In focus

How sustainability can make a product stand out

The growing awareness of environmental, social and governance (ESG) factors among customers and investors poses a quandary for companies: how should they react? Predictably, the response has been a mixed one, with the pace and magnitude of action dependent on the extent to which companies view this change as an opportunity as opposed to an annoyance.

Action by companies has taken many different aspects, including greater non-financial reporting and engagement with key stakeholders. Another interesting development has been the use of sustainability as a way to differentiate their products.

What makes a sustainable product?

By sustainable products, we don’t just mean wind turbines, electric cars and solar panels. Any product can be produced with a focus on sustainability, whether that be a more sustainable way of making the product, or sustainability benefits offered by the end-product itself.

This move is predicated on the idea that by providing an environmental benefit, for example, a sustainable product is fulfilling a dual purpose. It performs a required function and helps to reduce the impact on the planet; something a comparable non-sustainable product cannot do. Therefore, the sustainable offering can add greater value.

Here, we consider a few examples of sustainable products offered by various European companies.

Products for responsible consumers

For consumer goods businesses, an additional benefit is that some of their products help people behave as responsible consumers.

Danone, the company behind Actimel and Alpro, has an ambition to triple sales in its plant-based range by 2025. People are integrating vegan products into their diet for the associated health benefits and to reduce the environmental impact of dairy farming. In fact, soy is associated with 2.5 times less CO2 emissions, 2 times less land use and 4 times less water use than milk.  

Essity has launched a “more for less” range that uses fewer resources to deliver the same product performance. The tissue and personal care manufacturer can market its products for the same price as a non-sustainable peer but has lower input costs.

Enabling sustainability in B2B

Sustainability as a source of product differentiation is an even more powerful concept in business-to-business (B2B) where one company’s products enable another to create more sustainable products and practices.

A prime example of this is Sika, a chemicals company that serves the construction and automotive industries. Sika ViscoCrete enables construction companies to reduce the water content of cement by 40%. Sika Power is an adhesive that is used in place of welding for the construction of cars. It allows carmakers to make lightweight and electric vehicles, both of which drastically reduce CO2 emissions.

Interestingly, Sika is one of those rare companies which has not had to adapt its product offering to claim a sustainability benefit; instead, the current societal sustainability awakening simply means they can shout louder about a feature their products have always offered.

Bunzl is a supplier of not-for-resale consumables – think disposable tableware, gloves and reusable grocery bags – to businesses such as caterers, supermarkets and contract cleaners. Around 35% of the products it supplies are made from plastics. Segmenting this down further still, 10-15% is single use. As public and regulatory sentiment around single use plastic has changed, Bunzl’s customers face the challenge of sourcing products free from single use plastic.

To help them through this transition, Bunzl has developed a sustainability scoring system, based on factors such as recyclability, to show customers how sustainable current and prospective products are. After helping customers understand the problem, Bunzl completes the process by providing them with eco-friendly solutions which generate a higher profit margin because of the additional value provided.

Another B2B business is AkzoNobel, a decorative paints and performance coatings manufacturer, which has an “eco-premium” range which accounts for 20% of sales. In the company’s words, these products offer a solution that is better than those of their competitors from a sustainability criteria which encapsulates toxicity, energy use, emissions and waste, among other factors. As a result of the additional value they offer customers, eco-premium solutions sell at higher margin to the rest of AkzoNobel’s product range.

Could sustainable products lose their edge?

As companies use the growing awareness of sustainability as a basis to differentiate their products, it is worth pausing to consider the resilience of any associated pricing power (i.e. the ability to charge higher prices). In a world where sustainability continues to grow in importance, it is quite conceivable that sustainable products become the norm and the edge these companies now enjoy dissipates.

To discern whether any “green” advantage is sustainable, it is important to thoroughly assess how differentiated a company and its offering is, and how much of a competitive advantage it can create relative to peers over the long term. 

Important information 

Any references to companies is for illustrative purposes only and not a recommendation to buy and/or sell. 

The article is not intended to provide, and should not be relied on for investment advice.

Information and opinions contained herein are subject to change.