8 minute read 8 Sep. 2021
ey-person-sorting-household-waste-into-boxes

Sustainability isn’t what it used to be.

Authors
Lisa Nijssen-Smith

EY Oceania Consumer Products & Retail Leader

Tech, media, retail and consumer focus.

Marc L’Huillier

EY Oceania Customer & Growth Field of Play Leader; Consumer Insights Practice Leader

Customer Strategy and Consumer Insight Expert. Transformation Leader. Thinker. Writer. Father. Rugby Enthusiast.

8 minute read 8 Sep. 2021
In brief
  • There is no single “Sustainable Consumer”. Values and attitudes vary. The nuance is critical.
  • Many people would be willing to pay more if your product reflects their specific agenda.
  • Consumers will look beyond a brand to consider the sustainability of your full value chain.

From the earliest days of the pandemic, consumers around the world have said they plan to make more sustainable choices about how they spend their time and money once the crisis feels over. Global consumer sentiment on this point remains solid and consumers in Oceania are no different. While there are differences between Australian and New Zealand consumers, the sustainable consumer is a rapidly emerging segment that has different and evolving expectations of companies.

In fact, this could be the year in which the political, social, corporate and consumer agendas on a full range of sustainability issues – from climate change to poverty and social justice – come into alignment. The 26th UN Climate Change Conference of the Parties (COP26) is due this November and we know from our work with corporations across the globe and throughout Oceania that sustainability is now a central boardroom concern.

Here, we’ll outline consumers’ changing expectations of brands and the companies behind them with regards to sustainability, and how CEOs can address them.

Pandemic a catalyst for a sharpened focus

The pandemic has changed the way consumers look at the world and priorities are being recalibrated, with sustainability issues increasing in importance. Well over four in ten Australians (46%) and New Zealanders (48%) say that their values and the way they look at the life has changed since the pandemic hit. Over six in ten say they are thinking a lot about the future and what is important to them (AU 63% and NZ 65%).

Embedded in this change in perspective is a much greater emphasis on looking to organisations that benefit society and are perceived to be doing the right thing. At a global level, over 44% of consumers in the latest edition of the EY Future Consumer Index suggest they want to buy more from organisations that benefit society, even if their products or services cost more. We also saw 30% saying they were willing to pay a premium for more sustainable goods and services

In Australia and New Zealand, the numbers are lower for both those saying they would pay a premium for brands that contribute to the community (AU 20% and NZ 27%) and those who are willing to pay a premium for more sustainable goods and services (AU 24% and NZ 35%).

However, the lower numbers don’t mean that consumer facing organisations can afford any complacency in development and implementation of the sustainability strategy. People are reflecting on the type of world they want to live in and momentum is building. Over seven in ten Australians (71%) and New Zealanders (72%) believe brands have a responsibility to make a positive change in the world. A higher number say the behaviour of a company is as important as what it sells (AU 78% and NZ 80%).

The pandemic has fundamentally changed the way people will live in the future and the way they look at the world
Marc L’Huillier, Oceania Consumer Insights Lead, EY Australia.

“It’s given them time to think, reflect and focus on what matters most. As the intensity of the pandemic subsides, lockdowns taper and economic confidence stabilises, Australians and New Zealanders will zero in on what is most important to them in the future and the global issues that have been brought sharply into focus in the past 18 months. Sustainability and all it encompasses will be right at the forefront. It will happen quickly and people will readily distinguish between organisations that are genuinely committed and those that are lacking conviction.”

Overlaid on this pandemic driven shift in perspective are the active choices people have been making over a long period of time around the home and in the way they live. In our research, we looked at 19 different sustainability initiatives. Three quarters of Australians and New Zealanders have embraced at least six that relate to lifestyle and consumption and three related to energy conservation. While some are mandated (e.g. re-using shopping bags) or incentivised by the Government (e.g. solar energy), many are discretionary. This at-home behaviour is a foundation that underpins the mainstreaming of the conscientious consumer.

When we look at behaviour around sustainability at a generational level, we see differences emerge in terms of what consumers are willing to do and what they will sacrifice to promote sustainability. Gen X and Boomers are much more likely than younger consumers to take simple steps, such as taking their own shopping bags to stores, reusing or recycling packaging, and conserving their energy use.

