9 May 2019

Recent surveys reveal a bright story for brands investing in sustainable practice, writes Dr Kirsten Cowan.
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Most consumers are willing to pay more for brands that report greening practices. Our research offers further evidence that sustainable practices contribute to revenue growth and brand equity.

Brands can increase their revenue in foreign markets by appearing in some of the green brand report lists. These lists, in effect, act as signals that legitimise the ‘greenness’ of businesses in foreign markets. However, in domestic markets, since consumers are expected to know more about the brands and can rely on their own knowledge, consumers tend to prioritise their associations over legitimate signals. Specifically, consumers’ perceptions of ‘greenness’ are more important than actual investments in sustainability in influencing corporate revenue in domestic markets.

Additionally, the country of origin influences expectations of sustainable behaviour. Brands with origins in countries that are highly sustainable are likewise expected to be sustainable. Yet, brands from cultures that have not embraced the green agenda can benefit more from investing in sustainability. As these brands are not expected to green their business practices, effectively signalling that these brands are indeed green can enhance the receptiveness of consumers in foreign markets to buy their products and consumers’ willingness to pay price premiums.

The impact of being green is illustrated in further detail via Interbrand, a brand consultancy firm that communicates the top 100 global brands by financial valuation. Interbrand also produces a list of the top global green brands. In this list, Interbrand scores each company on its sustainable behaviour and also reports a “green gap”, which reveals how different brands’ actual sustainable behaviours compare to consumers’ perceptions.

This list demonstrates that while some brands are investing in sustainability, these practices are not visibly communicated well enough for consumers to perceive them. On the other hand, some businesses are perceived as very sustainable yet their actual behaviour is not as green as consumers believe.

Clearly, consumers are not informed enough to judge businesses based on their sustainable activities even though it is the perceptions that lead to price premiums and additional firm benefits.

So how can businesses tap into the rewards from sustainable behaviours? Well, first, corporate brands need to invest in strategies to make their businesses and associations with the brand more positive. At the same time, they need to make sure that these investments are authentic to avoid perceptions of greenwashing. Greenwashing can be incredibly harmful to brand equity.

Second, businesses and the brands they manage need to carefully communicate to consumers that they are sustainable. Signalling these effects through sustainability reports, incorporating sustainability in the mission and vision, and even using all consumer touchpoints to leverage sustainability (e.g. product packaging, brochures, etc.) is important. Yet, these are only initial steps that businesses should take. The idea is to make sustainability more salient.

Third, in addition to increasing consumers’ perceptions that the business is sustainable, they need legitimate signals, such as certifications, sustainable labels, and even appearing on these green lists. After all, these lists can be influential in driving revenue and even brand equity.

Fourth, signalling is even more important for lesser-known brands or for businesses expanding their markets. Remember, actual green behaviour is more likely to be effective in driving the brands’ revenue in foreign markets.

Promoting green credentials may become less of a point of differentiation in the future as sustainable practices become critical for all businesses. It's therefore important to start planting in consumers’ minds that you are the sustainable brand of choice.

Dr Kirsten Cowan is Lecturer in Marketing at the University of Edinburgh Business School.

This article first appeared on Business Green.