Take investors, for example. For a long time, investors either didn’t care about social and environmental performance or actively discounted companies that took action. In fact, research has shown that for years investors penalized a company for being environmentally and socially active. But that’s no longer true. For example, finance firm Lazard studied 16,000 equities over a period of four years and discovered that investors drove down the P/E ratio of firms with higher GHG emissions.

When it comes to employees, even more has changed. First, big companies’ employees are increasingly concentrated in metropolitan areas and, second, they’re increasingly looking to recruit from the Gen Z and Millennial generations. Since both residents of metropolitan areas and younger people are more likely to be concerned about social environmental issues, that means companies who want to recruit them have to be also.

Customer expectations and preferences haven’t stood still either. NYU’s Stern School of Business studied tens of thousands of products over a six-year period and found that those marketed with sustainability claims grew faster than those without. McKinsey and Nielsen IQ conducted a different study covering 600,000 products representing over $400 billion in annual sales—and found the same thing. And my own company, Valutus, has collected over half a million data points on four continents showing the causal connection between environmental and social attributes and customer preference.

Until now, measuring sustainability’s impact on consumers has mostly been short on fact and high on emotion. We want consumers to care about sustainable products and responsible businesses and to demonstrate that when they purchase. But do they?

Northeast River Supplies (NRS), one of the largest paddling and water-sports outfitters in the world, asked Valutus and Triple Gap for some clarification on this very point.

NRS has been a sustainability and social responsibility leader for years but refrained from using that as a selling point. They’d been working hard to reduce and improve packaging, to source sustainable materials, and to do right by stakeholders, planet, and social fabric, but had never shouted out those facts. Even when their retiring founder elected to convert NRS to 100% employee ownership rather than sell to outside investors, they kept it low key. (Look, we get it: we agree people should do the right thing because it’s the right thing to do.)

Photo by Daniel Aronson

Even so, recently NRS began to wonder what might happen if consumers knew of their values, their commitment to doing the right thing – just because it is right? Would that increase revenues? And could they learn how much value the market places on brand-level commitment vs. product-level initiatives?

Now, we at Valutus have always believed – and have shouted long and loudly – that values create value. Not just value for the planet, nor even for the satisfaction of doing good, but value in actual, countable, spendable money. We’ve known from our previous research over the years that both brand and product-level awareness of sustainable commitment would have an impact on consumer choice. Here was a chance to add a great deal more evidence in a different market segment.

Photo by John Erlich

First though, we had to collect that evidence. We were able to contact an incredible 220,000 people, receiving some 23,000+ responses.

Partnering with Triple Gap, we contacted individuals on NRS’s mailing list to see just how much values mattered to them. We also compared the responses to those of representative US consumers who weren’t NRS customers, to see if there was a systematic difference.

This combination gave us reach both deep and wide to test whether communicating a given product or company’s sustainable / responsible nature made people more willing to buy.

We also wanted to learn how price sensitive preference for these attributes might be. Sustainable manufacturing and operations can come at a cost and, though NRS’s pricing is competitive with that of its peers, sometimes doing the right thing might mean doing the more expensive thing. If a price increase were necessary in some cases, could sustainability blunt the impact?

Source: Valutus and NRS

To find out, we used our Customer Science approach, which differs from traditional research by avoiding questions that may not be answered accurately, such as “would you be more likely to buy a sustainable product?” Instead, we had people choose between real products, with prices, reviews, etc. appended, though with no visible brand markings and little additional verbiage (in the course of collecting over half a million similar data points for others, we’ve tried with brand markings and product slogans as well).

We did this in two ways:

• Presenting consumers with a choice between one NRS product (e.g., a life jacket) and its top competitor
• Giving them a choice between identical products in different colors (e.g., commodities such as shirts)

Would adding sustainable qualities to one of the products or companies make a difference? Would more people select that one, all else being equal?

To find out, we added sustainable attributes to an item – such as being made from 100% recycled fabric, being Fair Trade Certified, etc. – in each comparison. Then we again had consumers choose.

