This week at COP, businesses and world leaders have been lobbying for their preferred outcomes. Expectations for the current session are perhaps lower than for any recent COP, which may not be unexpected given some of the geopolitical issues we are all facing into – nevertheless, this should be a cause for concern.
Climate change is with us, and the sooner we understand and prepare for the ramifications, the better. The Institute is about to begin its own research into the business impact of climate change, which will look at this from two angles:
1) The impact: for instance, how prepared are businesses for more frequent and intense heatwaves, and extreme weather events, and their impact on infrastructure, food supply disruption and insurance risk – all of which affect the customer experience?
2) Being seen to do the right thing. Consumers will become increasingly critical of businesses seen to be contributing to climate change, and reward those seen to be doing their bit. This goes well beyond fossil fuel companies themselves and traditional targets such as airlines. AI for example uses significant amounts of energy and water, and the tech sector will be under pressure to minimise its impact on the planet, as will any businesses with prominent AI deployment.
Sustainability is an essential part of the wider ethics in the eyes of customers
Our Work with A Purpose research shows 33% of customers cite specific ethical factors as most important when deciding to use or continue using an organisation – they want to buy from businesses which generally do the right thing. While there seems to be less enthusiasm for the ESG agenda in the business and political spheres, for customers this is mainly manifesting itself in expecting organisations to be seen to do the ‘right thing in the round’ – covering their approach to business practices, their governance and ethics, how they treat employees vulnerable customers, societal impact and the green footprint.
Some sustainability practices are being primarily led by regulatory or legislative means. In the EU, the Corporate Sustainability Reporting Directive and the Corporate Sustainability Due Diligence Directive require in-scope organisations, including UK companies doing business in the EU, to track and take steps to mitigate carbon emissions and other environmental and human rights impacts in their supply chain.
Consumer expectations around ethical practices
As well as regulators across the globe, consumers still expect brands to act responsibly on environmental issues. YouGov found last year that 64% of UK consumers are willing to pay a premium of up to 10% for sustainable products, while 26% indicated they would be willing to pay 25% more.
For a growing number of consumers, buying decisions are influenced by a brand’s environmental impact, labour practices, and broader corporate responsibility. Companies that fail to meet these expectations risk alienating consumers, particularly younger generations.
Our research has found that one in three UK consumers take payment practices into account when choosing to buy from an organisation, including paying employees a living wage and paying people equally for the same roles, regardless of gender. In addition, 29% actively prefer to shop at a business which uses local suppliers.
Simply put, sustainability and ethical practices are no longer a “nice-to-have”, but a critical element of how brands are perceived in the market.
The strategic importance of sustainability for the long term
So, what should organisations do? An absolute non-negotiable is to ensure that any environmental or ethical claims they make are credible and verifiable to maintain consumer trust.
Leaders should also think carefully before rowing back on any public sustainability commitments, and where they aren’t already, consider carefully the long-term benefits of more environmentally friendly products and ethical business models.
Despite some short-term political challenges, there are benefits for companies that stay committed to sustainability. These include enhanced brand loyalty, increased consumer trust, and the potential for increased market share.
Being seen as a responsible brand will contribute to long-term success in an increasingly conscientious consumer-led market.
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