How consumer companies can help deliver a sustainable future

Using your strategy to build the right roadmap for your business priorities

Aligning behind goals is one thing; developing a clear vision of how your company can support their achievement is another. Consumer expectations on sustainability need to be considered alongside those of price and quality, while shareholder expectations on environmental, social and governance (ESG) must be balanced against their expectations of financial returns. This is even more true in a time when disruption has become a normal backdrop to operational activities.

The relationship between sustainability and other priorities spans key strategic business areas in consumer companies such as the relative autonomy of brands , the metrics used to measure success, the relative importance of stakeholder groups, the influence of external factors, the product portfolio, the distinctiveness of their value proposition and the culture they want to drive.

To strike the right balance, companies must seek to understand how sustainability fits into their strategic priorities. Although different areas of strategic priority in a business may be led by different factors, the overall sustainability strategy of a company could be broadly categorized as being led by one of four strategic behaviors:

1. Risk led: Sustainability strategy is focused on ensuring regulatory compliance as a separate functional area to revenue, margin and growth
2. Reputation led: Market focused sustainability strategy with amplification of activities as a driver of brand value and reputational goodwill
3. Value-led: Sustainability activities are harmonized with financial targets to create value for the business as well as people and the planet
4. Purpose-led: Sustainability is operationalized into company culture with the business actively championing key sustainability issues

Many companies might aspire to be purpose-led – but it may not always be the optimal strategy. Companies moving toward this aspiration may need to do so iteratively if they want to deliver on other priorities. This balancing act means that sustainability initiatives are more often led by value or reputation, since a properly implemented sustainability strategy should also drive positive financial performance, brand goodwill or, ideally, both. Exposure to risk, especially in today’s landscape of accelerating regulatory and reporting requirements, means some companies have little leeway to do more than ensure compliance.

An honest self-assessment of sustainability priorities enables companies to frame activities in the context of their business, including its strengths and culture, which can then be mapped against the SDGs.

For example, a risk-led approach might be more heavily weighted to setting measurement and reporting standards that track progress, while a value-led approach might focus on developing sustainable products that create cost-savings through lower resources use and drive growth through increased consumer loyalty. Purpose-led organizations may focus on acting as holistic sustainability champions by embedding sustainability into their internal cultures and external activities to demonstrate positive impact, while reputation-led activities may focus more on prioritizing higher profile sustainability activities and initiatives that build their brand, and trust, with consumers and stakeholders.

Ensuring the most impactful areas of focus

If the SDGs provide targets to aim for, understanding how and where to prioritize sustainability strategically provides a direction and speed of travel for companies to adopt. But this still fails to address which specific activities will have the greatest impact.

In our interviews with CEOs, they pointed to the dizzying complexity that the SDGs present. Uniting behind all 17 goals show positive intent, but identifying where and how to move the needle presents a different undertaking.

Consumer companies faced with their own complex reporting requirements and distinct areas of strategic priority risk spreading themselves too thin to make a tangible impact if they seek to act on everything at once.

Instead, they must focus on the key performance indicators (KPIs) most relevant to their business priorities and capabilities. Establishing KPIs in the context of their strategy is important and requires companies to assess them using five distinct criteria:

1. Are they measurable, objective and actionable?
2. Are they relevant to the sector or subsector a company operates in?
3. Are they material and impactful for the business and its stakeholders?
4. Are they comparable to enable benchmarking, and sharing, of performance with other companies?
5. Are they attainable to demonstrate progress and the ability to meet agreed targets?

For consumer companies, the establishment of these KPIs must be intrinsically linked to the lifecycle of their products. Each stage of the product lifecycle from inception to disposal can have sustainability metrics mapped to it. The relevance and material importance of these indicators will differ from business to business, but there will be commonalities in distinct sectors.

For example, in food, beverage and grocery retail, tackling hunger and nutrition will be highly prominent, alongside addressing food and plastic waste. In softline retail, there may be greater focus on water intensity, labor standards in the supply chain, and the representation and inclusion of store employees vs. management employees. While scope 1 and 2 (direct and energy-use related) carbon emissions are a material issue for all consumer businesses, the area of focus for eliminating it will differ, with retailers focusing more on renewable energy for their store infrastructure and brands putting efforts into reducing manufacturing emissions. Scope 3 emissions represent a growing priority; material activities to mitigate this can range from collaborative procurement standards and supplier incentives to sustainable product design, new tools of measurement and regenerative agriculture.

There is no one-size-fits-all approach to this process and any materiality assessment a company considers must be placed within the context of its strategic prioritization and operational activities, as well as the regulatory environment a company operates in.

Harnessing sustainability to unlock value

Whichever sustainability goals, strategies and KPIs that consumer companies apply, there remains the recurring question of how those decisions will create value for their business. In a landscape of inflation, uncertainty and disruption, the appetite to invest today to support the achievement of targets almost eight years away may be waning.

Consumers can be reluctant to open their wallets when it comes to sustainability, with the EY Future Consumer Index showing that 67% of consumers see high prices as a deterrent to buying more sustainable products. In a world where brands are already passing on higher costs, increasing them further to deliver sustainability might be perceived as adding insult to injury.

But viewing sustainability investment as a cost that needs to be passed on is counterproductive. Instead, companies should look to what will drive their future growth. Brands that espouse sustainable attributes may not command a premium in times of economic uncertainty, but they continue to grow at a pace that consistently outstrips their peers.

Even if most consumers are unwilling to pay more, 51% say purchasing and behaving sustainably has become a guiding principle in their everyday life. In addition, a 2022 EY US CEO survey showed that 82% of CEOs see ESG as a value driver¹.

Furthermore, adopting more sustainable strategies continues to have the potential to deliver top-line growth, bottom-line savings and intangible benefits. Strong sustainability practices have been shown to lower the cost of capital for companies², and solid ESG practices result in improved operational efficiency.

With fossil fuel prices in flux, the shift to renewables, for example, is becoming a much more palatable option to prevent balance sheet volatility, especially as increasing scale brings renewable costs down³. From an intangible perspective, younger consumers – and employees – are much more likely to join organizations that can reflect and support their social and environmental values, with a recent UK survey showing 64% of Gen Z think it is important that their employers act on environmental issues⁴.

The final consideration here is the alternative. Even if investing in sustainability does not bring immediate financial results, not investing in sustainability risks even more. Failure to meet the SDGs will see inequality, poverty and climate change continue to erode the social and environmental landscape. If the prospect of investing in sustainability is unpalatable today, the alternative will be far worse tomorrow.