The Business Case for Sustainability: Attracting Customers and Engaging Employees

The Business Case for Sustainability

Numerous research studies and analyses have demonstrated that doing good aligns with doing well in business. Evidence suggests that a strong commitment to sustainability yields positive outcomes across different facets of business, including the ability to create demand, attract and retain talent, access capital, improve operational efficiency or reduce costs. 

In this article, we use data collected from our own business, research-tech platform Glow, to quantify the value in the first two areas, driven by people. Glow estimates that within the U.S. food and grocery sector this year alone, these two factors collectively constitute over $9Bn in value (revenue and cost).

Consumers Are Choosing Better

Consumers today are increasingly factoring sustainability considerations into their decision-making process, especially in specific product categories and grocery departments. For example, data from Glow shows one in two US food and grocery buyers say they’ve switched brands recently based on sustainability considerations. In parallel, data from NIQ highlights that sustainability concerns are on the rise; seven in ten US consumers indicated that sustainability was more important to them now than two years ago.

This demonstrates that even in challenging economic conditions, consumers continue to prioritize sustainability. This concern directly impacts their choice of products and brands, leading to winners and losers as consumers shift their spend away from brands that appear less committed to doing better for people and the planet.

Making Sustainability the Default Choice

We're not suggesting that sustainability overrides all other considerations. Price and quality remain dominant decision drivers for most consumers, but sustainability is in the top 3 decision criteria for 1 in 5 consumers and even more important for younger consumers.

Consumers won't choose an inferior, overpriced, or inconvenient product just because it's sustainable. However, they are increasingly seeking sustainable choices within a specific price and/or quality range, with sustainability becoming an ‘and’ choice not an ‘or’.

This influence adds up. Glow measures sustainability perceptions across hundreds of businesses and brands using our Social Responsibility score (SRS) metric and, through combining this with sales and behavioral data analyses, has modeled the impact of sustainability on brand choice and revenue growth.  In the U.S. food and grocery category alone, Glow estimates that $9* billion in sales this year will be driven by consumers switching from underperforming brands to those perceived as sustainability leaders. 

This data underscores the importance of regularly benchmarking your brand's sustainability credentials to ensure you are stacking up against competitive choices, either by conducting specific studies or integrating robust and comparable sustainability metrics into ongoing brand tracking. The brands that fail to gauge their customers' and prospects' opinions risk losing customers or leaving money on the table.

Better Businesses Are a Talent Magnet

Sustainability perceptions also influence a company's appeal as an employer, especially to younger people. Contributions to the community, environmental considerations, and treatment of employees and suppliers genuinely matter. This influence impacts both talent acquisition and employee retention.

While factors like pay, benefits, and recognition remain the most influential in employees' decisions to stay in a role, sustainability-related considerations are becoming more important, especially in a tight labor market. In the U.S. there are nearly twice as many job openings as there are workers to fill them. Consequently, how an employer treats their employees and those around them matters more than ever. Sustainability factors may not override basic necessities, but they do have a substantial impact on employee retention, particularly when comparable opportunities exist.

Glow surveyed 1,026 US adult employees in July 2023 to understand how socially and environmentally responsible they thought their employer was, and then assessed the impact of that perception on employee retention. We classified respondents into two groups - those who rated their employer highly (an SRS of 60 or above) and those who rated them poorly (an SRS of 0 or below). The average employer rating was 51. 

The findings were clear. People who rated their employer highly on ESG performance were 25% more likely to claim they would stay with their current employer for at least the next 12 months, compared to those who rated their employer poorly.

In addition, those who rated their employer highly were also ten times more likely than those with a poor perception to recommend their employer to family and friends (measured via a net promoter score of 9 or 10).

The findings show that the benefits of strong ESG credentials are two-fold. Employees are more likely to be engaged, reducing turnover costs, but also much more likely to advocate for the business, which may help attract quality talent and reduce recruitment costs. 

These findings are especially important in the current climate given the high cost of replacing staff. For example, there are approximately 5 million people employed In the U.S. food and grocery industry. Assuming 1 in every 3 unengaged employees who rated their employer poorly for ESG performance changed jobs, then the extra cost to replace these employees would be upwards of $200M per annum, and potentially as high as $1.5Bn.

   

Differentiating through doing better

Sustainability is not just a nice-to-have concept; it has a direct impact on a business's bottom line. Failing to meet sustainability expectations can result in a loss of both customers and employees, which may not be immediately apparent but can have a significant impact in the long run.

In the US food and grocery industry alone, sustainability-driven choices are predicted to generate over $9 billion in sales revenue this year. On the other hand, employee turnover due to concerns regarding their employer's ESG/sustainability actions is estimated to cost businesses at least $200 million. It is important to note that this data only pertains to one industry and isn't even among the top 10 largest industries in the US.

To assess the risk from sustainability perceptions, businesses should evaluate their performance with stakeholders, particularly customers and employees, because long term business success depends on keeping them happy.

Research notes:

*Estimated using Glow’s Social Responsibility Score (SRS) brand performance metric, combined with multiple switching research studies and analyses using over a trillion $ in sales data to calibrate the scale of sustainability driven switching.    

** cost to replace = average salary ($26k) X replacement cost (30%-200% pending seniority) for range of $26k-$52k

*** Extra quitters % = Undecided (% undecided in low SRS group 21%- % undecided in high SRS group 9% = 12%) x Sustainability motivated Leavers (33%)

Calculations:

Option 1 (30% cost to replace)=26*30%*5m*14%*4%=$218M

Option 2 (200% cost to replace)=26*200%*5m*14%*4%=$1.46B