Businesses succeed by delivering the products and services customers want and need. As consumer interest in sustainability grows, organizational leaders are developing new strategies in supply chains to match consumers’ interests.
The rise of consumer preferences for sustainable products has created a significant ripple effect on corporate Environmental, Social, and Governance (ESG) strategies. Consumer preferences are influencing everything from sourcing based on ESG principles to product and services designs that minimize environmental impacts, showcasing the dynamic and responsive nature of businesses. Companies are increasingly adapting their practices to align with their customers' evolving expectations. This alignment is a response to market demands and a strategic move to ensure long-term viability and competitiveness.
Reconsidering Impacts on People and the Planet
Consumer preferences for sustainable products are driven by heightened awareness of climate change, ethical concerns, and regulatory pressures. People are now more informed about the impact of their consumption choices and actively seek out products that minimize harm to the planet. From organic food and electric vehicles to cruelty-free cosmetics and sustainably sourced apparel, the demand for environmentally and socially responsible goods has reached unprecedented levels.
One significant impact of this trend is the integration of sustainability into corporate ESG strategies. Businesses recognize that addressing environmental and social concerns is essential for meeting customer expectations and mitigating risks associated with climate change, resource depletion, and regulatory compliance. Thus, companies increasingly incorporate sustainability and social responsibility practices into their operations and supply chains. These initiatives are often highlighted in ESG reports, which serve as a transparent means for businesses to communicate their strategies and results to stakeholders.
The demand for sustainable products has influenced the governance aspect of ESG strategies. Boards of directors and executive teams are prioritizing sustainability as a core component of their decision-making processes. This includes setting goals such as achieving net-zero emissions or ensuring 100% sustainable materials sourcing. By embedding sustainability into governance frameworks, companies are better positioned to align their operations with consumer expectations while ensuring accountability and oversight.
Turning Principles into Practice
Customers increasingly scrutinize how companies treat workers, support local communities, and uphold human rights in operations and supply chains. This scrutiny has led businesses to adopt more transparent and equitable labor practices, invest in community development, and ensure ethical sourcing across their supply chains. For example, fashion brands are embracing fair trade certifications and disclosing the working conditions in their manufacturing facilities to build trust with ethically conscious consumers.
For the H&M Group, headquartered in Sweden, sustainability is a core principle. The brand has taken multiple paths to support ESG in the fashion industry. For example, in 2023, 85% of materials sourced for commercial goods were recycled or sustainably sourced. H&M Group also works to improve working conditions and wages for people in fashion supply chains through focused strategies and partnerships.1 The fashion industry experiences significant consumer criticism due to fast fashion practices. These practices include using unsustainable materials and exploitation of workers through low wages, child labor, and unsafe working conditions. Companies like H&M Group are driving measurable change.
The financial implications of consumer preferences for sustainable products are profound. Companies that fail to adapt risk losing market share. On the other hand, businesses that align their ESG strategies with consumer values often enjoy enhanced brand loyalty, higher customer retention rates, and access to new markets. Investors also pay close attention to companies’ ESG performance, as sustainability is increasingly linked to financial resilience. This dynamic has created a strong incentive for companies to prioritize ESG considerations to satisfy consumers and attract and retain investment.
Innovative product design is another area where consumer demand for sustainability is reshaping corporate strategies. Companies are investing in research and development to create products with reduced environmental footprints. For instance, multinational corporations like Nestlé have committed to making all packaging biodegradable, recyclable or compostable and are near their goals.2
Transparency and communication are crucial elements of successful ESG strategies in the context of consumer preferences. Consumers expect companies to provide transparent and verifiable information about the sustainability attributes of their products. This has led to the rise of certifications, labels, and reporting frameworks so that businesses can demonstrate their commitment to ESG principles. By fostering transparency, companies can build credibility and trust, which is essential for maintaining consumer loyalty in an increasingly competitive market.
Not So Ordinary
Supply chain management has also significantly transformed due to the demand for sustainable products. Companies are mapping their supply chains to identify areas where they can reduce environmental and social impacts. This includes sourcing raw materials responsibly, partnering with suppliers that adhere to ethical practices, and optimizing logistics to lower carbon emissions. By taking a holistic approach to supply chain sustainability, businesses can ensure that their products meet the expectations of environmentally and socially conscious consumers.
The Ordinary, an Estée Lauder company, is prioritizing customer education and transparency. The brand's marketing strategy focuses on building trust and loyalty by providing consumers with the information they need to make informed skincare choices. Its extensive sustainability focus includes detailed product and ingredient lists, eco-friendly recyclable packaging, ethical sourcing, PETA and Leaping Bunny certification as cruelty-free, repurposing of products when possible, reduction in emissions and use of renewable energy, and water conservation. All suppliers must adhere to the Ethical Code of Conduct, requiring environmental sustainability and the well-being of communities.3
Another noteworthy trend is the role of technology in advancing ESG strategies to meet consumer demands. Digital tools are being used to enhance transparency, traceability, and efficiency in supply chains. For example, blockchain technology allows companies to verify the origin and authenticity of their products, ensuring that they meet sustainability criteria. Similarly, AI-powered analytics can help businesses identify opportunities to reduce waste and optimize resource use.
There are “deeptech” companies in Europe shaping the future of sustainability in traditional industries. The German company, peaq , is pioneering layer-1 blockchain to empower people to own and benefit from innovations in energy, mobility, the environment, connectivity, agriculture and digital infrastructure. It supports more than 45 applications across 18 industries with its Decentralized Physical Infrastructure Networks. The goal is to develop increasingly advance machines to serve humanity equitably by democratizing opportunities through advanced technologies.4
While the growing demand for sustainable products presents opportunities, it also poses challenges for businesses. Balancing sustainability with affordability and convenience remains a significant hurdle. Many consumers are willing to pay a premium for sustainable products, but others prioritize cost and practicality. Companies must strike a balance by developing solutions that are both eco-friendly and accessible to a broader audience. This often requires innovation, strategic partnerships, and investment in sustainable technologies.
The Ripple Effect
The influence of consumer preferences extends beyond individual companies to entire industries. In addition to the industries mentioned, sectors like transportation are undergoing transformative changes driven by the demand for sustainability. Industry leaders are setting benchmarks for ESG performance, inspiring others to follow suit.
As these changes ripple through the business ecosystem, the collective impact on environmental and social outcomes is significant. Consumer preferences for sustainable products are reshaping corporate ESG strategies. Companies can enhance their competitiveness, build trust, and contribute to a more sustainable future with a holistic approach that integrates ESG considerations into every aspect of business operations. While challenges remain, the potential benefits of embracing sustainability are too significant to ignore.