There is something to be said about a brand or retailer and their respective leaders wanting to improve their impact on the planet. As we’ve known and seen for the last five decades, it would be easy and mostly inconspicuous for a brand to simply continue the production, manufacturing and distribution tactics that are harmful to the environment. Up until recently, choosing sustainable operations within a business has been viewed as optional or as lacking demand from consumers.
Today, that is no longer in question. Brands and retailers that prioritise sustainability experience growth and loyalty from consumers, especially those in e-commerce. Online shopping produces up to 4x less carbon dioxide emissions than traditional store shopping, according to Dr Helen Buldeo Rai, a researcher at the Université Gustave Eiffel in Paris.
As we discuss the growth potential of brands with products that make environmental, social and governance (ESG) claims, we take a look at which economic powers are leading the charge against environmental damage and what technologies brands and retailers can start looking into to lower their carbon footprint. In addition, we also ask, are consumers translating their eco-conscious sentiments into credible spending behaviour? Let’s jump into one of retail’s largest shadows: Sustainability.
The EU is mobilising against fast fashion in 2023
The world’s largest fast fashion giants like H&M, Zara and Shein have been dealt a striking punch to the profit gut in June, as the EU parliament voted to tackle excessive production and consumption practices within the clothing industry, affecting how these brands have been operating for decades. Low production costs, high carbon footprints, questionable working conditions and greenwashing scandals have become part of the fabric of the fast fashion industry while revenue soars and environmental and social responsibility goals go unmet.
European governments voted to create stricter rules and recommendations, including targets that are legally binding and quantifiable, as well as a total ban on the destruction of unsold textiles, which are often burnt. Due to the low-quality nature of fast fashion clothing, consumers in the EU are throwing away 5.8 million tonnes of textiles every year. On average, these clothes are only worn 7-8 times before being added to landfills.
According to the EU Parliament, the environmental representatives of the member states “request to ensure that production processes become less energy- and water-intensive, avoid the use and release of harmful substances, and reduce material and consumption footprints”. These recommendations will support new regulations presented by the EU Commission in 2022. This comes after a similar crackdown in March which targeted greenwashing and will focus on increasing surveillance of and penalties on brands that inflate or outright lie about their sustainability efforts. According to the EU Commission, this new legal threshold will save up to seven million tonnes of CO₂ emissions over 15 years.
How are other economic powerhouses leaning into sustainability efforts within retail and e-commerce?
American lawmakers have also been busy drawing up legislation to take on environmental, social and governance (ESG) efforts within retail and e-commerce. In 2022, the FABRIC Act (Fashioning Accountability and Building Real Institutional Change Act) was drafted and, among the new rules and regulations that brands and retailers would have to abide by, one of the incentivisations is a 30% tax reduction to return garment-making back to US soil to reduce excessive air travel and international shipping.
Furthermore, The Fashion Sustainability and Accountability Act will require large fashion brands, including luxury ones like Prada and Armani, to declare their environmental and social practices and impact. This includes being transparent about their carbon emissions, supply chain systems, and their treatment of employees. This moves the onus onto the companies to be responsible for their impact on the planet, instead of the consumer. Speaking of consumers, how are US shoppers reacting to and engaging in eco-friendly behaviour? A study by GWI surveying approximately 21,000 Americans found that 39% of people want brands to be socially responsible and a further 37% want brands to reduce their environmental impact. In addition, 35% said a dismal environmental track record and false sustainability claims would deter consumers from shopping from a brand. Moreover, and since the US and Russia are the top two countries for greenhouse gas emissions per person per year, it is pleasing to see that consumers are making more eco-friendly decisions regarding their purchases:
Drones and electric cars are the last mile’s biggest hope for a greener delivery system
One of the worst contributors to carbon emissions within the e-commerce spiderweb is delivery to the consumer, whether that’s groceries, clothing or takeout. Often referred to as the “last mile” - similar to the last stretch of a long race - it is expensive, time-consuming and, more often than not, harmful to the environment. Brands and retailers have had to keep up with consumer demands which have swiftly moved from two-day delivery to 60-minute delivery, especially within the food category. This has, however, affected efforts to curb carbon emissions.
How do e-commerce leaders balance the need for meeting consumer demands and the increasing pressure to improve their environmental and social impact?
It may feel like a scene out of Blade Runner 2049, but home delivery via drones is becoming more and more popular. In 2021, approximately half a million drone deliveries were taking place worldwide, which increased to 1.5 million in 2022. In addition, the drone delivery package market is estimated to be valued at $555 million by 2030, with a growth rate of 49% between 2022 - 2030. “Drones could become an important part of the delivery supply chain. Companies will be much more likely to reach their emissions goals if they do not have to deliver a one-pound burrito with a two-ton vehicle,” says Rob Riedel, a partner at McKinsey.
