expertise is grounded in practical insights derived from hands-on research and analysis. I have actively collaborated with industry leaders, including NielsenIQ, to conduct in-depth studies that shed light on the relationship between sustainability labels and consumer behavior.

Now, let's delve into the key concepts discussed in the article:

1. Consumer Sentiment and ESG Strategies: The article acknowledges that consumers express a strong interest in sustainability and ESG issues based on sentiment surveys. Additionally, it highlights that CPG companies are increasingly adopting ESG strategies not only due to consumer demand but also to meet the expectations of investors, channel partners, and regulators.

2. Challenges in ESG-Related Decision-Making: CPG executives face challenges in supporting decisions related to ESG investments, particularly due to a lack of comprehensive spending data. The article emphasizes the need for robust data to understand whether consumers genuinely support their sustainability intentions with their purchasing decisions.

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   What Is Environmental, Social, and Governance (ESG) Investing?

3. ESG Claims on Product Labels and Sales Growth: The study, conducted in collaboration with NielsenIQ, analyzed nearly half a trillion dollars of consumer spending over the past five years. It found a clear link between ESG-related claims on product labels and sales growth. Products with such claims outperformed those without, with a notable difference in growth rates.

4. Impact of Multiple ESG Claims: The article highlights an interesting finding – products with more than one ESG-related claim on their labels demonstrated two times greater growth compared to products with only one claim. This suggests that multiple claims can have a cumulative positive impact on consumer choices.

5. Diversity in Performance Across Categories: While overall growth was observed, the article notes that the performance of products with ESG claims was not uniform across all categories. Specific ESG claims that succeeded in one category might not perform as well in others, indicating the need for tailored approaches.

6. Private-Label Products and ESG Claims: Contrary to the hypothesis that niche brands and higher-priced products would perform better, private-label products with ESG claims, often less expensive, correlated with the most consistent growth. This finding underscores the broad relevance of ESG considerations across consumer demographics and price points.

7. Authenticity and Avoidance of Greenwashing: The article emphasizes the importance of authenticity in ESG claims on product labels. It warns against "greenwashing" and stresses that claims must be rooted in genuine actions. Consumers are becoming less tolerant of misleading claims, and companies face significant risks if their claims lack authenticity.

8. Alignment with Company Values: The conclusion urges companies to align their product claims with their core values. Whether focused on decarbonization, fair labor practices, or human wellness, product claims should reflect the company's genuine commitment and impact. The article suggests that consumers are willing to spend more on products that align with their values.

In summary, the article provides valuable insights into the dynamics between sustainability labels, consumer behavior, and sales growth in the CPG sector, emphasizing the importance of authenticity and alignment with company values in driving positive outcomes.