Risks and opportunities of changing consumer demand

18/06/2024

Consumers are flexing their purchasing power in support of more sustainable products and services. Dr Andrew Coburn, CEO of sustainability intelligence and analytics firm, Risilience, considers the risk of greenwashing and sets out three key steps businesses can take to avoid the pitfalls and meet the opportunities of changing consumer demand. Awareness of the climate and nature crises is shaping what consumers are choosing to buy – and what they are prepared to pay for their purchases. A new PwC survey finds that some consumers are willing to pay 9.7% more, on average, for sustainably-produced or sourced goods, despite cost-of-living and inflation concerns. Changes in consumer demand present commercial opportunity, and fast-moving consumer goods (FMCG) businesses will be keen to secure a slice of the growing market. As companies vie for new customers, differentiating products and communicating sustainable credentials are key to success. However, communicating sustainability must be considered carefully at corporate level. Brands making sweeping environmental claims have found themselves under the regulatory and legal spotlight. Following scrutiny of sustainability messaging from a number of fashion brands, the UK’s Competition and Markets Authority (CMA) has expanded its reach to FMCG, promising to examine a wide range of products, both in store and online. Brands are increasingly under scrutiny The ongoing investigation is exploring the environmental claims made by companies producing everyday essential items to ensure that consumers are not being misled by broad and inaccurate eco-statements and benefit from clear, accurate and comparable information to guide their purchasing decisions. The Advertising Standards Authority also has greenwashing in its sights taking on more than 700 FMCG cases linked to misleading environmental claims in the three years to 2023. Further afield, US courts have heard greenwashing cases against several high-profile FMCG brands. These cases are only the tip of the climate-litigation iceberg; the Global Climate Litigation Report, published last year by the UN Environmental Programme (UNEP), highlighted the rise in the number of climate change litigation cases, from 884 in 2017 to 2,180 in 2022. Momentum to clean up greenwashing is building Momentum to clean up greenwashing and empower consumers in the transition to the net-zero and nature-positive economies is building. Upping efforts to address the problem, the European Parliament approved the Green Claims Directive and entered the Empowering Consumers for the Green Transition through Better Protection against Unfair Practices and Better Information into force in March this year. Combined, they require companies to substantiate environmental claims with science-led evidence and bring the threat of financial penalties for failure to comply. Greenhushing is not the answer Consumers and NGOs are also keeping watch of companies making green claims and media interest awaits companies falling short of expectations and lacking evidence to back-up sustainability statements. While the consequences of greenwashing are evident, the antidote is not greenhushing. Keeping quiet about net-zero and nature-positive efforts for fear of getting it wrong brings its own risks. Being seen to hide information invites mistrust from investors and consumers and could result in loss of brand value. It also risks consequences that affect the business ecosystem, potentially signalling to government that a sustainable regulatory and investment landscape is not required for companies to flourish. Reduce the risk of greenwashing The most powerful way to communicate sustainability credentials is through carefully designed climate-and-nature strategies and disclosures that combine climate-and-nature analytics, data, technology and information flows to enable a business to gain insights that inform effective strategic decision-making, which I call 'sustainability intelligence'. There are also practical steps that all companies can take to move the business forward positively while reducing the risk of greenwashing: Avoid hyperbole – don’t use hyperbole in your claims and in your targets because language and terminology matters. Engage with various teams across the company, such as legal and marketing, to ensure that what is said publicly is accurate. Publish accurate and transparent data to support and evidence the claims being made. Don't shy away from outlining your principles –advocate for responsible, sustainable business both internally within your company with the teams that you're working with on a day-to-day basis, but also externally with governments. Use your advocacy to influence decision-makers to build the landscape for investment. Meeting the growing consumer demand for sustainable goods requires a rigorous strategy that is communicable to all stakeholders. When a company is aligned to net zero and nature positive there is no need for sweeping green claims that can risk accusations of greenwashing. And ever-watchful consumers can turn to accurate and comparable information to guide their purchasing decisions. Image credit: Shutterstock