Consumer products companies allocate a good deal of time, attention, and money to incorporate environmental and social responsibility into their business practices. They also make claims about sustainability on their product labels, social media posts, and other marketing materials. Studies show that sustainability credentials matter to many consumers, in terms of overall perceptions about a product or brand and—let’s get to the bottom line here—purchasing behavior.
McKinsey and NielsenIQ recently reported that companies that make ESG-related claims averaged a 28-percent cumulative growth over the past five years, versus 20 percent for products that made no such claims. Many companies want to tap into that, either because they believe it is the right thing to do or they know it is a way to expand market share or appeal to a new customer base, or both. Touting sustainability credentials on packaging, labels, social media, and elsewhere is increasingly popular.
The Sustainable Food Trade Association lists almost 50 member companies whose products you probably see in your grocery store. The Good Trade lists 35 sustainable apparel brands that are “betting against fast fashion,” and many clothing manufacturers now label some items as being partly made from recycled fabrics. There are also sustainable personal care products, household cleaning products, even biodegradable trash bags. It’s good for business, but is it really good for people and planet? How can we know?
What does sustainability really mean?
There are many ESG-related factors that companies could focus on to make claims about their sustainability practices, such as reducing greenhouse gas emissions and/or water use, verifying that their supply chains are not involved in deforestation (an important and overlooked issue, in our view), ensuring workers’ rights, promoting gender equality, supporting regenerative agriculture, and on and on. That means a “sustainable” label on a product could mean any number of things.
A Google search on “what makes a product sustainable?” or “what does sustainability mean?” produces such a wide range of responses, no wonder people get frustrated and even start to suspect that sustainability can mean anything, or close to nothing. So what should a company do if it wants to improve its products and product development processes so that it can make legitimate claims about its sustainability?
The MIT|Enterprise Forum-CEE suggests 10 things to consider in defining “sustainable.” While there are no doubt other good lists out there, we think this does a good job of showing a range of ways companies and consumers can think about what makes a product sustainable (it’s not just about putting pictures of leaves and trees on a package). Companies that take these things to heart can creatively promote their products’ ESG credentials. We paraphrase them here:
1. Look at how raw materials are sourced. A sustainable product should use raw materials that are sourced in ways that are as environmentally, ethically, and socially responsible as possible.
2. Design for recyclability. In addition to choosing environmentally and socially sustainable raw materials, companies should consider a product’s environmental impact at the end of its life and plan for sustainable disposal or recycling.
3. Inspect the manufacturing process. The way a product is created should consider both environmental and social factors, such as the power sources used in manufacturing, water use, fair labor practices, and the potential to harm or displace other natural resources.
4. Assess the supply chain. This is complex issue (as we have discussed here and here) but turning a blind eye to ESG issues in the supply chain can hurt companies and brands badly. EY surveyed 525 executives about their sustainable supply chain practices and found that paying attention to supply chain sustainability not only reduces costs, it can increase revenue, improve customer loyalty, and boost share prices.
5. Measure Transportability. Products have to get from the manufacturer to the consumer, and wasteful, inefficient transport increases greenhouse gas emissions. Making a product easier to ship (e.g., reducing packaging to fit more items on a pallet or in a shipping container) makes it more sustainable.
6. Evaluate source locations. Sustainable materials that need to be transported from the other side of the world reduces their forfeit claims to sustainability. Finding sources closer to home could lower the environmental impact.
7. Audit compliance. Related to #4, supply chains may not always uphold sustainable practices – companies should conduct regular checks and audits.
8. Measure waste. How much waste material is left over when a product is manufactured? What about unsold stock – does it go to a landfill or can it be repurposed? This affects a brand’s ability to legitimately claim that its products are sustainable.
9. Conduct a Life Cycle Assessment. Companies can use the results of this assessment to show consumers how they take sustainability into account from design to manufacturing to ultimate disposal.
10. Be transparent. Companies that do a good job in this arena should proactively disclose their efforts to consumers, even if that means revealing a problem. Consumers care about sincere efforts and companies that find and address problems can actually increase brand loyalty.
We are experts in combing through documents related to companies’ ESG-related practices and know that reports from third-party entities often seek to expose, not just disclose. Companies are better off getting out in front of any potential negative news on sustainability issues.
Can consumers trust “sustainable” or “green” labels and claims?
How do we know claims about a product’s sustainability are legit? Could companies simply put “green” or “sustainable” or “we love the earth” on their packages and ads to help attract a bigger share of the consumer’s spending? After all, what do claims like “eco-friendly packaging” or “sustainable ingredients” really mean when you see them on a product?
Many countries have “truth in labeling” laws that apply to consumer products that claim to be environmentally friendly. In the U.S., the Federal Trade Commission’s Green Guides specify the types of “green” claims a company can make in advertisements and on product labels and the evidence it has to provide to support them. The European Union, Canada, Australia, Japan, and other countries also have regulations that require companies to be truthful in making claims about environmental friendliness.
While most consumers will not verify the claims made on a label, it only takes one. Consumer advocacy groups and other stakeholders (even competitors) could do the legwork to show that a product’s sustainability claims are false. That could result in a massive legal headache, fines that might bankrupt a small business, and reputational harm that would push consumers into the arms of competitors. Although the wheels of justice turn slowly, negative publicity spreads like wildfire.
Seals of Approval
Consumers have faced the problem of detecting false claims in the past. Back in the old days, anyone could sell “medicine” without any proof that what was in the bottle was safe and/or effective. Now almost every country has some type of certification process to address this. There is no Food & Drug Administration-type approval for ESG-related claims, but many organizations offer certifications that provide consumers with some degree of certainty.
For example, the Eco-Label program allows companies to use a special logo on products that have been shown to meet certain environmental standards. The Good Trade provides a list of sustainability certifications consumers can look for when making purchase decisions. Some are mostly focused on environmental sustainability; others consider social issues as well. Some are industry-specific (e.g., just personal care products or apparel) while others are broader. Not necessarily a perfect solution to the greenwashing issue, but definitely helpful.
At OWL we know that verifying information about a company’s ESG practices is both critical and difficult. That’s why we do what we do. Contact us to learn about our comprehensive, reliable, transparent, and timely data on sustainability issues and how we can help with your analyses.