A debate held as part of Kantar’s annual Sustainable Transformation Conference, the 2023 theme being Making Sustainability Real, featuring:
Archie Mason, Director at True
Jeremy Schwartz, Chairman of Kantar’s Sustainable Transformation Practice
Jonathan Hall, Head of Kantar’s Sustainable Transformation Practice and debate chair
Preeti Strivastav, Group Sustainability Director at Asahi, Europe and International
Rupen Desai, CMO and venture partner UnaTerra, and co-founder of the Shed 28
Setting the Context
Our work in partnership with the World Federation of Advertisers, Sustainable Marketing 2030, found that progress in sustainability is happening. There is increasing executive involvement. We have more visibility of KPIs on marketing dashboards. And marketers talk more about sustainability communications, they feel more comfortable being successful in that space and proud to share the communications that they've been a part of.
But it's not at the speed and scale we require. 2021 data revealed that 29% of marketers felt their companies were well advanced in their sustainability efforts. By 2023 data, this figure had declined to 15%. Marketing functions still seem to be lagging significantly.
The main opportunities identified were business model reinvention, innovating for advantage, educating people about normalisation of sustainable lifestyles, transforming partnerships to drive bigger impact and
expanding marketing's role in the value chain.
This led to the final framework model, Circular Marketing, and which is defined by five levers of change: Redefining Value, Putting Sustainability First, Innovating Radically, Creating Transformative Relationships and Driving Creativity into Action.
Amazingly, the top seven barriers to change were all reflective of the internal organisation. These ranged from measurement and resources, to mindset and capability, a lack of P&L policy which treats planet and profit equally, a lack of allocated internal resources and a critical skills gap.
Sustainable solutions are also perceived within the organisation as costing more, which is acting as a huge blocker to action - giving rise to the topic of this Big Debate.
THE AFFIRMATIVE
Archie Mason, Director at True
Jeremy Schwartz, Chairman of Kantar’s Sustainable Transformation Practice
The affirmative team’s position is that while they support the need for sustainability in brands and businesses, it should not be given more weight than other equally important considerations.
Where does sustainability sit among other business decisions?
Sustainability is a critical topic that everyone, consumers, policymakers, retailers and of course brands, should all be considering more in the future than they have done in the past. The debate is whether brands should prioritise sustainability, when making key decisions. Whether investment decisions, marketing decisions, supplier decisions, or considerations about which emerging business models or innovative technology and impactful technology to explore in the future, all are decisions which collectively will decide the future success of the brand in question.
The crucial importance of a commercial mindset
Brands are commercial organisations with many different stakeholders. Without commercial success and profitability, there would be no business left to support employees, suppliers, investors, etc, who all rely on the brand today. Any decisions made have to be commercial. How much will it cost? Will it appeal to consumers enough to persuade them to change whatever product or brand they are using today to drive incremental sales? Putting sustainability first is neither essential nor the optimum strategy when considering commercial demands.
Winning in competitive advantage
The inextricable power of competitive advantage should be at the forefront of every marketer’s mind. This is gaining share over other competitors through brand actions, is driven by the three C's: costs, convenience and comfort.
Every single company is obsessed with driving down costs, to maximise profits and to offer the most competitive prices for their product, to gain competitive market share and advantage. Sustainable offers lose on cost; Kantar analysis shows that 70 percent of all products that have a sustainable claim are at least also 70% more expensive than their standard product. This forces a loss of competitive advantage, and perhaps explains why the former CEOs of Unilever and Danone, were really challenged by their focus on sustainability, because it seemed to lead to a lack of competitive volume growth and competitive advantage.
When we then consider convenience, we now demand that this be ubiquitous and frictionless. Unfortunately, most sustainable offers promote less convenience, and therefore again will lose competitive advantage.
The final C is the comfort of buying loved brands for what they deliver - superior performance and emotional benefits. Sustainable solutions risk offering lower product performance and may even offer lower emotional appeal, and there's a real danger in that.
