Adopting Sustainability Strategies for Success in Europe

Join two of our sustainability experts, Inga and Jorge, to explore this fast-changing landscape and find solutions to improve your strategic initiatives. 

Businesses are under pressure to align with ambitious climate goals and ensure transparent, responsible corporate action. Europe is at the forefront of regulatory change, but companies often struggle to keep up with rapidly evolving policies and demands. And identifying the right sustainability approach to succeed in the region becomes an even bigger challenge.

In this conversation, you’ll gain strategies and insights that can help you uncover opportunities in sustainability.

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Transcript

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Sustainability is a fast-moving target, growing more complex and regulated daily. As your business pursues sustainability, keeping up with challenges and requirements can be overwhelming. I'm Inga, and I help clients to navigate sustainability challenges as a consulting partner. And I'm Jorge, and I lead Euromonitor's Sustainability Global Research. With COP29 conference taking place this November, which will focus on curbing global warming, adapting to climate change and finding the funds to make it all happen, it's clear we're in an era of significant change. So today, we'll delve into the evolution and increasing complexity of sustainability, the importance of transparently demonstrating corporate climate action through substantiated communication, especially within the European market, and the potential solutions available to navigate this rapidly changing environment. Inga, I'd like to start by asking, as a sustainability consultant on custom research side, how do you perceive the sustainability landscape today in mid-2024? Yeah, so we have all seen how sustainability has come a long way, and it's a concept that isn't fading away. It is becoming more complex and heavily regulated. So for example, the most recent sustainability regulation adopted by the EU was the eco-design for sustainable products regulation, which just came into force in July. And it focuses on various aspects, including product durability, repairability, energy, etcetera. So, as we continue on this journey, the challenges and requirements for businesses are growing. And for brands, particularly those in Europe, or looking to enter the European market, sustainability is paramount. The influence of globalisation and stringent regulations from the EU means that brands must adapt to remain competitive. And this isn't just a trend. It's a critical aspect of modern business strategy. So I think there is no denying that Europe, particularly the European Union, leads in sustainability efforts. So new regulations are constantly being introduced, creating a challenging environment for companies. It's no wonder that many brands feel very uncertain about where to start. Only just over the past few months, we've seen several significant regulations implemented by the European Union, including the Corporate Sustainability Due Diligence Directive, which was adopted in June. And many more regulations are on their way, such as the packaging and packaging waste regulation. COP29 is also anticipated to bring, important developments for companies, such as aligning their sustainability strategies with even more ambitious climate goals. It will also emphasise increased transparency with new regulations requiring companies to provide more detailed and transparent reporting. So all these regulations present both challenges and opportunities for brands. And it's perfectly normal to feel overwhelmed by the breadth of sustainability issues. During the pandemic, many of us questioned whether companies would cut budgets for sustainability initiatives. And now, in this current, very uncertain situation, the answer still remains no. There is no turning back. We've transitioned from CSR to ESG, and now to a comprehensive approach, we call sustainability. So whether you are a retailer, manufacturer or service provider, the core challenges are very similar. To start, you need to ask yourself a crucial question: Do you want to lead, or are you comfortable following? And this is the point when the search for opportunities begins. Absolutely. And in fact, our Voice of the Industry Survey underscores the challenges many businesses face in communicating their sustainability efforts. So even though 74% of corporations worldwide perceive climate action as an important or very important business concern, and 60% have already implemented a sustainability strategy. Just a mere 10% believe they are effectively conveying these strategies to their consumer base. As a consulting partner, could you share some insights around the solutions that you're developing to assist clients in overcoming these sustainability obstacles? Sure. So, solutions we develop, they are tailored to the specific needs of our clients. But three are particularly relevant here that help uncover opportunities. So for companies looking to lead the way, we identify emerging sustainability trends, and we help activate them within their operations. This also includes understanding the latest developments and integrating innovative practices to stay ahead of the curve. For those preferring to follow established practices, we conduct thorough industry benchmarking. So this helps clients to understand, first of all, where they stand compared to competitors, and secondly, identify best practices they can adopt to improve their sustainability performance. And thirdly, we also analyse consumer behaviour and attitudes towards sustainability, providing insights that help our clients to shape their strategies. So this involves deep dives into market research to understand what drives consumer decisions and how brands can align their practices with consumer expectations. But let's explore some case studies to see how this works, how these solutions work in practice. So one of the FMCG manufacturers used our trend activation insights