Weekend Reads | How Important are ESG Claims for Consumers?

by Kevin Schofield

This weekend's read is a report from the consultant firm McKinsey looking at U.S. companies' claims about their environmental, social, and governance (ESG) initiatives and whether consumers care enough to make different buying decisions. We know from past studies that consumers say they care about companies' ESG commitments, but there has been very little data on whether they actually buy different products because of them. In 2020, 60% of consumers said they would pay more for a product with sustainable packaging. Likewise, in a recent study, 78% of consumers said a sustainable lifestyle is important to them. But do they back their principles up with their wallets?

McKinsey looked at five years of U.S. product sales data, from 2017 to 2022, covering 60,000 products and 44,000 brands across 32 product categories spanning food, beverages, personal care, and household goods — altogether representing $400 million in annual retail sales. Further, they identified 93 separate ESG-related claims companies made about their products, across six general classifications: animal welfare, environmental sustainability, organic farming, plant-based ingredients, social responsibility, and sustainable packaging. They then compared the sales growth for products with ESG claims to the growth of products that made no such claims. They controlled for other factors, such as different price tiers, new versus. established products, and brand size.

They found that ESG was good for business: Products with ESG claims grew 28% cumulatively over the five years, compared with 20% growth for products without ESG claims. Over the time studied, 56% of all growth was for products with ESG claims.

However, the growth was not even across all product categories: 11 out of 15 food categories saw higher growth for ESG-related products, as well as 3 out of 4 personal care categories, but only 2 out of 9 beverage categories saw higher growth for ESG products. The category with the greatest advantage for ESG-related products was paper and plastics; the categories with the lowest growth were baby formula and pet food — suggesting that for some purchases, consumers have overriding priorities (such as recommendations from doctors and veterinarians).

Also, not all demographics of consumers behaved the same. Higher growth for ESG-related products was led by higher-income households, urban and suburban residents, and households with children.

Interestingly, companies that made less common ESG claims, such as "vegan" or "carbon zero," saw higher growth than companies that made more commonplace claims, such as "sustainable packaging." Also, the products that had multiple ESG-related claims saw higher growth than products that only made one such claim.

The McKinsey study rightly points out that this is all based upon claims of ESG-related commitments, without hard proof that the companies actually fulfilled those claims in their products. There has been plenty of reporting in the news lately (and some lawsuits) over "greenwashing" by corporations, where they make claims about their ESG efforts without actually delivering meaningful results. It appears, however, that, at least for the moment, consumers are taking their word for it: The verbal ESG commitments that companies are making have an effect on their products' success in the marketplace. That said, there is certainly an opportunity for consumer advocates to do more to hold companies accountable to deliver on their promises and verify the ESG-related claims they are attaching to their products.

Consumers care about sustainability—and back it up with their wallets

Featured image by petrmalinak/Shutterstock.com.