The cost of buying green

From plant-based laundry detergents to eco-friendly clothing and apparel, sustainable product options can be found everywhere. Even amid the ongoing supply chain challenges, relatively few point toward the scarcity of sustainable alternatives as a reason for not buying green (figure 2). Instead, green premiums are likely becoming unsustainable for consumers facing mounting financial challenges.

According to sentiment data from Deloitte’s ConsumerSignals, finances recently replaced COVID-19 as the leading driver of consumer anxiety globally—driven by spiking concerns around inflation, savings, and credit card debt. Perhaps not coincidentally, the drop in sustainable purchases is more pronounced in a number of countries with relatively high inflation, including Spain, the Netherlands, and Poland.³

Sustainable shopping is bifurcating

The dip in sustainable shopping isn’t just about how many consumers are buying green—but who. Higher-income consumers are more likely to ignore the higher price tags associated with sustainable goods. As of March 2022, roughly half globally (49%) cited purchasing at least one sustainable product within the past four weeks. Of those who purchased a sustainable product, one-third said they paid significantly more for it compared to a traditional alternative (figure 2).

In 18 of the 20 countries studied, higher-income consumers were more likely to make a sustainable purchase.⁴ In a handful of countries, the gap across income groups is significant. In Japan, for example, 45% of higher-income consumers purchased a sustainable product compared to only 20% among lower-income earners.⁵ Similar-sized gaps exist in Canada, South Korea, Poland, China, and the United Kingdom.

The inability for lower-income consumers to afford sustainable products shouldn’t come as a surprise—particularly now. Similar to the pandemic, inflation disproportionately impacts lower-income consumers. In the United States, for example, the percentage of lower-earners struggling to make upcoming payments has been rising unabated for two years—hitting 45% in April 2022.⁶ The same financial metric has remained stable among both middle- and high-income earners.

Still early days in the product life cycle

More consumers are prioritizing their personal finances over sustainable shopping. But that shouldn’t be perceived as a warning signal for future demand of sustainable goods—or the consumers’ commitment to the environment. Instead, inflation is perhaps helping to shine a light on the nascency of the sustainable product category. When innovation is first introduced to markets, product life cycles tend to follow a predictable pattern. The first flat-screen TVs were an expense most couldn’t afford. Decades of innovation eventually brought the price within range of the average consumer.

Today, sustainable products are often part of a company’s premiumization strategy. Bringing green products to market often requires companies to do without the decades of innovation around materials, manufacturing processes, packaging, or global supply chains that helped make traditional products cheap to begin with.

The recent drop in sustainable shopping should inspire consumer companies to look to the future with optimism. If sustainable purchases are falling because of financial stress, it means many consumers are begrudgingly buying traditional products that they know aren’t the best option for the planet—and that signals opportunity.

In the coming decade, leaders in consumer business will likely be those who drive the innovation that helps close the cost gap. We’re perhaps already watching this unfold around products such as solar panels and electric vehicles.

Beyond cost

Inflation is drawing global attention to costs. But cost is just one of many trade-offs consumers associate with more sustainable living (figure 3). Convenience is a big factor. So is the belief that certain actions will make a difference. From recycling or using lower-emission transportation, to eating less meat, trade-off perceptions shift depending on activity.

For example, consumers perceive cost as the biggest trade-off when it comes to buying—both what we buy (such as sustainable goods) or where we buy it (buying local). But when it comes to reducing consumption, the barrier quickly shifts to convenience. For example, convenience is why many consumers struggle to have fewer packages delivered to their home, reduce their water use and food waste, and switch to lower-emission transportation.

Other times, perceived trade-offs aren’t about what consumers need to give up (money or convenience), but what certain sustainable actions will produce in return. Beliefs around consuming meat offer a good example. Globally, the most common reason for not reducing meat consumption is the belief that it won’t make a notable difference (figure 3).

Time has shown that beliefs around climate change are malleable. Not too long ago, most consumers didn’t believe climate change was a crisis. With time and innovation, beliefs around trade-offs that people associate with sustainable living will likely change as well. The world may gradually move toward a future where the sticker shock around sustainable goods fades—one in which sustainable living can also be convenient. Where the impact of our collective action is measurable and transparent.

Consumer companies, with an eye on the future, should examine their own organization’s beliefs today. What does your company need to believe to play a leading role in driving and shaping the climate change transformation in the times to come?

Next steps

There are notable trade-offs between sustainability and cost. As retailers look to pass on inflationary pressures to consumers via price hikes, an opportunity exists to do so disproportionately toward less sustainable choices, inflating the prices of unsustainable goods and services while holding firm on sustainable products and choices.

At a more fundamental level, companies should break the trade-offs between price, performance, and sustainability. That requires a true innovation program, rather than treating sustainable goods as merely an effort at differentiation.⁷ Creating autonomous units dedicated to developing more environmentally friendly goods and exploring new business models are some steps many have used to successfully break trade-offs that define their industry. Retailers and consumer goods companies should treat sustainability for what it is—a critical attribute of every product, and one that’s ripe with opportunity for those willing and able to treat it accordingly.