12 minute read 11 Aug 2021
aerial view greenhouse roof person carrying vegetables

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

Authors
Ahmed Reda

EY MENA Consumer and Technology, Media & Entertainment and Telecommunications (TMT) Sector Leader

Leader in the Consumer and TMT industry, focused on advising clients in the digital age. Father of three angels. Passionate about supporting future leaders. Enjoys travel.

Ravi Kapoor

EY MENA Consumer Products & Retail Consulting Leader

Problem solver. Focus on the human aspect of change to enable empathetic transformation programs in organizations. Team creator. Model railroader. Spiritualist.

12 minute read 11 Aug 2021

The seventh edition of the EY MENA Future Consumer Index analyzes how future generations want to make sustainable choices, if they can.

In brief
  • Values and attitudes vary. The nuance is critical. There is no single “Sustainable Consumer.”
  • As the proportion of Millennials and Gen Z grows within consumer segments, their sustainability demands will be both impractical and impossible to ignore.
  • Many people would be willing to pay premiums if the product reflected their specific agenda.
  • Different generations have different levels of concern for different issues.
  • 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 that they plan to make more sustainable choices about how they spend their time and money once the crisis feels over.

Companies are conscious that success will no longer be measured with profit and operational metrics alone. To rebound to sustainable growth, companies need to reframe the strategic agenda as a new platform from which to create and protect value.

The CEO Imperative Series addresses critical issues and actions to help CEOs reframe the future of their organizations. Here, in the latest edition of EY Future Consumer Index, we’ll focus on Gen Z and Millennial consumers’ changing expectations of brands and the companies behind them with regards to sustainability, how different generations respond to the changes, and how CEOs can address them.

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.

When you move beyond definitions of sustainability and ask consumers what they are actually most concerned about, 42% in Gen Z and 50% in Millennials highlight air pollution, and 31% in Gen Z and 39% in Millennials highlight climate change. Younger generations are more concerned than older generations about human issues such as human rights, climate changes, and wealth inequality.

How does this influence spending?

When it comes to buying a product, sustainability has started influencing people on what to buy, how much to pay for it and to consider if it is making any social impact. Gen Z and Millennials are more concerned and aware of sustainability and how it is influencing their spending habits.  

Changes in purchasing

51%

of MENA Gen Z and Millennial consumers have decided to purchase sustainable products in the next year.

Gen Z and Millennial consumers are most likely to make sustainable or ethical purchases in the categories they find essential and buy most frequently. Food and health care are two priority sectors where sustainability matters to the consumer.

Feeling when purchasing sustainable products

42%

of MENA Gen Z and Millennial consumers are proud of their contributions to a sustainable world.

Gen Z and Millennial consumers are also willing to pay extra if a company adopts water and soil pollution reduction. They pay special attention to sustainability when they purchase goods or services from the food, health care, beauty and personal care sectors.

Next generation vs. present generation: who is willing to do something about sustainability?

Gen Z and Millennials have different views about what sustainability means and what issues they care about. These differences are reflected in what they are actually willing to do, pay for, or sacrifice in order to live and consume more sustainably.

In MENA, 31% (each) of Gen Z and Millennials are willing to pay more for sustainable products and services.

In general, Millennials put more effort into living sustainably when compared with Gen Z. They both are particular about taking simple steps, such as reducing purchasing of brands that don’t help the environment, that have unethical manufacturing, etc. They are also taking their own shopping bags to stores, reusing or recycling packaging, and conserving their energy use. Also, they favor sustainable lifestyle choices, such as plant-based diets and the use of public transport. And they are ready to share information about products that are good for the planet with their friends and peers.

The difference among generational attitudes is also evident in what consumers are willing to do and what they will sacrifice to promote sustainability.

What do consumers expect from you?

It’s not enough to understand the nuance of how consumers feel about sustainability and how that affects their buying preferences. Their growing sustainability expectations stretch beyond the brand to how your company as a whole behaves.

In MENA, people are setting a high bar:

  • 55% of Gen Z and 65% of Millennials believe that they are doing all they can to make purchase decisions that shape a more sustainable future, but 58% of Gen Z and 71% of Millennials expect companies and organizations to take a lead.
  • 78% of MENA Gen Z consumers believe that companies must behave ethically and in line with community expectations and 76% of Millennials believe that brands have a responsibility to make a positive change in the world.
  • 77% of Gen Z and Millennials believe that brands must be transparent about their environmental impacts in the production of their goods and services.
  • 31% of Millennials and Gen Z in MENA believe that businesses should prioritize responsible production and consumption of goods and services.

Many consumers feel that they have a role in helping to deliver a more sustainable future. While lack of availability or transparency of information deters 61% of consumers from buying sustainable products, 26% would pay more in taxes to combat climate change. This is a much higher proportion than the 15% who would be willing to pay higher taxes to combat the pandemic.

A CEO agenda to make sustainability accessible

Here are five strategies that will help your organization give consumers the sustainable products they increasingly want, at a price they are willing to pay, while ensuring you meet their evolving expectations about how companies should behave.

1. Embrace sustainability as a driver of value creation

How are you changing the culture in your organization so that people see sustainability as a way of growing the business, finding efficiencies, and creating new value pools – not just a cost? 43% of consumers have stopped 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 toward 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.
2. 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.

  • 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

Summary

Sustainability is becoming more prominent but a gap between intentions and actions remains. The rising prominence of sustainability is driving companies to deliver strategies and initiatives that profitably serve people and the planet. This edition focuses on how Gen Z and Millennial consumers look at the changing company behaviors. Also, there are five strategies that will help your organization 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.

About this article

Authors
Ahmed Reda

EY MENA Consumer and Technology, Media & Entertainment and Telecommunications (TMT) Sector Leader

Leader in the Consumer and TMT industry, focused on advising clients in the digital age. Father of three angels. Passionate about supporting future leaders. Enjoys travel.

Ravi Kapoor

EY MENA Consumer Products & Retail Consulting Leader

Problem solver. Focus on the human aspect of change to enable empathetic transformation programs in organizations. Team creator. Model railroader. Spiritualist.