to improve its waste management and increase the secularity of its manufacturing processes. So by leveraging our internal database, as well as expertise and interviews with experts, we were able to address the question: What trends and developments can help them to shape the waste management? We also analysed the driving forces behind these trends, so including regulatory pressures and consumer demand. And finally, this comprehensive analysis not only highlighted the implications and opportunities these trends present, but also help the client shape their strategy and build a robust innovation pipeline for the next 5-10 years. And as a result, the client is now one step ahead in the rapidly evolving regulatory environment in Europe. Indeed. I think sustainability extends beyond merely adhering to stringent regulations and satisfying consumer demands. It can actually act as a driving force for increasing value. In fact, according to our Sustainability Claims Tracker, which I'll show later, products carrying at least one sustainability claim outperformed those without in nine of the 11 covered industries based on retail value sales, compound annual growth rate from 2020 to 2023 period. It's really important to find the right opportunities, but not every business can afford to be that trendsetter for their whole industry. Right. So not everyone is willing to take on the risks and costs associated with being a pathbreaker. And this is why we conduct industry benchmarking. So whether you are in manufacturing or service, you can look for best practices across the industry in Europe. And one of the leading manufacturers utilised our industry benchmarking services to overhaul their sustainability targets. By adopting best practices identified through our analysis, they not only improved their internal sustainability management, but also were able to revise sustainability related solutions for their product portfolio to be aligned with the regulatory environment in the EU. So these insights gained from this analysis enabled more informed strategic decisions about investment allocation. It's actually wise to handpick top-notch strategies and practices from industry trailblazers and implement them, significantly reducing risk exposure and, of course, costs. Now to effectively communicate sustainability to consumers, it's also important to include their perceptions and behaviours into the equation. This is why the third most common solution is for those who are trying to validate hypotheses or perceptions based on consumer expectations. So one of the consumer goods companies sought to understand consumer awareness and consciousness regarding plastic recycling, assess whether plastic recycling could also enhance brand value and determine the premium consumers might associate with the brand's sustainability efforts. And as a result, our consumer behaviour analysis guided the company in the development of an efficient recycling system. The project outcome also included a priority map for eco-friendly solutions, which helped the client refine their sustainability management direction and strategically enhance their brand's value through effective recycling initiatives. In general, I would say that packaging and waste management are among the top priorities for both regulation developers and our clients. Sustainable packaging is indeed a trending topic right now. And most notably, in Europe, as businesses attempt to adhere to the upcoming Packaging and Packaging Waste Regulation as you mentioned before. This regulation will require businesses to reconsider their packaging strategies with a circularity focus. So this could include setting goals for reducing packaging, minimising unnecessary packaging, enhancing the usage of reuse and refill formats and achieving minimum recycled targets for plastic packaging as well. But can you leverage and share your perspective on packaging here? What trends, and maybe or developments are helping businesses to enhance sustainability communication? Sure. So beyond complying with stricter regulation, sustainable packaging can also be an effective way to transparently communicate sustainability, as it's a key customer touch point that can affect consumer experience and their perception of a brand. In fact, 49% of European professionals said their company is currently investing or planning to invest in sustainable packaging. I think it can be a tangible way to demonstrate corporate commitment to reduce environmental impact as well. For instance, stating how many bottles do this refill option saves or the emissions reduced from a lightweighted packaging format or the percentage of virgin plastic repurposed to build certain type of bottle are good ways to communicate on such efforts. Particularly in Europe, corporate new product development plans are topped by launching products that carry sustainable packaging claims. This goes pretty well in line with consumers' behaviour and awareness around this key topic. As per our consumer survey, half of European consumers recycle, and almost 40% use sustainable packaging to have a positive impact in the environment. Furthermore, almost a third of them recognised to have recently purchased products carrying sustainable packaging claims. So this is, these type of claims resonate a lot with European consumers. Now moving from survey to a more tangible metric, our Sustainability Claims Tracker, an AI powered database which captures and classifies information for products with 70+ sustainability claims across 25 countries and 11 industries, shows that companies aren't only planning or stating to act, but actually widely incorporating such claims into their portfolios. In the chart, which is showing data for 11 industries across eight European markets, we can see that sustainable packaging is not only the second largest attribute group in the region in terms of value sales, but also it's the attribute group that had the largest market size increase in the 2020 to 2023 period. Now when talking about sustainable packaging in Europe, we can clearly see how relevant