Navigating the challenges and opportunities for sustainability in retail

As consumers demand genuine sustainability, retailers are grappling with trust issues and green fatigue

IN 2022, World Retail Congress and Boston Consulting Group published a report titled Sustainability In Retail Is Possible But There’s Work To Be Done where it stated that the retail sector is responsible for 25% of global carbon emissions.

The majority, around 98%, of these emissions occur throughout the retail value chain, placing retailers as the last line of defence before consumers take responsibility for a product’s end-of-life cycle.

While retailers have limited direct influence on carbon emissions, they can still make a significant difference in promoting sustainability.

An imperative for brands

The retail industry is undergoing significant transformations due to key macro trends. Research conducted by research analyst firm IHL Group from 2023 titled, New Forecast Reveals Groundbreaking Potential of Generative AI in the Retail Industry: $9.2 Trillion Impact Expected by 2029 predicts that generative artificial intelligence (AI) will have a profound impact of US$9.2 trillion on the retail sector by 2029.

AI is revolutionising operations by improving efficiency and traceability, which is especially valuable in times of economic uncertainty and the need for resilient supply chains. This technological shift coincides with the preferences of younger generations, who possess increasing purchasing power and prioritise supporting sustainable brands even in challenging economic conditions, as highlighted in a study by Amazon Ads called Higher Impact.

Moreover, the retail industry is facing stricter regulations such as the European Union (EU) Corporate Sustainability Reporting Directive and the Green Claims Act. These regulations not only impact retailers in the EU but also set a new standard for transparency and responsibility globally.

These same trends are driving the retail sector towards a more sustainable and adaptable future, resulting in ongoing opportunities for innovation and improvement throughout the entire value chain.

Mario Braz de Matos is the co-founder and managing partner at Flying Fish Lab based in Singapore.

Younger consumers and their choices

Consumers, particularly Generation Z and millennials, demonstrate a strong commitment to sustainability, as evidenced by a separate survey conducted by McKinsey & Co titled The State of Fashion 2020. The survey revealed that two-thirds of respondents and three out of four millennials consider sustainability when making purchasing decisions.

At the same time, a report from global market intelligence agency Mintel also revealed that 60% of consumers believe that companies fabricate their green claims, indicating a lack of trust in the ‘green’ claims made by large corporations.

Flying Fish Lab co-founder and managing partner Mário Braz de Matos, in his 30 years of experience with consumer goods, has found that growing consumer awareness has caused this shift in behaviour.

“Given that awareness, consumers want to make the right choice. So they look for labels, names, logos, symbols or even claims to try to confirm that they are making the right choice [with their purchases].

“Companies are responding to this consumer demand by including green labels. However, what you see happening now is that this space is currently not well-regulated so you see brands take different strategies to tell consumers about the benefits of their products,” he said, adding that competitive pressure sees brands get creative with their marketing.

You might have seen some of these labels such as ‘biodegradable’, ‘organic’ or even ‘free-roaming’. But, you may be less familiar with terms like ‘carbon neutral’ and ‘net-zero carbon emissions’ in definition.

“Because consumers lack the necessary info on these labels, despite their good intentions, they can end up making a decision and only find out later on that a particular product isn’t as green as it claims to be,” he noted.

Consumers are becoming more sceptical of businesses’ claims regarding sustainability practices, and this becomes a hurdle when ‘green’ products come with a higher price tag as consumers become unwilling to make the ‘greener’ purchase.

This phenomenon is referred to as ‘green fatigue’, and it poses a concerning challenge for brands that are already grappling with stricter environmental, social and governance (ESG) regulations.

“Consumers say they are willing to pay more but the challenge with that is the actual behaviour of consumers doesn’t reflect this,” he added, saying that it still comes down to external factors like budget constraints when consumers are faced with this choice.

“In parity, people will want to make the right choice but real life can get in the way,” de Matos said.

Building trust to deter green fatigue

Just as retailers are striving to enhance their sustainability initiatives, consumers are seemingly losing trust and confidence in them. This could be attributed to how people are becoming disillusioned with the current rhetoric and are disheartened by the lack of visible positive outcomes.

“For the average consumer, it’s impossible to examine every single item and verify the credibility of a product’s claims so most people would simplify their choices by choosing to trust certain brands,” de Matos explained.

“That’s where businesses need to honour their trust that consumers have in them because once that trust is broken, it becomes twice as hard to rebuild it - this is also the responsibility of businesses.”

Consumers rely on brands to be knowledgeable authorities on environmental issues and to provide guidance on sustainability matters.

“The best way forward is to cooperate to raise the standards of the playing field and then continue friendly competition within the new playing field,” he noted.

de Matos emphasised that a regulatory framework is needed but that industry players can work together to set standards themselves without the need for formal government intervention in what he described as ‘co-opetition’. He cited how the International Margarine Association of the Countries of Europe (IMACE) representing margarine and vegetable fats producers in the EU voluntarily tightened its Code of Conduct to reduce trans fat levels in foods and fats at retail without the need for government intervention.

He suggested that by collaborating and establishing standardised green labels within their industries, industry players can minimise the occurrence of greenwashing (whether intentionally or otherwise). This presents a significant opportunity for businesses to educate consumers about various sustainability concepts.

Through such education, businesses can not only enhance engagement but also address knowledge gaps, helping alleviate green fatigue for consumers.