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Eco-conscious wallets: the price of going green

McKinsey’s recent survey of 500 executives and 1,000 consumers in Europe and the US reveals that over 70% of consumers are willing to pay a 5% premium for green products. However, their willingness to pay declines as the premium increases, with less than 10% accepting a 25% premium. Consumers also want to be sure the premium they pay actually does good. The European Green Deal aims to help by empowering consumers for a green transition by combating greenwashing through legislative measures. There is also the Sustainable Consumption Pledge. This is a voluntary initiative from the European Commission under the New Consumer Agenda to encourage businesses to increase sustainability in production and consumption.

Greenwashing: The challenge of separating fact from fiction

Greenwashing, the practice of making misleading or false claims about the environmental impact or benefits of a product, is a major concern for consumers. A study by ECOS found that nearly half of ‘green’ claims on plastic products were misleading. In 2021, over 40% of green claims were found to be exaggerated, false or deceptive, and half were not substantiated. This has led to a push for stricter regulations and increased transparency in the market.

Companies like Shell have faced allegations of greenwashing. The Dutch Reclame Code Commissie (RCC) recently accused Shell of violating advertising rules due to heavy investment in fossil fuels while claiming to be one of the largest drivers of energy transition. Shell’s President-director Marjan van Loon stated that the company would have to find other words to convey their message clearly. Van Loon has acknowledged the need to take the feedback into account.

Consumer empowerment through transparency and regulation

Consumers are increasingly demanding transparency and clear information on the sustainability of products. A study by EY found that 56% of respondents needed more information to make sustainable choices, while 79% considered sustainability important when purchasing. However, only 40% were prepared to research a product’s environmental impact themselves. A sustainability score on the label was the most influential factor for purchasing decisions.

To address these concerns, the European Commission has proposed initiatives like the Empowering Consumers Initiative and the Substantiating Green Claims initiative, which aim to regulate business claims, ban vague or misleading information, and ensure third-party verification. These initiatives aim to improve consumer trust and encourage companies to focus on sufficiency, prevention, and ecodesign. Companies that have already made successful pledges include Philips, Renewd, and the LEGO Group.

Consumers’ willingness to pay for sustainability

While consumers are concerned about greenwashing, studies have shown a willingness to pay extra for sustainable products. A survey of Australian and New Zealand consumers found that 9 out of 10 respondents cared about sustainability when purchasing goods and services[6]. In the US, 69% of consumers were willing to pay more for sustainable fashion products, with 4% ready to pay 20% more.

Consumers are most willing to pay a premium for eco-friendly products with daily impact, such as apparel. However, this willingness to pay is not unlimited, with a 5% price increase being the most popular among respondents in the McKinsey survey. As the premium increases, consumers’ willingness to pay declines, highlighting the importance of finding a balance between sustainability and affordability.

What Can Companies Do?

Companies need to genuinely integrate social and environmental outcomes in their products and services to meet consumer demands. They should understand their environmental and societal impact across the value chain, integrate sustainability into product life cycles, and develop measurable commitments. Transparency is crucial, and terms like reusable, recyclable, and biodegradable should be legally defined to avoid misleading claims.

By combating greenwashing, providing clear information, and promoting genuine sustainability efforts, companies and consumers can work together to create a greener future.