Revealing the Trend of People Increasingly Caring about Environmentally Friendly Products

A growing number of consumers and businesses are willing to pay more for sustainable products, paving the way for potential opportunities for those willing to pioneer in this domain. However, there exists a disparity between consumer intentions and their actual behavior when it comes to purchasing environmentally friendly products. While many claim willingness to pay a premium for sustainable products, buying decisions are not always solely based on this criterion. Nevertheless, companies can command higher prices for more sustainable products within a small but expanding consumer segment.

Research from the New York University Leonard N. Stern School of Business (NYU Stern) on shopping behavior in the American consumer goods sector reveals that in 27 out of 36 analyzed categories, consumers of products marketed as sustainable are willing to pay more today. On average, these products are priced over 35% higher and have successfully captured a significant market share.

Across most categories, the number of consumers willing to pay more for sustainable products is growing faster than the overall market. Between 2016 and 2021, sales of sustainable consumer products grew 2.5 times faster compared to conventionally marketed products.

The potential for sustainable products is immense. Consumer surveys on sustainability conducted by BCG in June 2022 indicate that although less than 10% of consumers buy products solely due to sustainability reasons, the number of consumers within a category willing to choose sustainable products increases by around 2-4 times (reaching 20-43% of consumers) when sustainability is linked to other benefits such as health, safety, and quality. Furthermore, the percentage of those opting for sustainable products increases by another 2-4 times (reaching approximately 80%) when barriers like convenience, information, and cost are addressed.

By linking the benefits of green products with other decision-making factors and eliminating these barriers, companies are opening doors to consumer segments previously less inclined to purchase eco-friendly products. Ultimately, they are transforming the gap between intent and action into opportunities for action.

The demand for green raw materials is also on the rise, driven by commitments to carbon neutrality. Based on these consumer trends, coupled with increasing governmental actions and pressure from employees, investors, and other stakeholders, companies can build compelling business arguments. For those moving early, there is a vast and continuously growing market willing to pay more for green products.

At times, the price premium for green products has already exceeded the medium-term cost increase of decarbonizing the entire value chain. When consumer companies swiftly develop green options, this will trigger greater demand for low-emission alternatives upstream.

Commitments to reduce emissions throughout the value chain are also gaining traction. For instance, in the global automotive industry, the combined market share of companies with verified Scope 3 emission reduction targets by the Science Based Targets initiative (SBTi) increased from 9% to 24% between late 2021 and November 2022 alone. Including companies committed (but not yet verified) to Scope 3 targets and those setting green procurement targets upstream through the First Movers Coalition, this figure rises to 42%, nearly half the industry based on sales.

Stakeholders across various sectors have begun introducing low-emission materials and services to the market—and are successfully commanding price premiums for them.

"The success of next-generation sustainable technology adoption requires extensive collaboration throughout the value chain. Leaders in each part of the value chain are responsible for driving this change, including short-term additional costs. Those moving quickly will gain priority access to sustainable technologies that mitigate risks and offer social value from leadership in sustainability."

— Lisa Ekstrand, Vice President and Head of Sustainability, Vestas

While some companies might feel unable or unwilling to pass on the full cost increase of raw materials to consumers, they are willing to pay a green premium for purchased raw materials and services. A recent survey of 81 members of the CEO Climate Leaders Alliance found that almost half of them are already paying a green premium for at least one input, yet most of them do not pass on these costs to consumers. Reasons cited include considering these costs as investments in overall sustainability goals, a perceived need to secure access to crucial inputs to gain or expand market share in promising new markets, or companies hedging against future climate legislation.

Currently, many companies are still in the early stages of setting climate targets before taking tangible actions such as paying green premiums for raw materials and services. As more companies make these changes, the product carbon footprint (PCF) will become a key indicator in procurement.