Sustainability sells: McKinsey, NielsenIQ research shows link between ESG claims, higher growth

By Ryan Daily

- Last updated on GMT

Image Credit: Getty Images - Prostock-Studio
Image Credit: Getty Images - Prostock-Studio

Related tags ESG sustainability claims McKinsey NielsenIQ

CPG companies looking to meet ESG goals and consumer demands for more environmentally friendly products are introducing new products and reformulating old products to add sustainability claims -- and as analysis from McKinsey & Company and NielsenIQ suggests, these efforts are good for the environment and product growth.

To see how consumers spend money on products with ESG-related claims, McKinsey and NielsenIQ analyzed​ five years of US sales data from 2017 to June 2022, looking at 600,000 SKUs from 44,000 brands across 32 food, beverage, personal care, and household categories, McKinsey Senior Partner Steve Noble shared during a Consumer Brands Association webinar. And upon this analysis, McKinsey and NielsenIQ were able to determine just how impactful sustainability claims were to product growth.

"Products with [sustainability] claims did grow faster than those products without claims, and ... products with claims grew 170 basis points faster over that time period than those without claims. ... That's about 28% cumulative growth over that five-year period versus 20% for products that makes no such claims,​" Jordan Bar Am, senior partner at McKinsey, shared during the webinar.

Breaking it down per price, brand size

McKinsey and NielsenIQ also explored how brand size and price factored into growth, Bar Am said. Large/national brands accounted for the top 60% of sales, medium brands the next 20%, small brands the following 15%, and the smallest brands captured 5% of sales. 

Expecting  larger brands to benefit the most from sustainability claims, Bar Am noted that actually "private label products with sustainability claims [outgrew] their private label peers without sustainability claims in 88% of the categories that we've looked at.​"

For the same side-by-side comparison, the smallest brands with sustainability claims outperformed their competition without claims in almost 60% of the categories, large brands in 50%, and medium-sized brands in about 40%.

In terms of pricing, the analysis found products with sustainability claims on the premium and budget side both outgrow their counterparts without ESG-related claims. Brands in the first and second quartile outgrew their competition in about 60% of the categories outlined in the report, while lower-priced and store brands saw a similar 63%, Bar Am said.

"So this is not just the domain of premium-priced and premium-tiered products, this is something that we see resonating across price tiers.​"

Five tips to make the most out of sustainability claims

Acknowledging there isn’t a “silver bullet​” to ESG-related product claims, Nobel pointed to five key areas the research highlighted where CPG companies should focus, including:

  • Look at an overall ESG strategy​: While companies might feel pressured to make certain sustainability claims, "it's not about the claim for the claim’s sake,​" instead it's about the "link between strategy and product,​" Noble said. "It's about doing things that are driving the most ESG benefit as part of your strategy and then celebrating and claiming those in the products you sell to your consumer,​" he added.
  • Use sustainability claims for new and old products​: "In some cases, even as brands that were more mature were declining, those that had sustainable claims were declining less rapidly than those that didn’t ... so it helps out throughout the product lifecycle,​" he added.
  • Dive into category specifics​: To make the most out of sustainability claims, look at the dynamics going in the space, Noble said. For instance, "cereal is going to perform very differently than dairy, than carbonated beverages,​" he added.
  • Double down on sustainability claims when it makes sense​: The number of sustainability claims can also help boost a product, as products with "multiple claims tend to perform better,​" Noble said.
  • Design with sustainability in mind​: Though many companies have a "robust design for cost or product engineering capability,​" they should also put sustainability on equal footing when they design products, Noble noted. For companies, this might mean they need to "cost-engineer out things that aren't sustainable or don't resonate with the customer,​" he added.

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