Consumer purchasing power is driving market change towards sustainable goods and services. The trend for sustainability is expected to grow over the next decade and, as trends emerge, market share is up for grabs.

Sustainability is a growing trend

According to the PwC 2024 Voice of the Consumer Survey, despite cost-of-living pressures, some consumers say they are willing to spend nearly 10 percent more, on average, for sustainably-produced or sourced goods. Forecasting experts calculate that the purchasing power of sustainability-savvy Millennials and Gen Z will surpass that of Boomers around the year 2030, with up to $68 trillion in wealth transferring from Boomers to these younger generations by the end of this decade. In fact, research indicates we have reached a tipping point for sustainability becoming a ‘baseline requirement for purchase’.

Consumers are not the only source of pressure on FMCG businesses to demonstrate environmental stewardship. Global regulatory mandates, financial reporting and investor expectations are also driving change supporting a shift in the flow of capital away from climate-and-nature-negative outcomes towards positive climate-and-nature activities.

Challenges facing the FMCG sector

Nature is high on the business agenda for FMCG companies that depend on a consistent supply of natural resources essential for their products. The business operations of many of these organisations can have significant consequences for land use, water scarcity, soil health and biodiversity, all of which increasingly feature in global regulation.

Food and FMCG industries produce more than one third of global emissions, mainly from their upstream supply chains. Analysis suggests that, of the 527 million FMCG products sold daily, plastics and packaging can account for 12-16 per cent of consumer companies’ total emissions.

The volume and turnover of FMCG products creates a significant amount of waste. In fact, $2.6 trillion worth of material in fast-moving consumer goods, which accounts for 80 per cent of the material value, is thrown away and never recovered every year. Addressing carbon reduction requires finding solutions to the problem of waste.

Addressing sustainability requires spending and organisational change, presenting a significant hurdle for many companies. However, ignoring the drive towards sustainability increases business risk. Organisations slow to respond, or too quick to make sustainability statements lacking an evidenced and data-led transition strategy, risk being held to account by regulatory bodies, potentially facing financial penalties, reputational damage and the associated loss in business value. Laggards will lose share of market and experience revenue shocks as consumers choose to buy alternative sustainable options.

Further, corporates are increasingly subject to litigation that can be costly and lead to loss of brand value. In January 2023, the FMCG sector attracted the attention of the UK Competition and Markets Authority (CMA), which announced plans to investigate ‘green’ claims made by FMCG organisations that could mislead consumers and go against relevant consumer protection law. Several Unilever brands were chosen for the investigation, which is still ongoing. If a company is found to have breached consumer protection law, the CSA can now fine businesses up to £300,000 or ten per cent of their global annual turnover.

Solutions to reduce plastic use, boost sustainability and cut costs

While progress to reduce plastic use for many FMCG corporates has been slower than hoped, with some sector-leading brands reported to be reappraising targets, while struggling to find solutions to their plastic use, reducing or changing the design and materials of packaging can make business sense.

Global drinks giant, Diageo, has responded to a surge in consumer demand for more sustainably-packaged products by collaborating to invest in R&D to explore different material options. In 2024 the company announced its work on lightweighting glass “continues to reduce costs and carbon”.

FMCG companies taking steps to increase sustainability are exploring a range of approaches to packaging, including refills, deposit return schemes, changing materials to boost recyclability and reducing packaging used. When global furniture retailer IKEA cut the packaging of a series of sofas by 50 per cent in 2010, it decreased the number of delivery truck loads by almost 8,000 during one year, and consequently made savings of millions of euros. A similar approach to the packaging of a swivel chair resulted in savings of €1.2 million per year.

Sustainability as a business imperative

Making sustainability a business imperative makes financial sense. According to McKinsey Quarterly, environmental, social and governance (ESG) links to cash flow in five important ways: (1) facilitating top-line growth, (2) reducing costs, (3) minimising regulatory and legal interventions, (4) increasing employee productivity, and (5) optimising investment and capital expenditures.

The financial benefits of sustainability are increasingly evident: lowering greenhouse gas (GHG) emissions mitigates against future carbon costs; reducing or changing packaging materials can decrease transportation and energy costs; and eliminating waste through more circular business models can deliver savings and operational efficiencies. The FMCG companies that get ahead of the sustainability curve today will position themselves to be the sector leaders of tomorrow.

  • Download our latest Transition Risk Series discussion paper, Market trends: sustainability as business opportunity in FMCG. The paper includes a detailed case study of a fictional global FMCG company, Haven, representative of a similar-sized company in the FMCG sector, to explore the risks and opportunities of re-thinking products and packaging on the journey to achieve profitable sustainability for a net-positive future.