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Keeping you in-the-know on environmental, social and governance developments

Although there is so much focus on ESG value as reflected by capital markets/valuations, I’ve written and talked for years about the importance of couching company ESG value in operating and revenue generating contexts. As consumers move to make sustainability/ESG attributes a key buying criterion, companies that don’t respond will suffer. It isn’t easy to find good data on this point – most studies rely exclusively on surveys of buyer intent/preferences rather than data showing actual buying behavior.

This week, McKinsey published the results of research conducted along with NeilsenIQ on actual consumer spending on ESG-labeled products. They set the stage by acknowledging the problem with buyer intent survey results:

“… many CPG [consumer packaged goods] executives report that one challenge to their companies’ environmental, social, and governance (ESG) initiatives is the inability to generate sufficient consumer demand for these products. There are many stories of companies launching new products incorporating ESG-related claims only to find that sales fell short of expectations.”

Then they pose the real questions:

“Accurately assessing demand for products that make these claims is vital as companies think about where to make ESG-related investments across their businesses. Companies should therefore be eager to better understand whether and how these types of claims influence consumers’ purchasing decisions. Is a shopper more likely to purchase a product if there’s an ESG-related claim printed on its package? What about multiple claims? Are some kinds of claims more resonant than others? Does a claim matter more if it’s appended to a pricier product? Is it less meaningful if it comes from a big, established brand?”

What they found is encouraging. To sum it up quickly:

“Creating such products turns out to be not just a moral imperative but also a solid business decision. Products making ESG-related claims averaged 28 percent cumulative growth over the past five-year period, versus 20 percent for products that made no such claims…

The following four overarching insights are important for consumer companies and retailers that build portfolios of environmentally and socially responsible products as part of their overall ESG strategies and impact commitments:

1. Consumers are shifting their spending toward products with ESG-related claims…

2. Brands of different sizes making ESG-related claims achieved differentiated growth…

3. No one ESG-related product claim outperformed all others – but less-common claims tended to be associated with larger effects…

4. Combining claims may convey more authenticity…”

McKinsey clearly lays out a few disclaimers/limitations I think are correct and appropriate (such as not making determinations about the validity of the products claims), but “this study did broadly reveal, in many categories, a clear and material link between ESG-related claims and consumer spending.” 

This study is worth reading in detail. It may give you valid and credible data to change both your product strategy and the way your company determines the value of ESG internally.

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The Editor

Lawrence Heim has been practicing in the field of ESG management for almost 40 years. He began his career as a legal assistant in the Environmental Practice of Vinson & Elkins working for a partner who is nationally recognized and an adjunct professor of environmental law at the University of Texas Law School. He moved into technical environmental consulting with ENSR Consulting & Engineering at the height of environmental regulatory development, working across a range of disciplines. He was one… View Profile