How to Go Green

The Bubble Bursts

Clean energy shares have underperformed markedly since 2021. This followed five years of strong growth culminating in the flow of Covid relief cheques into green funds. The clean tech investment bubble then burst.

The underperformance is despite the Inflation Reduction Act of 2022, which may channel more than a trillion dollars into green-tinted initiatives. Reworkings of the UN model show a negligible impact from these initiatives on global temperatures. The reality is that if China and India don’t go green then sustainability in the West will have little affect on climate change.

This does not mean that we should not try. A youthful customer base demands a lot more than reduced carbon footprints and is admirably undeterred by the cynicism of its elders. So is the right way to go green to be a pathbreaking sustainability company, or to adapt what already exists?

Sustainability Still Matters

A recent survey of 6,120 consumers across six countries showed that sustainability still matters. While inflation has dampened some enthusiasm for sustainable options since 2022, over 70% of consumers consider environmental sustainability important. A similar percentage researches the claims of the brands they buy from and almost three-fifths believe everyday brands are guilty of greenwashing. The authors of the survey suggest a four-pronged approach to going green:

1. Target the right segments

Customers show particular interest in sustainability in automobiles and consumer goods. There is a willingness to pay a premium in these areas. It is essential to conduct market research to determine the customer appetite in your niche.

2. Meet expectations

Credibility is everything and in sustainability that means ethical sourcing, certifications and impact assessment reports. Claims are irrelevant when set against supportable facts.

3. Optimise pricing

Premium prices up front may be justified by long-term lower maintenance costs as well as positive impact on society. It is important to present a value proposition rather than to compete on price.

4. Share your story

Mission statements work to qualify clients, attract employees and open up partnerships. While hiring must focus on individual abilities rather than being on-message, there are several steps you can take after hiring to create a cohesive culture. A consistent narrative that moves you from mission to impact is a necessary feature of marketing and internal messaging.

Ripe for Change

The lesson I learned from being part of several startups is that you do not create demand overnight. What you believe to be a brilliant new idea is worthless until market tested. You also have a far greater chance of success if you eat your own cooking. Impact assessment companies, for example, must publish their own progress towards targets to maintain maximum credibility.

For this reason, I believe it is easier to adapt products with proven demand than to launch new sustainable versions that require additional distinguishing features. It’s Christmas time and I note the festive best-selling sweet brands – the tubs you only ever buy at this time of year – advertise recyclable wrapping. At a stroke this eliminates challenger brands that use sustainable wrapping as their means of market entry.

Almost every industry has a weakness that can be exploited by challengers. Tea bags, for example, release microplastics into the bloodstream, which is an issue I expect to matter more to consumers in 2025. It will take time for incumbents to adjust supply chains, but I expect most to react by this time next year.

Whether challenger or challenged, sustainable sweets and tea production should focus on everything from the supply of raw ingredients to the impact of packaging. A narrative around each element helps differentiation from big brands where consumers are cynical about companies’ claims. The message from investors is, however, be a chocolate or a tea company first, demonstrate demand for your product and use your sustainable edge to justify the price premium.

Questions to Ask and Answer

1. Do you have a sustainability policy you are happy to publish?

2. Are you prepared to share progress towards sustainable goals?

3. Does every aspect of your product back up the sustainable claims you make?

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