Green products or green organisations? The climate/consumer conundrum
Article based on research by Marco Bertini (Esade), Stefan Buehler (University of St. Gallen), Daniel Halbheer (HEC Paris) & Donald Lehmann (Columbia Business School)
"How dare you continue to look away?" This question angrily posed to world leaders by teenage climate activist Greta Thunberg brought the climate change debate sharply back into focus at the 2019 UN Action Summit in New York.
Of course, reducing greenhouse gas emissions has been on the world agenda for decades (197 nations formally committed to reducing carbon emissions at the Rio de Janeiro Earth Summit in 1992). But public opinion has reached a point where "business as usual" is becoming increasingly difficult to justify.
However, there’s a conundrum faced by firms who want to reduce their impact on the climate: green products and their popularity with consumers can lead to an increase in sales and, with it, an increased carbon footprint for the organisation as a whole. It falls to the marketing managers to help address the internal conflict between product managers and those who are responsible for carbon management at an organisational level.
"Marketing professionals play a critical role here because they represent the voice of consumers among internal stakeholders," says Esade Associate Professor Marco Bertini. "They sense changes in preference and champion them within their firms."
There’s also a second element at play in the drive towards carbon neutrality: climate concerns reduce profitability.
In both regards, says Professor Bertini, the role of marketers is crucial. "Specifically, they can channel climate concerns back to the firm, along with their impact on product design and prices, the climate impact of the firm, the profitability of carbon offsetting, corporate social responsibility, and green technology adoption."
With such a wide remit to take on board, Professor Bertini has guidance for managers who are balancing consumers' climate concerns with stakeholders' business goals.
1. Calculate a carbon footprint
Media coverage of climate change, particularly the need to reduce the carbon footprint of an organisation, is shown to motivate consumers to make more sustainable consumption decisions. Following a particularly bad press, the airline industry has been very public in its commitment to carbon offsetting. EasyJet claims to offset the carbon emissions of fuel for each of its flights and British Airways promises the same for all its domestic flights. In the US, JetBlue is the first major airline to pledge to reach net zero.
The experience of airlines translates to a vast array of organisations in the manufacturing and service industries. Measuring the climate impact of their products or services in carbon dioxide equivalent emissions is a powerful metric, and very much in line with the UN’s "measure, reduce, offset" approach in its Climate Neutral Now initiative.
2. Decrease footprint, increase price
Changes in the carbon footprint may increase costs, but they can also increase demand. If the demand-enhancing effect of lowering the carbon footprint of a product outweighs the overall reduction in carbon footprint, the firm can fall victim to its own success.
The firm could purchase carbon offsets, but that would have a further impact on profitability. In order to become "net zero" it may be optimal to increase the product price to offer a climate-neutral product. In this case, going net zero is a win-win strategy: climate impact decreases, profit increases.
3. Be proactive with product design
The climate concerns of consumers provide an incentive for firms to produce greener products. But governmental regulation of carbon use in industrial design with market interventions such as carbon caps (consumption-based accounting and policy), cap-and-trade systems (regulations that limit industrial emission levels) and carbon taxes all reduce profitability.
However, while there are costs associated with climate regulations, they can also present opportunities. Investing in green technologies can reduce the cost of compliance and also generate income by selling the technology that is developed.
Setting an internal carbon price – a shadow price that reflects the true overall cost of production – allows firms to design products or deliver services that achieve carbon neutrality while also maximising organisational profits.
A crucial question to ask when addressing the balance between climate concerns and consumer demands is who is leading the debate? The anger of Greta Thunberg is reflected by millions, pushing regulators to implement ever-stricter regulations while offering more generous incentives to comply.
World events also influence change: changes brought about by Three-Mile Island, Chernobyl, Exxon-Valdez and, of course, the global impact on the economy of Covid-19 can alter market structures and lead to unpredictable consumer patterns of behaviour.
However, climate concerns are not going to go away. Firms – and especially marketers – must be at the centre of the drive to produce products that pollute less, whether the incentives come from altruism or the demand-enhancing effect of a greener brand image. What they can’t do is continue to look away.
Original research article: Marco Bertini, Stefan Buehler, Daniel Halbheer & Donald R. Lehmann. Carbon footprinting and pricing under climate concerns (March 12, 2020). HEC Paris Research Paper No. MKG-2019-1344; Columbia Business School Research Paper forthcoming.