The CEO Imperative: how future generations can influence companies to focus on sustainability

The priorities, intentions and needs changing over time

Consumers often say that they will pay more for sustainable products and services, but then don’t support that intention with action. As the world slowly emerges from the pandemic, there are signs this gap will close. That would create a major growth opportunity for consumer-facing companies, if they are ready 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 meet those expectations too.

That requires a detailed understanding of the way the experience of the pandemic is reshaping attitudes to sustainability. As the Index shows, what consumers value and which values they are prepared to actually pay for varies across countries, categories, and segments. These differences are nuanced, complex and often paradoxical.

• 53% of Gen Z and Millennials say that sustainability is important when making purchase decisions, an equivalent proportion also agrees that it costs too much to purchase sustainable products.
• 61% of Gen Z and Millennials consider the amount of packaging when buying products, but an equivalent proportion also agrees that they want more packaging to protect them from the risk of infection.
• 68% of Gen Z and Millennials want more information to help make better sustainable choices while 30% agree to have checked or validated sustainability claims made on packaging or in advertising in the last six months.

More consumers, especially those in Gen Z and Millennials, want to buy sustainably, but they need companies to make that possible for them. Even when this is the situation, most of them find it difficult to afford to pay more for sustainability; price remains their number one purchase criteria. And many of them who are willing to make more sustainable choices don’t have access to products that reflect their changing values. To succeed, CEOs need to make sustainability accessible to more consumers.

What and why do Gen Z and Millennials care about sustainability?

Certainly, the COVID-19 pandemic has not spared any age group, ethnicity, or gender; however, the nature of the impact varies across different age groups. Each group has faced different challenges during the pandemic, which will likely shape their perspectives and expectations of the “new normal” that will emerge.

Gen Z and Millennials expect the pandemic to increase awareness of climate change, triggering governments and businesses to take more decisive action. Many anticipate local- and city-level vs. national and international cooperation to tackle this challenge. However, some felt the pandemic and resulting economic fallout would lead governments to de-prioritize climate change initiatives.

The pandemic’s simplified household consumption patterns will continue, with a permanent reduction in spending on luxuries and travel. This is a part of an embrace of a simpler, more sustainable lifestyle, while some of the Gen Z group believing that it is motivated by a desire to increase household savings. Gen Z and Millennials bring a greater focus on household structures and relationships. The experience of lockdown will strengthen familial bonds.

Around 21% of the consumers who belong to the Gen Z and 23% of Millennials make purchases based on the environmental impact of a product. Around 53% of Gen Z and Millennials are well-aware of the importance of sustainability when making purchase decisions.

Consumers are conscious of the need to drive positive social and environmental outcomes. Around 68% of consumers thus expect companies or organizations to steer such impactful actions.

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.

• 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 and avoid siloes
  Sustainability is a complex 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 toward a common goal.

3. 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? 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 nonfinancial 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.
  

4. 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 consumers say that 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. 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.

5. Redesign 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.

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
5. An enduring purpose that drives all decisions and activities