The power of big oil and big finance over brand efforts
We live in a world where the global economies, political and financial, are ultimately controlled by big oil and big finance. Neither of those two is going to care about sustainability if it gets in the way of profitability and money. The scale of this is considerable. During the verbal conference debate time alone, 700,000 barrels of oil were pumped out of the ground, 22,000 planes in the air pumped out 18,000 tonnes of carbon and 500 new cars were sold of the 26 million annually. FMCG brands dabbling in sustainability cannot feasibly have any real impact on both the planet or in reversing climate change, given the carbon machine.
The forces of big oil can also be exemplified by the new CEO of Shell, who sold off all the renewable energy projects, which offered a relatively poor return versus his oil business. He will focus on big oil, and big finance will reward him with huge bonuses, if he just grows oil. Those in power will continue to penalise CEOs who champion sustainability and purpose-led companies, because when the shareholder returns are less than the competition, big finance cannot tolerate this.
Whose responsibility is sustainability?
It is naive to imagine that any actions of FMCG brands will really offer any value in the sustainability debate, any value in reversing climate change and be of any value from a commercial point of view. We believe that the responsibility of driving consumer behaviour change does not rest with the brands serving those consumers. Therefore, when balancing the desire to have a positive impact on the world, with a need to be a commercially viable business, brands should of course consider their future impacts from a sustainability perspective, but should not give this topic undue prioritisation.
Do consumers really want sustainable options enough to actually buy them?
While consumer awareness of the climate challenge is growing all the time, this has yet to translate into purchasing behaviour in any meaningful way. Endless surveys all ask a variation of the same question, ‘would you be prepared to pay more for a sustainable product or brand?’ These often conclude with 60-80% of consumers responding positively.
According to Kantar’s 2023 Sustainable Sector Index, an average of 81% of consumers across sectors say they want to live a sustainable lifestyle, yet many CPG executives report that one challenge to their company's ESG initiatives is the inability to generate sufficient consumer demand for these products. Unfortunately, the 6 billion humans on the planet just loved to consume and aren't going to stop.
The reality is that cost, quality and convenience remain the three biggest factors in most consumers’ minds, when buying most products or services. Changing this is incredibly difficult and may not happen quickly. It will also depend on things beyond the control of any brand, not least the regulatory environment and decisions by governments and policymakers that are supportive of this transition. We will all just have to live with warmer, sunnier days becoming the new norm.
Those who have tried – and failed
There are many stories of companies launching new products incorporating sustainability related claims, only to find that sales to consumers fell short of expectations.
The transition to electric vehicles in the UK is slowing down. The UK plant-based food sector was one of the fastest falling grocery cash categories in 2023. Kindora, the luxury baby product marketplace collapsed in 2022 after struggling to achieve profitability. In the fashion sector, there are endless examples of new business models such as Thread Up, Rent the Runway and Thrifted which started off very positively, but have since significantly declined. The list of sustainable brands starting well but then declining sharply grows constantly.
The cost of prioritising sustainability
A further critical consideration is the cost and complexity of prioritising sustainability. To do this, any brand has to be 100% authentic. That potentially means fundamental changes to your operating model and business model, and the reality is that the costs of prioritising sustainability are simply too high to be commercially viable.
If a brand were to authentically prioritise sustainability, costs would include investments in renewable energy throughout any directly owned operations. The sourcing of sustainable raw materials, often considerably more expensive. Having to reconfiguring the supply chain, which in many cases is incredibly expensive. New packaging materials, again mostly more expensive than current ones. The list could go on.
When comparing these costs to the potential long-term benefits and savings that may result from sustainable practices, it often doesn’t stack up. Focusing on sustainability may divert resources from more impactful profit-driven strategies. Brands must first and foremost be viable businesses; only then can they consider broader social goals.
How best to build in sustainability
We need to separate out making nice CSR claims about saving some animals somewhere, versus actually delivering real sustainable products that actually have a smaller footprint. It's important that we are clear about that, and not fooling ourselves.
We need to separate out investing first as a first mover on sustainable technology, versus being smart and waiting for another brand or company to develop those technologies that might actually be more sustainable. Then taking those, when the costs and the investments and the trials and the mistakes have been borne by somebody else. You don't have to go first to be smart and sustainable in the future.
The reality of our world today
Of course, climate change is happening. We can see the floods, the disaster that's coming. Frankly this is now irreversible, we will pass 1.5 degrees and we will get to two degrees. However, the impact that any brand can take, I'm sad to say, will have zero impact on reversing the power, the momentum and the inertia of climate change.
