McKinsey study shows consumers are willing to pay more for sustainable products

A recent study by McKinsey and NielsenIQ reveals that products making environmental, social, and governance-related claims have achieved disproportionate growth, accounting for nearly half of all retail sales in the categories examined.

A recent McKinsey study, in collaboration with NielsenIQ, found that consumers are increasingly backing up their stated preferences for environmentally and socially responsible products with their wallets. The study analyzed five years of US sales data covering 600,000 individual product SKUs from 44,000 brands across 32 food, beverage, personal care, and household categories, representing $400 billion in annual retail revenues. The research identified 93 different ESG-related claims, such as “cage-free,” “vegan,” “eco-friendly,” and “biodegradable,” printed on the packages of these products. The claims were divided into six classifications: animal welfare, environmental sustainability, organic-farming methods, plant-based ingredients, social responsibility, and sustainable packaging.

The results of the study showed that products making ESG-related claims accounted for 56% of all growth in the CPG sector over the past five years, with a 1.7 percentage-point advantage over products without such claims. These products also achieved 28% cumulative growth over the same period, compared to 20% for products without ESG-related claims. Additionally, products making ESG-related claims now account for nearly half of all retail sales in the categories examined.

While growth was not uniform across categories, with variances depending on factors such as clinical recommendations in the children’s formula and nutritional-beverage category, the study provides a fact-based case for bringing environmentally and socially responsible products to market. It also highlights the importance of accurately assessing demand for products that make ESG-related claims, as well as the need for companies to back up such claims with genuine actions to prevent greenwashing.

The study’s findings are significant for consumer companies and retailers seeking to build portfolios of environmentally and socially responsible products as part of their overall ESG strategies and impact commitments. The data suggests that consumers are indeed backing their stated ESG preferences with their purchasing behavior, indicating a positive shift in consumer attitudes toward sustainability and inclusivity.

India and other emerging markets are also seeing a rise in interest in ESG investing, with the country’s green bonds market estimated to grow to $25 billion by 2025. The Indian government has also set a target to achieve 175 gigawatts of renewable energy capacity by 2022 and has launched several initiatives to promote sustainable development. Additionally, a recent survey by Refinitiv found that ESG disclosure by Indian companies increased by 40% in 2020 compared to the previous year, indicating a growing awareness of the importance of ESG factors in business decision-making.

Overall, the McKinsey study suggests a hopeful and optimistic future for ESG and sustainability in finance, with consumers increasingly recognizing the importance of these factors and demonstrating a willingness to back them up with their purchasing behavior.

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