How Millennial Consumers Can Help Make The World A Place We All Want It To Be
How can millennials exploit the same ESG information to help them make more value-based purchasing decisions of consumer goods?
As Environmental, Social and Governance (ESG) criteria begin to influence, in an increasing amount, investment decisions, how can millennials exploit the same ESG information to help them make more value-based purchasing decisions of consumer goods?
Millennial Values Are More Than Just Hashtags
Globally over 65% of the population own a mobile phone with social platforms boasting a user base of over 3.8 billion people. Social connectivity has enabled users to become consumers of content and products being served on their screens by big brands. This development has also influenced how they live, think and shop online.
One of the biggest consumer sectors is the Consumer Staples industry that comprises of companies primarily engaged in producing food, beverage, tobacco, household and personal products as well as retailing and distribution. This sector is usually less vulnerable to economic turmoil with global brands such as Unilever, PepsiCo, Procter & Gamble etc. being the big players.
With a market cap of over $4 trillion it is one of the biggest sectors in the world even with the current economic downturn due to the pandemic. The industry still saw a 4.15% earnings growth in 2020 Q1, which some analysts have attributed to the shifting demographics of consumers, with millennials and Gen Z making their mark. A reminder that Millennials are the generation born between 1983 and 1994, while Gen Z are those born between 1995 and 2002.
These two generations represent about $350 billion of spending power in the US alone (approximately $200 billion for millennials and $150 for Gen Z). Not bad for a generation deemed too stingy and cost saving by most marketers and industry analysts. When it comes to purchase decision-making for this generation, they are driven by more than just the price points, quality and brand name.
Social and environmental issues are now more than ever on the front of their mind. They strive to ensure their own social and environmental footprint is friendly and want the brands they support to value the same issues as they do.
While millennials are considered to have a greener focus, 9 out of 10 Gen Z consumers believe companies have a responsibility to address both environmental and social issues. According to Nielsen, 85% of millennials believe it is “extremely” or “very” important brands implement programs to actively improve the environment. This trend does not stop at just consumerism, this generation’s investment trend looks the same. Millennial investors are nearly twice as likely to invest in companies or funds that target specific social or environmental outcomes.
Approximately 15% of millennials indicate they would rather purchase products from a sustainable brand, compared with 7% of non-millennial investors. 17% of millennials indicate they seek to invest in companies that use high quality ESG practices, compared with 9% of non-millennial investors.
Positive Change Through Millennial Consumerism?
Clearly the next big consumer generation does value what a brand stands for on social and environmental matters. Companies are actively changing their strategies, product designs and policies to address the values that their next generation customers deem important.
The biggest challenge is how these consumers can walk up to a store aisle, look up products and be able to compare them based on their performance on social and environmental issues. With the same transparency and ease customers have when comparing prices between products. They can then buy a product that aligns with their social and sustainability values, compare similar products on their performance and even scan a QR code to get a dashboard with more information on the brand and indicators used.
An informed consumer is an empowered consumer, using their purchasing power to send a clear message to brands to do more for the society, environment and workplace.
The most available metrics that can address this demand are the Environmental, Social and Governance (ESG) metrices. ESG has been used by industry investors to help identify companies with a strong sustainability footprint to invest in.
If this information is good enough to help investors spend money to invest in companies, it should also be good enough to help inform consumers on how well their companies perform on sustainability and social indicators.
A few months ago, while working on a team project we were able to create a demo/pilot dashboard that captured important ESG indicators for millennials and gave grades and ranked some of the top 39 Consumer Staples brands. We started of with 137 ESG indicators and conducted a focus group discussion with 18 students from the Technical University of Munich to establish the core ESG indicators that they value the most.
We wanted to get an insight from millennial consumers what values they want the brands they support to also value. This narrowed it down to 34 indicators, 15 Environmental, 15 Social and 4 on Governance.
Then using the data from the Data on the 34 indicators for the 39 companies was extracted from the Thomson Reuters Datastream. To get comprehensive data points, we selected reported data for the year 2018. ESG scores were established using the Thomas Reuters ESG scores methodology and eventually we used these scores to create a dashboard that grades, ranks and compares the 39 companies performances on social and sustainability metrics.
The idea was that one day we shall have “sustainability” labels on consumer brands that are standard across the sector and comparative power. Currently so many brands are pledging their sustainability and social efforts, but most of it is greenwashing, corporate feel good statements and not enough action. It is hard for a normal person to get enough accurate and relevant information on brands and even harder to compare two brands on their performance.
An ESG grading system which applies labels on products would bring much needed transparency to brands and help consumers make conscious and value-based decisions on their purchases.
Flipping ESG information from just being used by investors to also being used by consumers would also push brands to improve their investment and strategies on addressing the values that consumers have.
