Prioritizing Sustainability in a Recession is Good for Business and the Planet
Jun 14th 2022
Prioritizing Sustainability in a Recession
Economic uncertainty is scary. It is easy for brands to focus solely on cost cutting during these times, putting ethical and sustainability commitments on the backburner. But history has shown that this approach is not only wrong for the planet, it is actually bad for business.
In fact, brands that increased their commitment to sustainable goals and initiatives during previous recessions weathered downturns better than their counterparts and recovered more quickly and successfully.
Amidst the current, tough economic reality we are in, we are excited to share these historical trends as a bit of a silver lining for the EcoAllies we work with and a reminder of why your eco commitment is more critical now than ever. No one can accurately predict just how challenging the next year will be for small businesses, but history has shown that ethical, eco-focused brands like yours will have a leg up.
The Current Economic Reality
EcoEnclose works with tens of thousands of brands each year - brands that are at the forefront of sustainable innovation and are working to make ecommerce businesses a force for positive environmental change.
The D2C businesses we serve experience trends firsthand, before they become part of national news stories about the economy. In January, we learned from many customers that their holiday sales didn’t hit their expectations, leaving them with excess inventory and concerns about the upcoming year, a trend that continued into the first and now the second quarter of the year.
Over the past two months, it has become clear that these trends weren’t isolated issues a handful of companies were struggling with. They were part of a global economic trend. As of today:
- Inflation is at a 40 year high
- Gas prices have topped $5 / gallon nationally, for the first time ever
- The S&P has falling nine out of the last ten weeks
- Consumer sentiment is on the decline
- Hiring is on the decline, with many high profile companies laying off 5-10% or more of their employee base
- Companies like Target are slashing prices to push their excess inventory
While the question of whether we are in a recession or not is raging in the news, it is almost beside the point for businesses who are figuring out how to best manage their current slowdown in sales and weather the uncertainty of the next year.
How Sustainable and Ethical Brands Fare During Recessions
Here’s the good news for EcoAllies - those businesses who keep the planet front and center in their mission and operation have historically been at a distinct advantage during downturns.
During the great recession of 2008, sustainable brand and product lines tended to be the most successful. Brands that continued to make bold, aggressive investments in sustainability during those tough economic years weathered the recession significantly better than traditional brands. It seems counterintuitive. In fact, many so-called “experts” predicted that the 2008 recession would be a nail in the coffin of CSR and sustainability innovations. The thinking is that companies need to cut costs at all costs during a downturn and because environmental initiatives may be resource-intensive, they would inevitably be the first thing companies do away with.
Thankfully, this thinking proved uninspired and uninformed, as the opposite actually happened.
- A 2014 study, The Impact of Corporate Sustainability on Organizational Processes and Performance, showed that a $1 investment in 1992, in a portfolio consisting of 90 “High Sustainability” companies would have grown to $22.60 by 2010. A $1 investment in a portfolio of “Low Sustainability” companies would have grown to only $15.40 during the same time period. What’s more, the High Sustainability portfolio would have hit a low of just $14.39 while the Low Sustainability portfolio would have bottomed out at $8.14.
- Studies have shown that companies with strong corporate responsibility reputations “experience no meaningful declines in share price compared to their industry peers during crises.” Firms with lower CSR reputations experienced market capitalization losses of $378M per firm, during those same time periods.
- A survey of 1,300 small businesses conducted by Green America, EcoVentures and Association for Enterprise Opportunity found that sales of green products increased and outpaced traditional alternatives during the 2008 recession. In fact, they found that the greener the product was, the more likely its sales increased. Almost 60% of the survey respondents expanded their green offerings, and most indicated that these resulted in higher revenues and increased competitiveness during the downturn.
- B Corporations, businesses certified by nonprofit B Lab for meeting high standards of transparency and social and environmental performance - are self-reported to have been 64% more likely to fare well during the 2008 recession than traditional businesses of comparable size (see Forbes interview).
What 2008 taught us is that sustainability is actually a strategic imperative during economic downturns. While nothing can recession-proof a business (i.e. almost all businesses will feel the impact of tough economic times), sustainability-oriented companies generally fare better during the recession and recovered more rapidly in its aftermath.
What Makes Sustainable Brands More Protected During Economic Crises
While these trends seem counterintuitive at first glance, they actually make sense with further analysis and reflection.
- Green customers are more loyal and less price-sensitive, even during a downturn: Ethical brands are able to establish deeper emotional ties with their customers, allowing them to fare better during recessions. A 2014 paper published by the Canadian Agricultural Economics Society reported, “Purchasers of Fairtrade products are much less price-responsive than those of non-Fairtrade products” a trend that is true during strong and weak economic periods.