Source: McKinsey Drone Delivery Tracker and Forecast
In Europe, drone technology for delivery is being developed by Airbus in the Netherlands and DHL in Germany. US companies like Boeing, FedEx and Alphabet (Google’s parent company) are also leading the way. Despite the excitement around the possibility of replacing traditional vans with drones, the industry will have to calculate how to make each individual drone delivery more cost-effective.
Currently, one delivery of a small package within 8 km by a normal van emits 6.4 kg of carbon dioxide and costs €11, including labour and energy. With a drone, under the same conditions, a delivery emits 1 kg of CO₂ but costs €12.60. Labour takes up the majority of this cost as the current format is that only one drone delivery can be operated by one person versus hundreds of packages being delivered by a driver in a van. Currently, electric cars pose the greatest chance of the last mile drastically lowering their carbon emissions, as one driver can deliver multiple packages, keeping labour and energy costs low. Delivery by an electric car including five packages travelling within 8 km emits 0.14 kg of CO₂ and costs €1.50.
Brands and retailers within e-commerce committed to tackling their environmental footprint should start strategising a future where drones and/or electric cars are a part of their delivery strategy. At the current growth rate (49% between 2022 - 2030), drone deliveries, amongst other eco-friendly delivery methods, could become integral to e-commerce’s supply chain methods over the next few decades.
Are consumers acting on their statements about eco-conscious spending?
In May 2023, McKinsey and NielsenIQ released one of their most extensive studies that analysed five years’ worth of direct-to-consumer sales data in the US, covering 600,000 unique products across 44,000 brands within 32 CPG (consumer packaged goods) categories including food, drinks, personal care and household items. Considering that consumer spending contributes two-thirds to the US GDP, analysing how sustainability-related claims on product packaging affect spending and consumer behaviour for the near and distant future is paramount to whether e-commerce and retail leaders may or may not invest more in sustainability.
The study, which examined the performance of products that made ESG claims in competition with products that did not, found that US shoppers are overwhelmingly making the shift to more sustainable purchasing decisions: Products with ESG claims accounted for 56% of the total sales growth during the five-year period of the study (2017 - mid-2022). In particular, products with ESG claims experienced a 28% increase in cumulative growth versus 20% for products with no sustainability or social responsibility claims. Visualising, with this raw data, how US shoppers are translating sentiment into sales shows that consumers are actioning their beliefs around sustainable shopping practices.
Within CPG categories, however, sales growth among products with sustainability-related statements is not even. For example, more consumers are spending on hair care products with ESG claims than on baby formula products with similar claims. This may be because new parents are wary of environmental claims such as “plant-based” or “vegan” and may opt to trust products that are more traditional. Hair care products account for approximately 45% of the retail sales among products with ESG statements, while baby formula only contributes roughly 5%.
Nevertheless, critics may say that it is only the most prominent and wealthiest brands that can afford to implement environmental and social changes to their products and packaging, but the data proves different: In 59% of the categories, the smallest brands with sustainability claims had more growth than brands who did not. It was similar for large brands, where 50% of the categories saw products with ESG-related claims experience more growth than those without.
If this data is anything to go by, it suggests that the retail and e-commerce sectors can begin to shift their thinking on sustainability: It is no longer a half-ignored checkbox on a list that curtsies to the planet in a moral dilemma, but a profitable, strategic and centred part that is integral to a brand’s ethos and practices.
The time is now for brands and retailers to get on board
A global survey conducted by McKinsey across 90 countries asked employees in several industries, including retail and e-commerce, how the company they work for is addressing ESG issues. Regarding the reasons why ESG is being tackled, 51% of respondents who work in retail and CPG said that it is because the company sees it “as a growth opportunity”, while 40% said it is to meet consumer expectations. Both of these reasons give hope to the notion that mindsets around sustainability are changing for the better, whether it is to seek growth or to retain eco-conscious customers.
In 2023 and beyond, brands and retailers may continue to feel the effects of Covid-retailed supply chain issues, inflation, and energy disruptions. In addition to this, they will have to keep up with consumer demands and spending habits regarding their environmental and social responsibility stance. As the data has shown, more and more consumers are consistently choosing products with ESG-related claims, resulting in larger growth in comparison to brands that have no sustainability claims. Whether a brand or retailer offers one or hundreds of categories of products, the effort to improve its environmental impact must be genuine, consistent, tracked and quantifiable.