‘The reality is that the forces of the financial status quo are so strong, so locked in, that any wishful future view of how the world could be better, is just talk that won't turn into action’. Jeremy Schwartz
We must realise that it is wishful thinking that financial metrics will change, and that the market will adopt new metrics. So brand owners and guardians have two choices. Those in companies with the money to allow you to play, dabble and trial and invest in some sustainable ideas - just go ahead and do that. For everyone else, your bosses will celebrate when you drive growth, market share and competitive advantage and you steal from those who invent new sustainable products when they're ready. It's really cost effective to do that, so rather than playing with sustainability, focus on profiting from the core, and you will win that promotion you so desire.
THE NEGATIVE
Rupen Desai, CMO and venture partner UnaTerra, and co-founder of the Shed 28
Preeti Strivastav, Group Sustainability Director at Asahi, Europe and International
The Negative team see the motion as ‘reeking of the audacity of selfishness’. Sustainability is more essential than ever at this point in time – and there are many arguments to support this.
What is climate change?
Climate change is not just about just warmer, sunnier days. Climate change is about floods, droughts, no food, land submerged under water, no livelihoods, barren landscapes, displaced people and so much more. It is a topic of deep gravity that we cannot afford to ignore. So why would it not be everyone’s top priority?
Which capital is the right capital to pursue?
In 1971 Milton Friedman propagated that the only responsibility a company has is to increase its profits. He also created a formula where the only capital that matters is financial capital, and where the only role of brands and companies is a return on this financial capital to the shareholder.
Due to this, we have somehow forgotten natural capital and societal capital, equity and equality. We’ve forgotten what it means when we take resources from the planet, just to increase financial capital. As John Maynard Keynes said ‘the difficulty does not lie in developing new ideas, it is in escaping the old ones’.
Does sustainability have to be more expensive & difficult?
Concerns about expense mostly emanate from the compromise of ‘can I keep my status quo as a business and add sustainability to the side of it?’ When we talk about sustainability, we're not talking about business as usual and loosely trying to make the world better, it involves the deep need for systemic change.
This may be expensive and tough in the short term. But true transformation and innovation are less about improvement of the status quo and more about overcoming each trade-off in the pursuit of the greater good. How do I provide a refreshing drink without a plastic bottle? How do I make great-tasting chocolate without the sugar?
A fantastic example of reinvention was shared by the Body Shop ex-CEO, who happens to be Jeremy. He said ‘when you look at your P&L and the amount of promotional investments spent behind selling substandard, unsustainable products and realign it, suddenly, it's not expensive. It's not difficult, it's not cumbersome, it just happens to be a different way to look at businesses. To achieve true sustainability, the what and the how of the business must change’.
‘It begs the question; how do you define expensive? What are you comparing it to? What is the premise of the calculation that tells you as a CEO, or as an executive member of an FMCG company, that putting sustainability into this brand is actually expensive? Or does it seem expensive because you haven't calculated it and defined it well enough?’ Preeti
To achieve true sustainability, the what and the how of the business will change. If we don't start today, we're effectively telling our children they can forget 2073 and may only see change by 2090, or perhaps not even in their lifetimes.
Can sustainability actually drive sales and competitive advantage?
Our opponents believe that sustainability does not drive sales. Sustainability slapped on a brand, which has no meaning, does not and should not drive sales. We have been inundated with a plethora of weak sustainability claims that mean nothing. If your company is trying to drive sales by calling a product ‘green’ or ‘eco-friendly’
then yes, there will be no growth in sales.
However, if you actually make it meaningful and credible, you will see growth in sales. While the opposing team quoted a lot of brands that did not do well, there is a comparative laundry list of brands that actually did well by harnessing the opportunity that sustainability offers.
Taking the beer category as an example, brands had exhausted the ‘better taste, better packaging’ options. In looking to sustainability, they have achieved new, fresh brand differentiation and competitive advantage. Peroni stands for sustainable agriculture. Radagast, the leading brand in the Czech Republic, stands for saving water. Zubr in Poland stands for protecting endangered species. Beyond this there are the many other non-beer success stories, from Patagonia to IKEA. Success through sustainability absolutely can be achieved, with sales growth and profitability alongside it.