- Consumer demand for transparency and ethics continues (and often increases) during a recession: The 2008 recession, a result of corporate greed and “casino capitalism”, triggered widespread public anger which led citizens and consumers to demand a higher level of ethics from the brands they purchase from. The many emotionally charged events of the past two years have accelerated this further. In fact today, most successful D2C brands must actively and authentically engage with and support issues ranging from sustainability to racial justice to gun control. Everything brands do - from the products and packaging they create, to how they pay and support their employees, to what supply chain partners they work with - is under scrutiny.
- Sustainability done right means innovation, a key business differentiator, especially in recessions: In 2008, American Express CEO Ken Chenault said, “A difficult economic environment argues for the need to innovate more, not to pull back.” Studies have corroborated this claim. Data pooled from the economic downturn years in the 1980s, 1990s, and 2001 shows that brands that invested in innovation during recessions recover faster and come out on top compared to competitors, particularly in industries where disruption is most possible. By committing to sustainability and circularity, brands look for ways to constantly do better - to source more ethical and sustainable materials, to create goods that use less material or are more durable or more recyclable, and to utilize new green technologies in their products or processes. These improvements can cut costs, can create PR and customer buzz, and build customer loyalty - all benefits that will pay off either during the downturn and/or the recovery period.
- Circularity and sustainability strategy often leads to new, more resource and cost efficient ways of doing business (that are good for the bottom line and the planet): Many eco investments save resources (such as electricity, water, fuel) which directly translate into immediate savings for a company. When hotels began asking their guests to hang up and reuse their towels and skip the daily sheet changes, they saved 25% off their annual energy and water costs while also garnering goodwill from guests. When Walmart instituted technology to reduce fuel consumption while its trucks were idling, they were able to reduce their diesel costs significantly. When United Airlines switched its inflight magazine to a lighter paper stock, they saved $300,000 annually on their fuel costs alone (this doesn't even factor in the lower cost of producing their magazines!). Strategies like these are a win for the environment and budgets.
- Improved employee morale: Tough economic times can be hard for employees, whether they are fearful of their job security or simply anxious about the future in general. Studies have shown that morale among employees is significantly better in companies with strong sustainability programs, compared to those with poor ones, and employee loyalty is almost 40% better. This means absenteeism, increased engagement and enthusiasm, and improved productivity and output.
- A commitment to environmental sustainability, almost by definition, means a brand is thinking long-term: Brands that take a long-term view about their impact, their resources, their supply chain partners, their customer satisfaction, and engagement are the ones that come out ahead in both the good and bad economic times. A commitment to sustainability will help brands avoid the knee-jerk, shortsighted cost cutting actions that can hamstring them during the recovery period and beyond. This doesn’t mean hard decisions shouldn’t be made! Often, layoffs are unavoidable, cost cutting measures must be pursued, and prices have to be increased. But hard decisions can be executed humanely and ethically and should be considered alongside their long-term environmental, social, and business impact before they are finalized.
- Recession or no recession, the impact of climate change is front of mind for consumers: Fires, hurricanes, extreme heat events, droughts, flooding - unprecedented weather patterns are becoming the norm worldwide. According to the IPCC Co-Chair Panmao Zhai, “Climate change is already affecting every region on Earth, in multiple ways.” Even as Americans (and consumers worldwide) grapple with economic uncertainty, they are also already living with some of the harsh realities of climate change. A 2021 Pew survey of almost 20,000 people found that 72% of respondents are very or somewhat concerned that global climate change will harm them personally, and 80% are willing to make immediate changes to how they work and live to reduce the effects of global climate change.
What This Means For Your Business
With a recession likely on the horizon, there are many actions to plan for: reevaluating your forecast and budget, exploring ways to diversify and grow sales in new markets, finding operational efficiencies across your organization, etc.
As you plan for these critical actions, we also recommend maintaining - and actually increasing - your investments in sustainability and ethics.
If you don’t already keep the environment front and center of your business, you may be well served to make it a core (and authentic) component of your vision and operations immediately.
As this is also a time that brands are looking for ways to tighten their wallets or find new ways to drive sales - how can you balance the environment and the importance of your bottom line right now?
- Find cost and eco-conscious efficiencies: Making your products and operations more sustainable often cuts costs. Are there ways you can cut energy or water usage? Can you reduce the materials used in some of your products or packaging? Can you consolidate your shipping to reduce fuel costs? Strategies like these have an immediate position impact on the planet and your spending.