is curving virgin plastic use for businesses operating in this region. In fact, our consumer survey data states that 9 out of 10 European consumers consider plastic unsustainable, making it the least desired packaging claim, while half of them reduce plastic use to lead a more sustainable life. Therefore, it is important to deep dive into which specific attributes are driving sustainable packaging growth. So in our system, 11 single attributes compose the sustainable packaging group. Most brands are leveraging on claims that communicate on their packaging features related to circularity, as you can see on the left hand side of the chart. In particular, they are strengthening their sustainability credentials by using From Sustainable Sourcing, can be recycled, and from recycled materials claims. Now it's also worth noting that brands are also communicating sustainable packaging through more specific and even certified claims to transparently demonstrate their tangible efforts around reducing environmental footprint. For instance, smaller but fastest growing claims, like compostable, packaging are more relevant in the food and drink space, while efficient optimised packaging resonate more for retailers. And for stewardship console, FSC-certified claims are rapidly gaining relevance overall as many brands are switching from plastic to paper packaging. Now let me share two interesting examples around some of the leading brands that are growing sales sharply while expanding their portfolio of products with reduced virgin plastics and increased recycled materials used to cater with the upcoming legislation. First, let's take a look at laundry care in Europe. And this, I think, is an interesting category where plenty of players are indeed innovating around shifting away from virgin plastic use through alternative materials. The chart shows sales for laundry care products carrying from recycled materials claims in Europe. Where the gray line shows laundry care category sales, total sales category of products carrying such claim in the left axis, and green shows Ariel sales of laundry care products carrying the same claim, which is stated in the right axis. We can see that Ariel is the leading brand and and carrying this particular claim and showing sharp sales compound annual growth rate of 62% from 2020 to 2023. This is mainly an in part and big part driven by the expansion of their all-in-one parts across Europe, which comes in, their EcoClick box, which is a mixture of at least 70% recycled fibres and virgin cardboard sourced from FSC-certified forests. Well, our next example focuses on beauty and personal care industry. This is an industry with plenty of scrutiny around sustainability, where reduced burden plastic use is also a key challenge for most players, which are also expanding their refill offer. In this case, we're looking also at category and brand sales of products carrying the same claim from recycled materials, but for the hair care industry in Europe. We can see how Kérastase sales started to consistently grow with a compound annual growth rate of 50% from 2020 to 2023 as they launched and keep expanding their shampoo refill options, which consists of a reusable shampoo bottle made entirely of recycled and recyclable aluminum and a shampoo refill pouch made with 82% less plastic compared to two 250 ml shampoo bottles. Now this example is interesting, is a good start, but they do have the same, challenge remaining challenges most BPC players, which is to close the circularity loop, by providing from recycled materials, refill pouches, but pouches that also can be recycled, right? So these were just two of the many brands innovating around sustainable packaging, which allows them to increase their products value proposition while demonstrating through tangible solutions how they want to be part of the solution. Sustainable packaging continues to pose a challenge, yet it also provides a valuable opportunity for demonstrating commitment in Europe. So this opportunity extends from leading industries like soft drinks and tissue and hygiene, where 20% of SKUs feature at least one sustainable packaging claim to the consumer health sector where this percentage falls to just 2% of the digital shelf. Great. Great examples. We shared a ton of insights, case studies and data with you. Let's leave you with some actionable takeaways and recommendations. Jorge, want to kick us off? Sure. So as we discussed, sustainability is a journey, and consumers are expecting to see corporate climate action. With 53% of European businesses planning to develop sustainable products in the next five years, reinforcing sustainability communication is really key to remain competitive and relevant amidst, stricter legislative scenario. Where sustainable packaging can be a good starting point for brands that are starting their path and a good complement for other companies that are already communicating different sustainability features, such as safer or more natural ingredients. So it's not enough just to claim it. Brands need now to convince consumers and, of course, regulators about the real positive impacts or environmental impacts reductions their products actually have with authentic and transparent messages. So making those impacts more tangible, like, as I mentioned before, showing how many bottles of plastic I am saving by using this refill option, can build brand reputation and, therefore, consumer awareness. I will add that to navigate the fast, evolving landscape of sustainability, we recommend focusing on short-term goals. So start by learning from industry pioneers who have successfully implemented sustainable practices. Additionally, explore innovative solutions globally to stay ahead of the curve. And finally, actively listen to your customers' sustainability expectations and feedback, as this will help tailor your strategies to meet their needs and drive business growth. Sustainability is here to stay, and its importance will only continue to grow. Whether you choose to lead or follow, there are solutions to help you succeed.