Sustainability on the Store Shelf

Sustainability is increasingly influencing brand image and perception of consumer product companies. According to a study by Information Resources, Inc., about 50 percent of consumers consider at least one sustainability factor when selecting products and shopping destinations. But it's still not clear if consumers are willing to sacrifice convenience or pay price premiums for greener products, or how the price/convenience trade-off could vary depending on the product category. For example, a consumer may choose to buy sustainable health and wellness products, but not apply those same selection criteria to household staples such as trash bags.

As such, consumers and companies need to understand sustainability attributes of products on the shelf. Consumers need to be educated on the lifecycle effects of a product they are buying, using, and discarding to ensure it aligns with their intentions. Companies, on the other hand, need to ensure their product portfolio aligns with their sustainability strategy and thus mitigates potential regulatory or consumer backlash risks.

Uncovering Product Risks and Opportunities

When it comes to consumer products, sustainability is an evolutionary process. Defining sustainability is difficult and it's almost impossible to define whether any given product is sustainable or not. But it's possible to evaluate the relative level of sustainability of one product against another.
Consider Unilever's "All small and mighty" three-times concentrated laundry detergent, which was unveiled in February 2006. The smaller, 32-oz. bottle saves Unilever six million pounds of plastic per year and reduces the amount of diesel fuel required for transport by one-third compared to the traditional 100-oz. bottle. Also consider that regulatory bodies in Europe and parts of the United States may propose a charge for waste generators, including product packaging. Standout sustainable products balance sustainability and traditional value attributes.

While it would be ideal to make every product as light as possible, biodegradable or ready-recyclable, tight research and development budgets compel senior executives to take more manageable initial steps. The intersection of a product's relative level of sustainability and business value can assist organizations in identifying where to deploy their limited resources.

Determining a product's relative level of sustainability, or sustainability index, requires developing criteria that align with an enterprise's value chain and weighting those criteria against its strategic sustainability priorities. To develop the best criteria for each step in the value chain, an enterprise may consider collaborating with an academic or non-profit organization or elicit input from a management advisor.

A typical value chain for a consumer product company may include sourcing, manufacturing, packaging, distribution, product use, and product disposal. For example, in the sourcing step, a company may consider if it's designing its product to conserve resources, or to use low environmental impact materials. At the disposal step, a company may consider if the product can be easily recycled, reused, or safely disposed by the consumer. Not all criteria are created equal nor do they have the same impact on an enterprise's mission to become more sustainable. The criteria in the sustainability index should therefore be weighted according to the enterprise's strategic sustainability priorities.

Determining a product's relative value to a company's portfolio may be a little more straightforward depending on its reporting standards and data availability. A company should use the same metrics it draws upon to evaluate a product's financial performance, such as EBITDA (earnings before interest, taxes, depreciation and amortization) or revenue, and develop a relative score based on all products in the portfolio.

Emerging Product Attribute Considerations

Companies are still struggling with a wide array of poorly defined product attributes. At the same time, shareholders and stakeholders are demanding more transparency of environmental and social performance and undisclosed environmental risks are increasingly frowned upon. A 2007 report co-published by Deloitte highlighted emerging regulatory trends related to sustainability. They included:

Genetically Modified Organisms (GMOs)

Genetically engineered products, typically crops, have been pursued for their ability to resist to natural adversities such as insect infestations or severe weather, and their ability to provide multiple harvests and greater yields. While some consider these one of the most promising solutions to feed an increasingly crowded world, many have objected to their entry into the food chain. European countries have been leading the debate against GMOs with initiatives ranging from consumers' demands for label information to outright bans through legislation. As the parties that purchase raw agricultural materials and transform them into finished products fit for consumption, companies dealing with consumer packaged goods are at the center of this debate.

Chemicals Management

Consumer product manufacturers have long been subject to identifying, inventorying, reporting and, in some cases, phasing out certain chemicals or materials deemed harmful to people or the environment. They will now have an additional agency to contend with within the U.S. Department of Homeland Security (DHS), and should expect increased regulations, tracking and management requirements, and risk management plans for materials that could present terrorism threats.

Nanotechnology

Nanotechnology is commonly applied in many consumer products and processes such as packaging, cosmetics and skin care products, apparel, plastics, and food. Future uses include "smart" packaging, healthier foods, efficiencies in farming, and the detection of pathogens.

The U.S. Environmental Protection Agency (EPA) expects producers and users of nanotechnology to apply pollution prevention principles to protect the environment and its people. EPA is relying on existing U.S. federal statutes, which provide some legal basis for the regulation of nanomaterials. In December 2006, Berkeley, California passed the first local regulation requiring companies to disclose information on the safety of the particles, monitoring plans, and handling and disposal procedures.iii Internationally, the European Framework Program on Research and Technological Development has developed a formal outline of preexisting legislation that could cover nanoscience. The UK Department of Environment, Food, and Rural Affairs announced a voluntary reporting scheme for nanomaterials.

Labeling

Trends in resource conservation, materials management, and product stewardship are drawing scrutiny to product and services labeling. Regulatory trends suggest the need for consistent metrics and key performance indicators, as the disparity in voluntary reporting performance affects variability in product labels and truth in advertising.

As regulatory requirements, technological capabilities, and consumer preferences continue to evolve, developing frameworks to prioritize product sustainability efforts is increasingly critical to a firm's success. The organizations that begin analyzing their current products today will be in a better position to respond to those evolving changes tomorrow.

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