Redefining traditional cost and growth models
We question the school of thought that says that the pathway of least cost is what businesses should do. That these traditional models of calculations and definitions of growth, sales and return on investments are all we should look at. That is changing. Every single company in the Fortune 100 companies now has an internal price on carbon. They do that to be sure about the actual cost that they are investing in some of these products and brands.
At Asahi, we monitor the internal cost of carbon. The bonuses of our CEO and the entire senior leadership team are connected not to the EBITDA, they are connected to the Sustainable EBITDA. Almost every single competitor in the FMCG sector is doing likewise.
Sustainability can even generate additional stream of revenues. Google set up a wind farm to supply its own renewable energy. It made so much energy that it sells energy now and is listed as a utility company.
Solely focusing on growth and sales is therefore a questionable premise. The models that educate this growth are incomplete, flawed and outdated. If we factor all of these costs in on any single brand or product, you will see that the true cost actually comes down.
We need to go back to the Doctrine of Discovery and very gently start changing the system. It’s already happening, it just needs a push from people like us to gradually redefine the goals of a business, the purpose of business, the sales growth mindset and how we calculate some of these investments and profits.
Why sustainability should sit at the heart of any business
By putting sustainability at the heart of our businesses – our pricing decisions, our supply chain decisions, our formulation decisions, our procurement decisions, we will emerge as a brand or business that deserves to serve the consumers of today, but also of tomorrow, our children and their heirs. It is an existential matter of business - we can't be myopic, looking only at the short-term cost and effort.
Whether you are a Chief Sustainability Officer, from the agency world, from the research world or a CMO, it comes down to what Jane Goodall said; ‘We all have the choice to use the gift of our life, to make the world a better place, or not bother’.
To that quote, we could add ‘not bother, because it was a bit expensive, in the short term, or a bit troublesome’, if we are to agree with this motion. We must prioritise the future of the planet, the future of society, the equity and equality our world so deserves. We cannot continue to take those resources and deprioritise sustainability, just to serve one shareholder with financial capital return. We must take planetary return and societal return wholly onboard if we want to leave the future a bit better than we found it for our children.
‘Brands are the most eloquent and powerful vehicle to connect with millions of consumers and citizens. And in this day and age where the science is clear and where all we need another push to move over to the tipping point, it's frankly unforgivable, to not prioritise sustainability into brands, and focus only on growth, instead of positive change’. Preeti
The Impact of not prioritising sustainability
The earliest date by which we will meet the UN’s Sustainable Development Goals is now 2073, not 2030. A huge percentage of the world's plastic will still not be recycled. We will have to tell our daughters that it will take 131 years to reach gender equality because brands and companies found it easier not to prioritise sustainability. It is crucial for humanity that we take responsibility now for the future generation and the world they will live in.
We could listen to the Affirmative team and agree that we’ve already lost the battle. That the big bad wolves of oil companies and private equity make change too difficult and cumbersome. That those CEOs who supported Sustainability, who I see as visionary thinkers, were in fact fighting a losing battle and that we may all just as well dedicate ourselves to making the CEO of BP’s bonus bigger.
We refuse to accept a status quo where business is only measured in the financial return generated for the shareholder. We want a future where we take planetary value and societal value, as important focus areas in everything we do.
When you talk about plastic as being convenient, I just see pictures of it in the sea and clogging our shorelines throughout the world. We cannot be part of any decision where did not take the path which was a bit more difficult and challenging, but which eventually helped change the future. If we downplay or ignore sustainability, we will leave this world far worse off, without having any positive imprint whatsoever. Preeti & I plead that we all put sustainability at the heart of the business models.
Without this, the world is what Jeremy painted it out to be, where the oil companies have won. The CEOs who are fighting the good battle, are gone. Our opportunity to do the right thing for this world’s future, will be gone.
THANKS TO THE GREAT DEBATERS
Thank you, Preeti, Archie, Rupen, Jeremy, our debating team members who are all sustainable transformation leaders in their own right.
This article is part of Kantar’s 6 article series, taken from our Making Sustainability Real conference, available on demand here.