However, Gen Z and Millennials are much more likely to favour sustainable lifestyle choices, such as plant-based diets and use of public transport. And they are more likely to share information about products that are good for the planet with their friends and peers. The significance of this younger generation shouldn’t be underestimated. One of our global megatrends is the demographic transition and rise of Gen Z as a force. They represent slightly over 20% of the population in Australia and New Zealand and will be the most significant consumer segment in terms of spend in coming years. As significantly, they are highly influential in the home and work environments around sustainability, shifting the behaviour of those in older segments.

The more progressive organisations will play a pivotal role in driving the change as they look to take the lead in the market. It is something that is already playing out, reflected in the number of major brand positioning campaigns being run by organisations. It’s creating a lot of noise around the topic and consumers are looking to organisations that are genuine and cohesive in their commitment to sustainability. There needs to be have well defined and meaningful goals and they need to be open and transparent in the way they communicate with consumers. There is significant long term risk in getting it wrong.

Who cares most about sustainability and what do they care about?

The level of engagement across Australia and New Zealand varies, but the relevance of the issue comes through strongly. Our analysis of attitudes and behaviour shows that 90% of Australians are engaged to some degree on the topic of sustainability. Not everyone is at the same point or sees it as their main priority, but there are large numbers who are leaning into the issue, as reflected in our sustainability engagement continuum.

The mid-ground (sustainability passive and moderate) is where the lion’s share of Australians and New Zealanders sit. These are people who have sustainability on their radar and are engaged. Our view is that as a greater level of stability returns to people’s lives, the proportion of Australians and New Zealanders making conscious decisions around changing their behaviour will increase.

‘Sustainability’ itself is a catch-all term and when it’s used in isolation, sees consumers take a fairly narrow view on what it covers, focussing more on the environment and natural world, although associations like ethical behaviour, fairness and equality are emerging. This is important in terms of how organisations talk about what they are doing in this space and the language used. It is imperative to be inclusive of a broader range of sustainable development initiatives and to void being too broadbrush, without overcomplicating and overwhelming.

When we went deeper in our research, we know the issues consumers care about stretch more widely than environmental associations, with significant numbers saying they are concerned about a broad range of issues. Our research has also shown that it is imperative to understand domestic priorities as the relative importance of issues can vary markedly as can consumer decision-making.

More consumers than ever before want to buy sustainably, but they need brands and retailers to make that possible and easy. The top three barriers in our research, mentioned by over six in ten consumers, are the higher pricing, perceptions of lower quality and confusion about the veracity of information being provided.

The challenge around information is particularly significant as it talks to the ease of finding genuinely sustainable products. The choice in-store and online is not as straightforward as it may seem and the level of effort to make the right decision can outweigh the benefits.

The major retailers will be pivotal in driving the Australian and New Zealand markets as they set the bar higher for the products that appear on shelf and on-screen as well as help consumers navigate and assess sustainability credentials.

How does sustainability influence spending?

In Oceania, three in ten Australians (31%) and a quarter of New Zealanders (24%) say that sustainability is very or extremely important when making a purchase decision. A significant tranche of consumers (45% in AU and 56% in NZ) still see it as somewhat important. Few discount it as an issue. It means that as sustainability becomes an increasingly critical point on the decision path, companies and organisations that have a sustainability focus can capture the interest of around eight in ten consumers.

“The challenge is to make it as easy as possible for consumers to make the decision that aligns with their values and where there isn’t any compromise in quality or a sharp differential in price. The most successful products and services will deliver clear benefits along with strong sustainability credentials.,” says L’Huillier. Above all consumers are looking for transparency on the issues that matter to them most in the area of sustainability and which are most relevant for the category.”

When it comes to actually buying a product, food is the priority category where sustainably currently matters to the consumer. Four of the top five categories where sustainability matters most are in food and related spaces. Clothing and personal care also rank high. Clothing is a category that has come into the cross hairs of large numbers of consumers with the rise of fast fashion and concerns around ethical supply chains, modern slavery, production techniques and landfill.

At a regional level, consumers in India, China, Brazil and Indonesia are more likely than those in other markets to consider sustainability. The US overall lags the rest of the world across categories.

Prepared to pay a premium for sustainability?

Australians and New Zealanders are showing a heightened level of interest in purchasing sustainable products and services and some interesting dynamics emerged in our research. 

