The Rise Of The Responsible Consumer
Concerns about climate change raise serious questions about how sustainable our lifestyles are. Consumers can support sustainable companies through everyday purchases. In turn, responsible companies will be more attractive to investors in the long term. Credit Suisse's new report looks at why responsible consumerism is on the rise and which sectors it will disrupt
Consumerism has been an engine for economic growth in many parts of the world. Consumer goods make up a huge proportion of global trade. The sector's size comes at a cost, though. Sixty percent of global greenhouse gas emissions and 80 percent of freshwater usage originate from consumer products. The World Wildlife Fund described this as a looming ecological credit crunch.
Pushing our ecosystems to the brink
The way we make, produce and consume goods means we are exhausting natural resources. Our inefficient supply chains often end up polluting the environment. It's estimated that there will be more plastic in the world's oceans than fish by the year 2050. The system also builds in wasteful practices: every year, we throw away around one third of all food produced globally.
Our production system is highly inefficient. The consumer product value chain requires huge amounts of raw materials as inputs. Global distribution networks belch pollution. Add in the single-use culture for many consumer goods and a lack of recycling and it's not difficult to see that we are pushing our ecosystems to the brink.
The forces for change in a consumer society
Recognition of these facts has led to a new focus on responsible consumerism. Goal 12 of the United Nations Sustainable Development Goals seeks to ensure sustainable consumption and production. Achieving this goal would do more than save the planet.
It could also create vast new economic benefits. From secondhand fashion to plant-based proteins, a more sustainable consumer economy could unlock US$4.5 trillion in new opportunities every year.
Environmental damage is bad for the economy as well as the planet. The costs of unsustainable production models include the heavy toll of biodiversity loss and ocean dead zones. The time is ripe to disrupt how we make, consume and dispose of consumer goods.
What are some of the forces for change? Firstly, legal and regulatory pressure is on the rise. Ignoring the cost of environmental externalities like pollution in the price of goods is a classic example of market failure. And as with any market failure, governments can play an important role in fixing it. Since the 1970s, the world has seen a 38-fold increase in environmental laws. The consumer goods sector is finding itself under heightened regulatory scrutiny.
Secondly, consumers themselves are more tuned in to sustainability issues. Green concerns and ethical values motivate consumer behaviour for the Millennial generation. As they become an ever-more influential consumer group, demand for sustainable products is likely to increase considerably.
Investing for the good of the planet and financial returns
These trends will leave many consumer sectors ripe for disruption. Investors need to consider how to use their wealth more sustainably, for the good of the environment as well as for the long-term health of their portfolios.
The challenge is to identify which companies are acting in anticipation of regulatory and consumer changes. This means evaluating how companies get to grips with sustainability.
Business models that cater to responsible consumers will be better placed to face disruption. Investors in these companies will be better able to position their portfolios for the long term, and to do well by doing good.