Next, we did the whole thing over again – same products, same attributes – but we increased the prices of the recycled, fair-trade, and responsible versions. This enabled us to see the changes in consumers’ price sensitivity.

The results? Outstanding. As it turned out, adding any of these attributes generated a small, but significant, increase in preference. As expected, more traditional attributes such as style and color mattered much more, but when comparisons on those points are relatively equal, sustainability and CSR considerations can tip the balance.

Backpackers at Upper Gospel Lake, Idaho. Photo by N. Wassmuth courtesy NRS

Product Environmental and Fair-Trade Attribute

• When the “100% Recycled” attribute was added, preference for an NRS life jacket – already priced higher than its competitor – rose. Even after a price increase of more than 10%, the recycled life jacket was preferred as much or more than when neither was sustainable. The words “Fair Trade Certified” also lifted preference when there was no price increase and kept that lift even when the price was higher
   
• A different NRS life jacket saw the number of people choosing it rise significantly when either “100% Recycled” or “Fair Trade Certified” were included. Both also beat their original preference even after 10%+ was added to the price
   
• An NRS shirt with a lower starting preference score (i.e., its baseline was lower), was selected far more frequently when it was sustainable. Once again, even after an increase in price, the shirt maintained much of its preference gain

That is a far more abstract idea, and we needed to know what the impact would be. So we did another round, but this time we tested what happens when the manufacturer is an environmental or social leader.

Photo by Daniel Aronson

Company Social and Environmental Responsibility / Leadership Attributes

When the verbiage was about the company itself, rather than its wares and materials, preference increased again… big time. Below are a few examples:

• One NRS shirt saw a truly significant bump when manufacturer environmental leadership was present, and even a slightly higher one when social responsibility was tested
   
• A different NRS shirt saw preference rise by double-digits from environmental leadership, and by a slightly higher amount with social leadership included

Wow. When customers know a company and products are more sustainable, that lifts preference enough to make a real difference? This is good news – very good!

Okay, so now we know. When a product self-identifies as responsible or sustainable, people show increased preference for it. But what happens when, rather than the product, the company that makes or sells it is so identified?

Photo courtesy NRS

Where Do We Go from Here?

The question now is, what does all this mean in terms of revenue for an actual real-world company? The apparel market’s overall growth rate is forecast to be just over 5%, well below the preference gain we found. Consider the impact at scale if even a portion of a corporation’s offerings saw results like ours. It could add the low-hanging revenue they would have to work long and hard to achieve otherwise.

In the case of NRS, of course, no massive course-correction is needed, since they already care about doing business the right way. Still, though they’ve already earned their credibility, based on these findings, NRS is doubling down on its long-held philosophy that doing the right thing is doing the smart thing.

“We’ve always believed in the importance of doing business the right way,” noted NRS Marketing Director Mark Deming, “but it was still powerful to see that benefit quantified in sales-and-dollar terms. Working with Valutus, and using their Customers Science research method and InVEST financial valuation model, we were able to demonstrate the business benefit of values-based actions in a way that was both credible and actionable.”

Their task now is to build on what they are already doing and to communicate effectively with distributors and consumers, something that can be done with very achievable marketing changes.

“We’re using the results to shape marketing, product development, and strategic decisions,” Deming continued, “in order to build on our existing environmental and social commitments and get even more value from them.”

Photo by Tamara Bitter

For other companies, capturing the benefits we uncovered may involve truly leaning into sustainability to allow values to bring them value. But how much value? Will the results be worth the investment? The answer appears to be yes – the benefits will be much, much more than worth it.

Quantifying Value

As NRS’ Deming explained above, we ran scenarios using the Valutus InVEST model and found that the effect of people seeing a company’s values had a significant bottom-line impact. Doing good, NRS found, does indeed lead to doing well, if you tell people know about it.

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Note: NRS presented on this work as part of a panel on Consumer Preferences and Behaviors, in San Diego on Monday, October 18, 2021 as part of the 2021 Sustainable Brands conference.