A joint study from McKinsey and NielsenIQ examines sales growth for products that claim to be environmentally and socially responsible.
This article was originally published on McKinsey.com on February 6, 2023. In collaboration with NielsenIQ, McKinsey analyzed five years of US sales data, from 2017 to June 2022. The data covered 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.
The report categorized six types of ESG claims identified on product packages:
- animal welfare (“cage free,” “cruelty free,” “not tested on animals”)
- environmental sustainability (“compostable,” “eco-friendly”)
- organic positioning (an indication of organic certification)
- plant based (“plant based,” “vegan”)
- social responsibility (“fair wage,” “ethical”)
- sustainable packaging (“plastic free,” “biodegradable”)
Here are some highlights from the report that I personally found interesting:
1. Consumers are shifting their spending toward products with ESG-related claims
Over the past five years, products making ESG-related claims accounted for 56 percent of all growth—about 18 percent more than would have been expected given their standing at the beginning of the five-year period: products making these claims averaged 28 percent cumulative growth over the five-year period, versus 20 percent for products that made no such claims.
McKinsey & NielsenIQ Report
The overall trend, however, was clear: in two-thirds of categories, products that made ESG-related claims grew faster than those that didn’t. Evidence from NielsenIQ’s household panel showed that some demographic groups—such as higher-income households, urban and suburban residents, and households with children—were more likely to buy products that made one or more ESG-related claims.
McKinsey & NielsenIQ Report
2. Brands of different sizes making ESG-related claims achieved differentiated growth
Large and small brands alike saw growth in products making ESG-related claims. In 59 percent of all categories studied, the smallest brands that made such claims achieved disproportionate growth.
McKinsey & NielsenIQ Report
What about newer versus established products? Newer ones making claims outperformed their newer, nonclaiming counterparts in only 32 percent of categories.3 In 68 percent of categories, established products making ESG-related claims outperformed established products without them.
McKinsey & NielsenIQ Report
3. No one ESG-related product claim outperformed all others—but less-common claims tended to be associated with larger effects
Products that made the least prevalent claims (such as “vegan” or “carbon zero”) grew 8.5 percent more than peers that didn’t make them. Products making medium-prevalence claims (such as “sustainable packaging” or “plant-based”) had a 4.7 percent growth differential over their peers. The most prevalent claims (such as “environmentally sustainable”) corresponded with the smallest growth differential. Yet even products making these widespread claims still enjoyed roughly 2 percent higher growth than products that didn’t make them, suggesting that commonplace claims can be differentiating.
McKinsey & NielsenIQ Report
Brands that garner more than half of their sales from products making ESG-related claims enjoy 32 to 34 percent repeat rates (meaning that buyers purchase products from the brand three or more times annually).
McKinsey & NielsenIQ Report
4. Combining claims may convey more authenticity
This study also analyzed the effects on growth when a product package displayed multiple types of ESG-related claims. On average, products with multiple claims across our six ESG classification themes grew more quickly than other products: in nearly 80 percent of the categories, the data showed a positive correlation between the growth rate and the number of distinct types of ESG-related claims a product made. Products making multiple types of claims grew about twice as fast as products that made only one.
McKinsey & NielsenIQ Report
My Take on This Report’s Findings
Personally, I support brands that align with my values, and based on the findings from this report, consumers are demonstrating preference towards brands making sustainability/ESG-related claims. In fact, “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.” Based off of the finding from this report, I think it is clear that consumers don’t want to harm animals, people making the products they are buying or the environment, so demonstrating that your brand is not doing the aforementioned is a good place to start, but where do you begin?
I think the best place to start is by conducting a Sustainability Assessment to see how your company may be harming people and the planet and how your brand supports the UN Sustainable Development Goals. Once you have established your baselines, you can then begin the process of engaging your value chain to see if the manufacturing or production of your product is harming animals, the people mining/growring/manufacturing/producing your products, as well as your suppliers’ impact on the environment related to carbon footprint, energy, waste, water, etc.
Additionally, I think every company should be measuring and reducing their carbon footprint, and in order to avoid “random acts of sustainability” I believe developing a cohesive Strategic Sustainability Plan, which helps the brand by setting measurable and achievable sustainability goals. Finally, I believe it makes sense to then publicly report on your progress via an annual Sustainability Report, which helps to further authenticate your brand.
The consumer walking down the aisle may only be looking for a certification or label, but those consumers who actually care will do some digging, so in order to avoid greenwashing, it makes sense to transparently report on how the brand is measuring and improving its sustainability performance.
