Empower consumer brands: 5 steps for trustworthy sustainability claims and customer loyalty
In brief
- "Greenwashing" allegations can have a significant and negative reputational impact for consumer brands and retailers. That's on top of the inherent regulatory and litigation risks of making false claims.
- As consumers seek more sustainable products and services, brands must improve their ability to make substantiated and verifiable sustainability claims that shoppers can rely on.
- Investing in these capabilities now can reduce risks, mitigate potential penalties and cultivate the kind of consumer trust that supports long-term relationships and loyalty.
Consumer brands and retailers are facing a complex reality. Consumers want more insight into sustainable products and services. At the same time, consumer protection laws and agencies in Canada — and around the world — are raising the stakes and aiming to regulate false, misleading or unsubstantiated environmental claims made through greenwashing.
These compounding factors are creating a very real fear of public scrutiny, one that's holding brands and retailers back from meeting consumer expectations. But pulling back now would be a mistake. In fact, this evolving environment holds a lot of potential for businesses that are willing to strengthen their approach to sustainability reporting now.
As we continue to see reflected in the EY Future Consumer Index data, a growing number of consumers are concerned about climate change and the environmental impacts of their lifestyle choices. This is especially true for younger consumers — Gen Z and Millennials — who are willing to pay more than Gen X and Baby Boomers for sustainable products and services.
Of 22,000 respondents surveyed globally in 2023 across 28 countries, 82% consider sustainability to be somewhat or extremely important when making purchasing decisions. To help make better sustainable shopping choices, 64% feel more information is needed and 29% expect sustainability claims to be supported by environmental benefits.
That surging interest is moving consumer brands to adapt to changing preferences and priorities. The number of marketing claims about the sustainability of products, services and packaging across all purchase categories — electronics, packaged food and beverages, apparel, beauty and personal care, tourism and transportation — is growing. This includes self-created environmental labels.
What's the problem? Allegations of greenwashing are also on the rise. A 2020 study conducted by the European Commission found that 53% of green claims being made across a wide range of products provided consumers with vague, misleading or unfounded information, referred to as greenwashing.1 Terms targeting consumers such as recyclable and climate or carbon neutral can unintentionally be misleading if caveats are not adequately disclosed. More specifically, claims made around climate commitments are found to be especially confusing to consumers who might incorrectly assume that carbon neutrality achieved using carbon offsets implies an absolute reduction in carbon emissions.
As various jurisdictions shift from voluntary to mandatory environmental, social and governance (ESG) disclosures to align with new International Sustainability Standards Board requirements, additional product categories will be required to share product-level information about sustainability right on the label. Meanwhile, greater risks around liability and enforcement will also come into play.
This new reality isn't limited to consumer brands and retailers. More broadly, banks, asset managers and insurers are under increasing pressure to demonstrate how investments align with their net-zero targets. Even North American forestry certification schemes relied on by brands making paper-based packaging and product claims are under scrutiny.
Taken together, these factors are creating a challenging landscape for consumer brands and retailers. Guidance on making green claims is not always clear. To complicate matters, regulations differ across jurisdictions, leading to a lack of harmonized legal definition of what is considered greenwashing. Reputable companies making genuine progress towards their sustainability targets may be hesitant to publish consumer-facing statements, a term referred to as green hushing. This growing trend may disappoint shoppers who are seeking detailed information when comparing products or researching sustainability practices of lesser-known brands.
As standards evolve to keep up with legislation, brands will need to stay nimble and adapt their marketing practices. That's an opportunity. Companies and retailers have an opportunity to stand out in a busy marketplace and build customer trust by proactively communicating meaningful information shoppers seek while ensuring they have put in place proper due diligence measures to avoid communication mishaps.
At EY, we suggest consumer brands and retailers in Canada embrace five key recommendations to reduce these risks while continuing to meet customer demand for environmental information:
1. Track and monitor applicable laws
and legislative developments in the countries where you
sell products and inform your directors of the potential penalties
and reputational risks if the company is caught misleading
consumers about social and environmental attributes of products or
company ESG performance. This includes monitoring laws and
regulations around anti-competition, textile and product labelling,
green claims, eco-design, right-to-repair as well as ESG
disclosures about performance and the risk of modern slavery in
supply chains.
2. Refrain from making vague or general claims
that could unintentionally mislead consumers to think the product,
service or company has no detrimental impact on the environment. Be
specific with language about product attributes and clear about the
limits of the statement being made. Neither should be false or
misleading. To avoid costly product recalls and penalties,
sustainability, product compliance and marketing teams should work
together to ensure that any marketing campaigns, logos, ads and
packaging have been adequately reviewed and signed-off before going
to print.
3. Secure robust documentary evidence from
suppliers, accredited labs and third parties to objectively
substantiate and validate any claims. Evidence collected should be
grounded in science, verifiable, based on adequate and proper
testing and, if applicable, follow a chain-of-custody framework
along the supply chain.
4. Use caution when publishing environmental claims
around net zero that are not supported by a verifiable
strategy to deliver them. Net-zero targets may need to be revisited
if the baseline year used to set targets is no longer
representative of the company's current greenhouse gas
emissions profile and the variance is material.
5. Ensure proper governance and due diligence over all non-financial disclosures. Obtaining limited or reasonable assurance on non-financial reports and statements and aligning social or environmental claims with those disclosures could reduce regulatory and litigation risks.
Footnote
1 EUR-Lex - 52023PC0166 - EN - EUR-Lex (europa.eu)
Summary
Sustainability disclosure requirements are taking shape in Canada and around the world. Consumers are increasingly making buying decisions based on a product or brand's sustainability commitments. Now's the time for consumer brands and retailers to strengthen sustainability reporting. Doing so can mitigate risk while reinforcing customer loyalty.
Contributors
Monica Chadha
Don Linsdell
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.