Entrepreneurial Drive Articles Millennials Drive Sustainability
The millennials are the most sustainability-conscious generation. Recent studies from Nielsen and Deloitte show that millennials are most willing to pay more for products and services seen as sustainable or coming from socially and environmentally responsible companies. As millennials are a rapidly growing consumer market, and an influential one at that, we look at how companies change to bring them on board and how this awareness about sustainability affects products and production in various sectors.
The following table shows that when consumers shop, sustainability considerations are top drivers, even more so in the case of individuals willing to pay more. Of the respondents who look out for sustainability, 51 percent were millennials.
Sustainable supply chain to foster growth in the food industry
Human rights violations in Asia's fish, prawn and shrimp farms have attracted widespread media coverage. The sustainable seafood movement, which began in the 1990s, highlighted the impact of overfishing or destructive fishing methods on the environment. Nowadays, social marketing through the EU's "Ecolabel" and awareness campaigns are helping consumers to make informed choices potentially contributing to the conservation of the environment. Ecolabeling is based on evaluating the production process with set environmental standards by independent third parties. If the process fulfills the requirements, the producer or marketer can use the Ecolabel in its marketing, and the consumer knows that the product was produced sustainably. Such a label has an added benefit for the producers – the labeled goods often command premium prices.
Understanding the impact of companies' supply chains
Companies are also realizing that building a sustainable supply chain has the potential to attract new clients. Tata Global Beverages, for instance, first identified the need to develop a sustainable supply chain following disruptions in availability and prices of its tea supply. It now seeks to certify an increasing part of its tea supply under the Rainforest Alliance, which sets environmental, social and economic standards.
With more food needed to feed a growing population and ever-increasing environmental challenges ranging from water scarcity to herbicide resistance, the food and beverage industry, including Nestlé and Unilever, is leading the way to set standards for sustainable agriculture. Successfully so: Unilever reported faster growth for its brands with a sustainability purpose than for the rest of the business in 2015, and these brands accounted for nearly half of the firm's total growth that year. Nestlé has set specific requirements for commodities such as palm oil, sugar, soy, cocoa and coffee. It purchased 43 percent of these goods from sustainable sources in 2015.
More transparency in clothing industry
Fashion provides another example of an industry that has been in focus and has made an effort to make its practices more sustainable. The difficulty is that the industry tends to often move its supply chain to new locations and suppliers use unapproved outsourcing. However, as with the food industry, raw materials such as cotton or processes such as dyeing can be made or sourced in a sustainable way. Though the industry still lacks transparency, fair cotton standards and labels have emerged and companies have developed governance standards to foster sustainability. In future, we are likely to see new brands emerge that will reinvent the business model, use recycled or recyclable materials or ensure better manufacturing standards.
Reshaping the automobile industry
If we apply sustainability to the automobile industry and the fight against climate change and pollution in this case, we can expect millennials to favor electric cars over diesel cars and shared cars over owned cars. After the Volkswagen emission scandal, traditional auto makers are in discussions about the end of diesel in ten years. Stricter emissions testing leaves no choice for the traditional carmakers but to commit greater resources to electric cars. Developments in technology companies such as Google or new entrants such as Tesla are pushing car companies to act today, and many manufacturers have revealed ambitious electric auto development programs. Daimler, for instance, raised its capital expenditure program early last year and plans to develop premium electric cars, a segment currently dominated by Tesla. Volkswagen has announced that, by 2025, 25 percent of its vehicles will be electric.
Autonomous driving is another development worth watching. Given that millennials have already adopted sharing behavior, autonomous driving will facilitate the development of the sharing model for cars. Original equipment manufacturers have recognized this development and are acquiring companies in the sharing car market to offer such services.
Tapping growth opportunities with sustainable practices
More generally, the search for sustainable behavior is pushing millennials to adopt new consumer habits, thus opening up new growth opportunities. Sharing instead of consuming is leading to the development of the sharing economy. We see spending diverted away from traditional retail products. The sportswear industry is benefitting strongly as sports items have become part of everyday wear as the millennials are very conscious of health and wellness. Eating food from organic or local sources instead of food produced through pollution-intense agricultural practices or industrial processes has given momentum to specialty grocers such as Whole Foods. The traditional food retailers have also evolved to address this trend and have captured a bigger share of the natural/organic industry in recent years. Smaller brands are appearing in the staples industry and gaining market share. In the healthcare industry, millennials are embracing alternative medicine rather than conventional medical treatments and prescription drugs. Natural remedies and alternative medicines feel safer and cleaner and are more in line with millennials' values.
Millennials are an influential and rapidly growing consumer market. Established industries must adapt their business models now if they want to bring millennials on board. As for companies, they must deliver good social and environmental performance and engage in sustainable practices or their future growth could be at risk.
Text by: Julie Saussier, Research Analyst, +41 44 333 12 56