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 “Sustainability is no longer a niche play: your bottom-line and brand growth depend on it.”

-Crystal Barnes, Nielsen SVP of Global Responsibility and Sustainability, Nielsen Foundation Executive Director

A growing number of consumers and companies factor sustainability into their purchase decisions and business practices. We were inspired to delve into this topic because it’s Earth Day.

We will define sustainability, unpack consumer interest and explore the link between products with sustainability claims and sales in this article.

Specifying Sustainability

Sustainability is word that generates buzz.

But what is it? Sustainability is about meeting the needs of today without adversely affecting the ability of future generations to meet their needs. In other words, sustainability refers to economic, environmental and social practices that work in the present while preserving the future.

Sustainability is an umbrella term that encompasses transparency and sustainability claims.

Transparency claims include business practices, information about the supply chain, complete ingredient lists and nutritional information.

U.S. consumers are the most interested in products that list organic and/or recyclable as their top sustainability claims. Consumers are interested in products with these claims across all categories, from consumer packaged goods to beauty.

Which sustainability attributes care the most about varies by category, Nielsen’s Vice President of Fresh/Health and Wellness Growth and Strategy Sarah Schmansky said in a recent sustainability webinar. For example, fair trade claims on coconut water led to 32% growth but fair trade claims in ice cream only grew 1% in the past year, Schmansky said.

Sustainability attributes vary across several categories:

• Social Responsibility

fair trade, ethical, fair wages

• Sustainable Farming

organic farming, sustainable farming

• Sustainable Resource Management

carbon footprint, renewable energy

• Sustainable Seafood

sustainable fishing, dolphin safe, farmed seafood

• Sustainable Packaging

teracycle certified, less packaging, recyclable materials

• Animal Welfare

grass fed, free range, pasture raised, farm raised

Retailer Relevance

Are companies taking consumer interest in sustainability seriously? Yes-83% of retailers said that failing to take a stand on issues (social, political or environmental) can negatively affect their bottom line.

The number of companies who practice transparency are increasing. Before 2013, only 20% of the S&P 500 companies shared environmental, social and governance information. (The S&P 500 are the largest U.S. stocks, weighted by market capitalization.) In 2018, 85% of the S&P 500 shared this information. Also, about 22% of the 2019 Super Bowl ads included socially-charged messaging.

What changes are companies making to improve their sustainability efforts? The 5 common sustainability strategies that retailers and manufacturers use include:

1) Reduce/Reformulate packaging and ingredients

2) Revamp the supply chain

3) Diversify product/vendor portfolio

4) Update/Change existing business models

5) Integrate sustainability into consumer touchpoints and marketing

Why the focus on the supply chain? According to The Sustainability Consortium’s (TSC) 2018 Sustainability Index, 80 to 90% of the total end-to-end environmental and social impacts of consumer-facing companies are found along the upstream supply chain.

The TSC’s report didn’t rank business by their scores, but named 17 companies as sustainability “champions.” Some of these companies that are “helping foster leadership in sustainability” include Hanes, Walmart, Fruit of the Loom, Wranger, P&G, Unilever, Pepsico and Kroger (see chapter 2 of the report for the complete list).

TSC did rank which store categories have the highest-ranked sustainability scores. The 6 categories with highest scores include:

• Apples/Pears

• Stone Fruit

• Computers

• Hair Coloring Products

• Cucumbers/Melons/Squash

• Diapers

Consumer Concern

How does consumer concern about the environment impact their shopping behavior and expectations?

Six in 10 U.S. consumers are in the “Sustainable Mainstream” category. These shoppers want to be more sustainable but also want added benefits like improving health and environmental savings.

Sustainable shoppers in the U.S. are 67% more likely to be digitally engaged than other consumers.

Most consumers will change their habits- 73% of consumers said they would definitely or probably change their consumption habits to reduce their impact on the environment. This willingness differs by age:

• 75% Millennials

• 46% Gen X

• 34% Boomers

Most shoppers think companies should care for the environment. 68% of Americans said it's extremely or very important that companies implement programs to improve the environment. How many consumers think companies need to proactively improve the environment also varies by age:

• 83% Millennials

• 66% Gen X

• 62% Boomers

73% of consumers are willing to pay more for a product if the company selling it promises transparency.

Millennials are the most willing to forgo a brand to buy more environmentally friendly than Baby Boomers. Millennials also report having the easiest time locating environmentally-friendly products of all the generations.

Race and gender are the biggest variables in who agreed or disagreed with the importance of sustainability claims, Schmansky said. These two demographic factors had more weight than income or occupation, she said.

 Sustainability and Sales

Consumers’ interest in sustainability translates into sales. Although overall consumer interest is high, the younger generations are driving eco-friendly purchases.

A total of 68% of US internet users rated product sustainability as an important factor when making a purchase. 68% of those ages 18 to 24 (Gen Z) made an eco-friendly purchase in the past year. And 90% of Millennials will pay more for products that are either environmentally friendly or contain sustainable ingredients.

Overall, how many consumers are willing to pay for above-average prices on healthy-for-me-and-healthy-for-the-environment products?

• 9% High quality/safety standards

examples: organic, antibiotic-free, hormone-free, non-GMO

• 46% Superior function/performance

examples: sulfate-free, hormone-free, minerals

• 41% Organic/All-Natural ingredients

examples: organic, all natural, no artificial ingredients, preservative-free

• 38% Environmentally friendly/sustainable materials

examples: BPA-free, compostable packaging, recyclable

• 37% Offers/Does something no other product does

examples: upcycled, made from waste or recycled products, edible packaging

• 30% Delivers on social responsibility claims

examples: free-range, pasture-raised, humane

Consumers spent $128.5 billion on sustainable fast-moving consumer goods in 2018. Products with sustainable attributes made up 22% of the total store in 2018. Nielsen predicted that sustainably-minded shoppers will spend up to $150 billion on sustainable FMCG goods by 2021. Sustainable goods will make up 25% store sales, Nielsen also predicted.

Nielsen examined sales data from 3 categories to see how sustainability claims linked to sales. Nielsen found that products with sustainability claims in chocolate, coffee and bath products grew faster than the total category from 2017 to 2018. Here’s a brief roundup of these findings:

• Chocolate: 16% growth in sustainable products vs. 5% overall category sales growth

coffee products with environmental claims like carbon neutral, ethically sources or made with renewable energy outsold products with fair trade and lack of artificial products

• Coffee:  1% growth in sustainable products vs. 1% decrease in overall category sales

coffee products with environmental and fair trade claims experienced more growth than products with absence of artificial ingredient claims

• Bath Products: 14% sustainable product sales growth vs. 1% overall category sales growth

bath products with mineral and essential oils outsold products with organic and environmental claims

Word of caution: consumers are their own fact-checkers, so be careful when promoting sustainability claims. Information is readily accessible for the modern shopper. Consumers trust FDA-backed claims n marketing materials, Schmansky said. Companies that exclude social and environmental issues in their marketing are “left behind” on their marketing at this point, she said.