  • Over the past 12 months, a quarter of people from both countries reported that their personal beliefs in a more sustainable future have translated to increased purchasing of sustainable goods and services. 
  • We are also seeing over a third of Australians and New Zealanders prepared to pay a premium for products that are produced in a sustainable way (AU 37% and NZ 35%) and have less impact on the environment over time (AU 36% and NZ 37%).Where there is a more specific credential, there is elevated engagement.
  • Conversely, if it is less focussed the preparedness to pay more for sustainable goods and services, without any further qualification, sees interest dialled down (AU 24% and NZ 35%)
  • There are generational divides as well. Globally, 34% of Gen Z consumers are willing to pay more compared with 28% of Boomers, with similar figures in Oceania.

Paying extra for sustainable products

36%

of consumers are willing to pay more for products if they believe that they are produced in a sustainable way

Paying extra for sustainable products

36%

of consumers are willing to pay more for products that have less of an impact on the environment over their lifespan

When we look at some of the specific areas in which consumers are prepared to pay a premium, we see some significant differences by country.

So we know sustainability is increasing in importance and is an elevated priority for many consumers, but we also know there can be a gap between what consumers say and then what they then do when purchasing products and services. In fact, this intention gap is often the catchcry of the more sceptical when consumer intention doesn’t match action in real time.

There is truth in the gap, but it is an overly simplistic way of looking at what is happening as there is invariably a lag between attitudes shifting and the conversion to actual behaviour. In the current environment, we have the anxiety around the future and a focus on affordability and saving more that can over-ride decisions at this point in time that are driven by personal ideals. We know that there are clear barriers around making more sustainable choices (cost, availability, and information to name a few). There is also the challenge of breaking longer term habitual purchase behaviour where people stay loyal and default to familiar brands, even more so in times of uncertainty. However, consumer values and priorities are evolving and this is ultimately what will influence behaviour over the medium term. Those companies that can bring sustainably-aligned goods and services to market at a reasonable cost, it’s clear the upside is significant.

“There can be frustration around the intention gap as consumers say one thing and then do another,” says L’Huillier. “The key is to look beyond and make sense of the shift that is coming. It shouldn’t be a surprise that people’s attitudes and mindset start to change before they convert to action. Making sustainable choices isn’t easy and the barriers can be significant. We also know that sustainability is a complex topic and there will be early adopters and those who then follow in the slipstream as it becomes more mainstream and accessible.”

At a megatrend level, there are signs the gap between intention and action will close, especially as the world slowly emerges from the pandemic. That would create a major growth opportunity for consumer-facing companies. But they need to transform now to seize it. In particular, they need to create products that reflect the nuanced concerns of target consumers, and they need to make sure the business operations behind the brand meets those expectations too.

A CEO agenda to make sustainability accessible

It’s not enough to for companies and their boards to understand the layers around how consumers feel about sustainability and how that affects their buying preferences. The growing sustainability expectations of consumers now stretch beyond the brand to how your company as a whole behaves.

As the chart below outlines, people are setting a high bar globally and Australians and New Zealanders are no different in the increasing intensity of their expectations.

So how can CEOs respond? These five strategies will help your organisation give consumers the sustainable products they increasingly want, at a price they are willing to pay, while meeting their evolving expectations about how companies should behave:

  1. Embrace sustainability as a driver of value creation
  2. Take a holistic perspective, but act on what matters to your business
  3. Be authentic and be prepared to prove it
  4. Drive positive impact across the value chain
  5. Re-design your operating model for sustainable execution, then build it fast
  • Embrace sustainability as a driver of value creation

    How are you changing the culture in your organization so people see sustainability as a way of growing the business, finding efficiencies and creating new value pools – not just a cost? 54% of consumers have reduced or stopped altogether purchasing from organizations they believe acted inappropriately on environmental or social issues. This isn’t just a turn away from brands that are part of the problem; it’s a turn towards those that are an active part of the solution.

    • Position your purpose-led brands for growth. Sustainability is a differentiating factor that drives growth. Even if most consumers are unwilling to pay more for sustainable brands, they are still more likely to buy them than alternatives.
    • Invest in sustainable practices that drive efficiency. Products that produce less waste or fewer emissions, and last for longer can drive down costs, making sustainability more affordable for the consumers.
    • Create value, don’t just avoid harm. The sustainability agenda is focused on reducing negative impacts. But a more regenerative mindset actively creates value. This is about designing new products, services and business models that can profitably serve people and the planet as part of a circular economy.
  • Take a holistic perspective, but act on what matters to your business

    How are you balancing the need to track your performance on sustainability issues against the need to deliver a broader vision? Individual ethical, social and governance metrics and targets need to be met, but it’s their collective impact that drives change. And consumers expect you to make a difference on issues that are beyond the traditional remit of a business. For example, 38% say ending poverty should be a priority for their country, the world as well as for businesses.

