Consumers Care a Lot More About Sustainability Than Many Businesses Realize

It’s easy for companies to score some PR points by name-checking ESG (environmental, social, governance) initiatives. There’s no harm in saying you’re trying to make the world a better place and there aren’t a lot of follow-ups to the promises that are made.

Too many businesses see ESG as a box that has to be checked, but not one that needs to be a substantial focus. Smart ones, however, have come to realize that a growing number of consumers really do care about buying environmentally sustainable products. And they’re backing that up with their wallets.

A new study from McKinsey and NielsenIQ looks at the importance of this issue to consumers – and what it means for businesses. The companies found that products that claim to be environmentally and socially responsible have seen notable sales growth, averaging 28% cumulatively over the past five-years, compared to 20% for products that didn’t make such claims.

The companies looked at five years of sales data for over 600,000 products. That led to the identification of 93 different ESG-related claims (from “cage-free” to “biodegradable”). With those in mind, the study looked at sales growth of the products from 2017 to 2022, separating those that did and didn’t make ESG claims.

While not every company to make the boast saw a positive impact, overall, the study did reveal several categories where there was a link between the ESG claims and a sales boost.

“Consumers are indeed backing their stated ESG preferences with their purchasing behavior,” the report reads. “Over the past five years, products making ESG-related claims accounted for 56% of all growth—about 18% more than would have been expected given their standing at the beginning of the…period.”

The growth came from both large and small brands and applied to both newer and legacy products (though established products saw the biggest gap between ESG and non-ESG brands).

There wasn’t one ESG claim that stood apart from the rest when it came to consumer engagement. Products that made the least prevalent claims, however, such as “vegan” or “carbon zero,” saw growth that was 8.5% above peers that didn’t make them.

Still, it was enough for McKinsey and NielsenIQ to encourage businesses to encourage incorporating ESG plans into their marketing, to convey to customers that they’re serious about initiatives.

“Companies will probably have a greater ESG impact and a better chance of achieving outsize growth if they incorporate high-impact ESG-related claims across multiple categories and products,” the report read.

One important note: The study did not attempt to assess the veracity of ESG claims by businesses. And the long-time lack of a regulatory agency keeping tabs on these vows has led to increased skepticism.

“’Greenwashing’—empty or misleading claims about the environmental or social merits of a product or service—poses reputational risks to businesses by eroding the trust of consumers,” the study read. “It also compromises their ability to make more environmentally and socially responsible choices, and potentially undermines the role of regulators.”

The Securities and Exchange Commission, in March of 2021, began addressing that scrutiny, establishing the Climate and ESG Task Force in the Division of Enforcement, which it said would “proactively identify ESG-related misconduct.” That group targeted BNY Mellon Investment Adviser last May for making “misstatements and omissions about Environmental, Social, and Governance (ESG) considerations in making investment decisions for certain mutual funds that it managed.” That ultimately, resulted in a $1.5 million settlement.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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