- Measure, market, and promote: Make sure you are doing everything you can to promote your sustainability efforts - on your site, in your social media, in press releases, in blog posts, on your packaging, in your newsletters, through influencers, etc. Make your message compelling by sharing the exact impact your sustainability strategies are having - the amount of carbon being saved, the volume of plastic being eliminated, the number of people helped, etc. We all need to read good news these days! Help your customer base get messages that are hopeful and impactful.
- Innovate: As mentioned above, brands that innovate during recessions have an advantage and companies have historically found that green product lines are most successful during downturns. Can you rethink the formulation of a product, using innovative new inputs that are better for the environment and/or your customers? Can you put out a new product line, one that is on the cutting edge of sustainability? Major innovation takes time, resources, and patience but these investments generally pay off. Where it is feasible, look for ways to release incremental innovations that can come to market more quickly.
Here are some specific tips on how these strategies can be applied to your packaging strategy.
Custom brand your packaging to showcase your ethics and commitment to the world: Sustainable packaging is the right call for the planet. But if you’re not boldly highlighting your efforts to your customers, you’re probably missing out on the short and long-term benefits to your bottom line (the very benefits that help sustainable brands be more successful during and after a recession). And we always say that your packaging has a 100% open rate, so if you’re not using it to tell your story, you’re missing out. Develop an eye-catching design that highlights your eco-efforts and the impact these efforts are having on the planet.
EcoEnclose can even help you calculate the carbon and resource savings of your switch to 100% recycled packaging, which you can print directly on your packaging!
Market your eco packaging across your website and social media channels: Branding your packaging is important, but will only reach folks after they place an order! Push a series of social media posts showcasing your investments in circular packaging. Add a page to your website highlighting the packaging choices you’ve made and how they support your sustainability efforts. Call out your packaging on product or checkout pages, helping to reinforce your brand’s ethos and ethic, and potentially increasing conversion rates. Here are great examples recently put out by two EcoAllies - Spring and Armoire.
Invest in a bold sustainable packaging innovation: If it makes sense for your business, consider investing in reusable mailers, a groundbreaking circular shipping solution. Switch to carbon sequestering, black algae ink for your custom packaging. Been battling the single-use clear poly bag and are not sure what to do about it? Switch to the Kraft Bag or Glassine Bag for a plastic-free inner packaging solution, just in time for Plastic-Free July.
Brands that maintain a focus on innovation and progress during tough economic periods set themselves up for short and long-term success. These packaging innovations are relatively easy wins that can keep you on the cutting edge of sustainable packaging.
Transition from a shipping box to a mailer, or from a paper mailer to a poly mailer: If your business can successfully ship in mailers, but you are currently using shipping boxes, this switch can help you save a lot of money and will improve your carbon footprint (because mailers are more material-efficient than the boxes you are replacing them with). Just make sure your mailers are 100% recycled and recyclable. If you currently ship in paper mailers but are looking for ways to cut costs, switching to 100% Recycled Poly Mailers could be worth considering. On one hand, poly mailers are made with recycled plastic and many conscious brands are going plastic-free. That said, 100% recycled poly mailers are significantly less expensive than paper mailer alternatives. Additionally, from an ecological lens, 100% recycled poly mailers have a lower carbon footprint than similarly sized 100% recycled paper mailers.
Switch to one of our set box sizes: EcoEnclose offers custom shipping boxes, cut to your specific dimensions. However, we also offer shipping boxes in set sizes, many of which are available at a discount of up to 15%.
Consider if there are any excess elements of your packaging to eliminate: Most eco-conscious brands are already thoughtful about doing away with packaging elements that aren’t core to the functionality or customer experience. But it never hurts to take another look! Audit your void fill, your tape usage, and your decorative packaging additions. If something isn’t critical to delivering your product safely or is not really helping tell your sustainability and brand story, consider removing it. Remember that sometimes, the “excess” packaging itself is not really costly, but the labor required to execute it is. For example, many brands tie twine around their products before packaging them. This is a great customer experience, but the labor required for this tying may or may not be worth the cost.
Balance volume discounts with total purchase sizes: Some companies are focused on preserving cash in a downturn while others prioritize managing their unit costs and profitability. Buying more packaging (or any raw materials) at a time will result in higher volume discounts, improving your profitability. Buying less packaging (or any raw materials) at a time may result in a higher unit cost, but will help save cash and minimize the funds that are tied up in inventory.
Reach out to us! We are swimming in the same pond as the EcoAllies we work with, and are always here to partner and problem solve together.