    • Think beyond single-issue sustainability. Sustainability isn’t just about the climate and the natural world. In different markets consumers prioritize diversity, inclusion, inequality, labor practices, health and safety and modern slavery differently. All these issues are important, but companies perform better when they focus on what matters to their specific business activities.
    • Consider the interdependency of issues. Carbon has been the focus of many companies over the last two decades but carbon is linked heavily to other priorities such as waste, water intensity, plastic pollution and biodiversity.
    • Build expertise, but avoid siloes. Sustainability is a complex and involving issue. Your response needs to be led by people with deep expertise in this rapidly evolving area. But make sustainability part of your company culture, not a standalone business function, and embed it into decision-making so everyone is working towards a common goal.
  • Be authentic and be prepared to prove it

    How are you making your organization more transparent, so people can see what’s behind your products and how you really do business? This is an opportunity to lead the market and build trust among the 80% of global consumers who expect brands to be transparent about their environmental impact. It’s important to use the most appropriate data to demonstrate progress and to leverage technology to provide the transparency and traceability consumers increasingly demand.

    • Set ambitious, measurable and credible targets. Companies will be punished for vague commitments they can’t evidence and for underdelivering against targets that could never realistically be achieved.
    • Use non-financial KPIs. Measure progress using the most appropriate, clearly defined metrics that are aligned to your incentives.
    • Be open and honest with all your stakeholders. People will be more forgiving of a company that openly tries to address shortcomings than one that brushes over them with high-profile, low-impact initiatives.
  • Drive positive impact across the value chain

    How are you getting more visibility into the behavior of your suppliers and partners and their impact on sustainability issues? Companies set global targets but often have to rely on local, piecemeal execution. Many are exposed to financial, regulatory and reputational risks from upstream and downstream impacts that they cannot always see or control. Yet 68% of global consumers say businesses must ensure all their suppliers meet high standards of social and environmental practices.

    • Scale successful initiatives across the business. Leaders need to ensure that high-profile achievements in one function or territory are scaled widely. For example, cutting water use by 25% in one factory might earn some favorable headlines, but a 5% cut across all factories might have a more meaningful impact.
    • Look beyond your immediate activities. Companies are judged not just on their own activities but on the impact their products and partners have throughout the product life cycle – from Scope 3 emissions to branded litter to poor labor practices on a farm that supplies you. Technology-enabled transparency can measure, improve and support more sustainable activities.
    • Collaborate for systemic solutions. Many companies face challenges that can best be resolved by working together and sharing responsibility. Find opportunities to work with others – even competitors – on issues that have a global impact.
  • Re-design your operating model for sustainable execution, then build it fast

    How are you creating the flexibility needed across all your operations to meet and shape evolving consumer expectations around sustainability? This isn’t just about reducing cost. For example, 27% of global consumers would pay more for products that ensure safe and inclusive labor conditions and fair employee pay.

    All of these strategies are an opportunity to rethink how you create and measure both value and impact. Your operating model needs to efficiently support not one or a few business models, but a plurality of new strategies for staying relevant to the consumer. Tomorrow’s operating model should incorporate these five design elements:

    1. Dynamic ecosystems that foster profitable agility
    2. A listening organization built on data and analytics for real-time decision making
    3. Talent flexibility that reimagines how people do their work
    4. An innovation platform that fosters ideas that can scale

    An enduring purpose that drives all decisions and activities

Summary

Consumers are taking an increasingly sophisticated view of sustainability and changing their habits accordingly. The EY Future Consumer Index finds people in Oceania and globally want businesses to make sustainable choices available, easy and transparent. CEOs and boards that understand and respond to this will prosper.

About this article

Authors
Lisa Nijssen-Smith

EY Oceania Consumer Products & Retail Leader

Tech, media, retail and consumer focus.

Marc L’Huillier

EY Oceania Customer & Growth Field of Play Leader; Consumer Insights Practice Leader

Customer Strategy and Consumer Insight Expert. Transformation Leader. Thinker. Writer. Father. Rugby Enthusiast.