How Sustainability Can Pay Big Dividends
Once viewed as a cost burden, sustainability is becoming a business driver and financial boon for many companies.
Some brand managers may look at sustainable packaging initiatives with caution and apprehension, concerned a change in packaging materials, for example, will cost more. They focus on the investment and overhead. But that thinking is shortsighted.
How can you make the business case for sustainable packaging and convince your management that it's the right thing to do in the long run? Let's start with something near and dear to companies: sales and profits.
ESG Claims On Products Generate Higher Sales
Consumer packaged goods (CPG) products with an ESG (environmental, social, and governance) claim printed on the packaging generate higher sales than products without a claim, according to a joint study by McKinsey and NielsenIQ. The research analyzed five years of U.S. sales data, from 2018 to 2022, covering 600,000 individual product SKUs representing $400 billion in annual retail revenues. These products came from 44,000 brands across 32 food, beverage, personal care, and household categories.
Products That Make ESG-Related Claims Achieve Higher Growth
Source: McKinsey & Company and NielsenIQ
Over the five-year-period, products making ESG-related claims averaged 28% cumulative growth vs. 20% for products that made no such claims. Products with ESG-related claims accounted for 56% of all revenue growth and achieved a five-year CAGR (Compound Annual Growth Rate) of 6.4% vs. 4.7% for products without these claims. Products making ESG-related claims now account for nearly half of all retail sales in the categories examined.
Less common ESG claims were associated with higher growth than more prevalent claims, reports the study. Claims such as “carbon zero” grew 8.5% more than peers that didn't make them. Products making medium-prevalence claims (such as “sustainable packaging”) saw a 4.7% growth differential over their peers, while the most prevalent claims (such as “environmentally sustainable”) enjoyed a 2% higher growth than products without claims. In addition, products with multiple ESG claims grew about twice as fast as products making only one claim.
ESG claims foster higher consumer loyalty, per the study. Brands with more than 50% of their sales from products making ESG-related claims enjoy 32%–34% repeat purchases, while brands with less than 50% of their revenues from products that make ESG-related claims achieve repurchase rates of under 30%.
Sustainable Products Gain Market Share
CPG products with a sustainability message are upping their market share as shoppers seek out products that align with their values and lifestyle choices. In 2022, sustainability-marketed products garnered a 17.3% market share in the U.S., up from 13.7% in 2015, according to research from the NYU Stern Center for Sustainable Business and Circana (formerly IRI).
Sustainability-Marketed Products Grew 2X Faster Than Conventionally Marketed Products
Source: NYU Stern Center for Sustainable Business and Circana (formerly IRI)
Sustainably positioned products grew about 2X faster than conventional products and achieved a five-year CAGR of 9.43% vs. 4.98% for other goods, reports NYU Stern. Despite sustainability-marketed products being less than one-fifth of the total market share, they produced nearly one-third of the market growth since 2013.
New product launches with a sustainable attribute are on the rise, says NYU Stern. In 2021, nearly half (48%) of new products incorporated and communicated a sustainability benefit. That's up from 28% in 2017. Products with carbon labeling are growing. Carbon-labeled products generated $3.4 billion in sales in 2021, up from $1.7 billion in 2020.
Consumers Will Pay More for Sustainable Products
Sustainability-marketed products enjoy a hefty price premium (28%) compared to their conventional counterparts, reports NYU Stern, but that gap has shrunk in recent years as traditional product price increases have significantly outpaced their sustainable cousins.
During high inflation from 2021 to 2022, private label or store brands increased their market share from 17.3% to 18% as consumers became more price-conscious, notes NYU Stern. But branded sustainable products also grew their market share, suggesting they are more insulated from inflation-driven purchases than traditional CPG merchandise.
More than 4 out of 5 consumers (82%) are willing to pay up to 10% more for sustainable packaging, according to a global survey of 9,000 shoppers conducted by Euromonitor International. And 29% of the respondents would pay over 10% more for responsible packaging. In general, younger consumers are willing to pay more than older consumers.
% of Consumers Very Likely or Likely to Purchase a Product Based on Sustainable Packaging Claims
Source: 2023 Buying Green Report
The type of sustainable packaging claim on a product influences the purchase decision, according to the Euromonitor survey. Simple and understandable claims such as “refillable/reusable” and “recyclable” scored higher for purchase intent than claims such as “made with sustainable materials” and “produced with lower CO2 emissions.”
The 3 Ps: People, Planet, Profit
Sustainability goes beyond traditional financial models, encompassing a triple bottom line that considers people (societal impact/all stakeholders), planet (environmental impact), and profit.
Companies committed to sustainability attract and retain employees. According to a 2021 Gallup Poll, about 70% of U.S. workers say that a company's environmental record impacts their decision to work for the company. In another study, more than 10% of workers say they would take less money for a job with a company that is environmentally responsible.
Adopting sustainability practices reduces a company’s environmental footprint and production expenses. Using fewer or more sustainable resources (materials, energy, and equipment) usually results in lower costs. Sustainability also helps to drive innovation through new technologies, package redesign, processing line modifications, and distribution improvements.
We Help Unpack Your Sustainability Potential
At Berlin Packaging, we can help you unpack your full sustainability potential by transitioning to more responsible packaging. We target cost-effective packaging solutions that optimize sustainability, brand impact, and performance. Our customer-focused teams combine deep subject matter expertise with practical commercial experience to build circular strategies that will strengthen your brand and grow your bottom line.
As part of our support to customers in achieving their sustainable packaging goals, we provide an expansive suite of leading sustainability services ranging from market insights, lifecycle assessments, and stock solutions to custom packaging design, circularity road mapping, and sustainability communications strategies. Furthermore, we partner with like-minded organizations to address wider packaging issues and drive systemic change throughout the supply chain toward sustainable packaging practices.