packaged goods

Sustainability: What's The Bottom Line For CPGs?

According to a recent survey on environmental attitudes from Yankelovich, "going green" is only of moderate interest to U.S. consumers.

Based on a survey of nearly 2,800 consumers who are representative of U.S. consumers age 16 and over, Yankelovich found that "only" one-third (34%) say they are "much more concerned" about the environment now than they were a year ago, and 13% currently report being "strongly concerned" about the environment.

While consumers are highly aware of environmental issues due to media coverage, "the simple fact is that 'going green' in their everyday life is simply not a big concern or a high priority," commented Yankelovich President J. Walker Smith.

While some might wonder whether economic crisis may be distracting consumers from just about all other issues--including the environment--these results would seem to raise some valid questions from a strictly bottom-line standpoint for all kinds of companies, including consumer product goods marketers and retailers.



No company today is unaware of the power of perceptions regarding corporate social responsibility, but if environmental issues are not a priority with most U.S. consumers, why are leading American CPGs, retailers and other companies making growing investments in sustainability initiatives?

The answer lies partly in regulatory-driven necessity, but increasingly also in investor scrutiny and management recognition of climate-related risks and opportunities and--at least in some major companies' views--realistic preparation for changing consumer needs and preferences to stay competitive in the years ahead.

From the standpoint of current marketing, despite "most consumers' lukewarm attitudes about 'going green'," Yankelovich's Smith concluded that companies can and should "exploit the 'green-ness' of their products." The 13%--or 30* million--Americans who are strongly concerned about the environment represent a "niche opportunity," said Smith, and given the costs of meeting federal and state environmental regulations, it makes sense to try to leverage the "new and improved" green product to consumers.

The good news, according to Yankelovich, is that companies that employ strategies that successfully convey personal benefits in the green attributes of a product can make these product attributes a key feature in buying decisions, even for consumers who are only moderately concerned about the environment.

"To make a green marketing strategy successful, organizations must employ behavioral tactics that move consumers up the continuum to greater levels of 'green-ness'," summarized Smith. Yankelovich's framework for green marketing strategies ties the likelihood of consumers' buying a product based on its 'green' features to where they fall on the attitude/behavior continuum, with 29% categorized as "Green-less" (unmoved by environmental issues and alarms); 19% categorized as "Green-bits" (don't care, but doing a few things); 25% falling under "Green-steps" (aware, concerned, taking steps); 15% "Green-speaks" (talk the talk more than walk the walk); and the 13% who are "Green-thusiasts" (environments is a passionate concern).

Carbon Footprint Transparency: Serious Business

Still, while turning 'green-ness' into marketing gold on a mass scale may currently be easier said than done in the U.S., companies' self-interest in investing in sustainability initiatives and subjecting their environmental performance to scrutiny go beyond shorter-term direct sales benefits or mandatory adherence to governmental regulations.

A case in point of changing corporate thinking is the Carbon Disclosure Project (CDP). Earlier this year, CDP, an independent not-for-profit organization that acts as an intermediary between shareholders and corporations on climate change-related issues, released its sixth annual report on the carbon footprints of Global 500 companies, and third annual report on U.S. S&P 500 companies. CDP is sponsored by governmental agencies, foundations and corporations around the world, including the U.S. Environmental Protection Agency, Merrill Lynch and PricewaterhouseCoopers.

CDP has created the world's largest corporate greenhouse gas emissions database by compiling voluntary corporate responses to detailed questionnaires. Companies are "encouraged" to respond by major institutional investors, who are among the stakeholders who receive, review and comment on the data prior to the release of each report. In addition to major investors, the reports are distributed to policymakers, corporations, academics and the public, and are available on CDP's Web site.

For the latest report (CDP6), 385 institutional investors representing a combined asset base of $57 trillion were signatories, and 321, or 64%, of the S&P 500 provided detailed data on their 2007 carbon footprints (up from 47% reporting 2006 data). Companies are encouraged to follow the globally recognized GHG greenhouse gas accounting standards in measuring and reporting emissions. They are not currently required to have their responses independently audited, but a growing number are doing so, according to CDP.

"Compelled, in large part, by an appreciation for the importance, sophistication and focus of the CDP investor base, the responding companies have provided more candid and comprehensive responses than in previous CDP iterations," this year's report noted. "Increasingly, collaboration between CDP, CDP's signatory investors and the responding S&P 500 companies is enabling institutional investors to factor companies' actions in addressing climate change risks and opportunities into investment decisions."

CDP acknowledges that factoring carbon emissions and environmental performance into specific investment decisions is extremely complex. "For example, how do you begin to factor in the timing and impact of a one-degree Celsius increase in temperature on the financial parameters of a project, or on demand for a particular product, when its impact on extreme weather events may not be linear?" its analysts note.

However, it's also clear that the investors are serious about using comparative data to become increasingly sophisticated about doing just this. "As taxation and regulation of greenhouse gas emissions increases around the world, institutional investors can use CDP's database to uncover risk and opportunity in their portfolios, and to inform the creation of new products," the report points out. "Shareholder resolutions calling for better practice from companies that do not comply with CDP disclosure have been filed by certain U.S. investors."

Furthermore, while 81% of responding S&P companies reported viewing climate change from the perspective of regulatory and other risks (interruption of raw materials and the supply chain as a major concern by CPGs and retailers, for instance), nearly as many--71%--reported viewing climate change as a commercial opportunity. "Forward-thinking companies are recognizing that a strategy for addressing climate change should be embedded in their organizational DNA, as such an approach can drive significant cost savings and efficiency improvements, and help them manage critical resources necessary for long-term business sustainability," the report concludes.

Among CPGs and retailers, the industry leaders in carbon disclosure in this year's CDP report were Coca-Cola, Brown-Forman, H.J. Heinz, Molson Coors Brewing, Colgate-Palmolive, PepsiCo, Kimberly-Clark, Walmart and Sara Lee.

Some of these companies confirmed billions of dollars in savings as a result of sustainability efforts in operations and packaging. Such savings can not only help improve financial performance at a time when input costs are challenging margins, but can help companies maintain competitive pricing and lower other consumer-borne costs, points out Barbara Kipp, advisory partner of the Governance, Risk & Compliance division of PricewaterhouseCoopers, which writes the CDP reports.

"There's a real opportunity for consumer education here, because responsibly produced products not only cost consumers less money when they purchase them off the shelves, they also ultimately save consumers money through lower costs associated with products' disposal," says Kipp.

As for how seriously CPGs and others are taking the prospect of environmentally driven influences on consumer behavior and their own future competitiveness, PepsiCo made this statement: "Climate change could result in changes in consumer preferences and retail customer demands. We must anticipate and react to such changes to maintain the demand for our products. If our company is unable to meet changing consumer preferences and customer requirements, we risk reduction in demand for our products and erosion of our competitive and financial position."

* Editor's note: The article was amended post publication.

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