The public’s growing concerns about environmental issues, along with the U.S. Federal Trade Commission’s efforts to impose fines on businesses for greenwashing, point to the potential fallout when companies engage in environmentally damaging actions. Companies such as Burger King, KFC, and McDonald’s have all been recent targets of government and investor pressure to cut plastic waste. Last year, both Kohl’s and Walmart reached settlements of $2.5 million and $3 million, respectively, for falsely claiming that dozens of rayon textile products were actually made from environmentally friendly bamboo.
When such large, visible companies issue false claims or fail to act, it results in missed opportunities, a growing performance-expectation gap, and, eventually, reputational damage among consumers. So, what makes a business a force for good when it comes to the future of our environment? To find out, Bentley University and Gallup recently conducted a survey of 5,757 Americans to assess how they feel about business and its potential to have a positive impact on society and the environment. The results of the Force for Good survey highlight areas in which businesses, small and large, are failing to meet people’s expectations — and how they can do better.
The public’s expectations of large companies like McDonald’s, Kohl’s or Walmart are borne out in our research. Our study shows that a slight majority of Americans (53%) say businesses overall have a negative environmental impact. Almost two-thirds (65%) feel this way about large businesses versus 16% saying small businesses have a negative impact on the planet/environment. Younger Americans, in our study expect more from business overall, and a whopping 81% of those 18-29 years old say large businesses have a negative impact on the planet, compared to 54% of Americans who are 70 years or older. When looked at in terms of political party affiliation, we see another stark difference with 79% of Democrats saying large businesses have a negative impact versus 39% of Republicans. Asian Americans seem to feel the most negative about the environmental impact of large businesses (85%).
Still, it seems that certain areas are more important than others. Drilling down, we found that more than 9 in 10 Americans rate four social and environmental actions as extremely or somewhat important for businesses to do: 1) use sustainable manufacturing (92%), 2) promote increased access to education and training (92%), 3) invest time and money into local communities (92%) and 4) operate in a way that is sustainable for the environment (91%). Just 1 in 3 Americans say businesses are currently doing an excellent or good job in any of these areas. Focusing on point 4, just 26% say businesses are an doing excellent or good job at operating in an environmentally sustainable way. 84% of Democrats say it is extremely important for businesses to operate in an environmentally sustainable manner, versus 31% of Republicans and 59% of independents. However, a large majority of Republicans (80%) say this goal is at least somewhat important.
Are Americans Willing to Reward Companies for Doing Good?
One way to think about environmental responsibility is for companies to believe it’s something they ought to do. This is the “doing good to do good” perspective. Yet, another way focuses on the importance of “doing good to do well” so that both business and society benefit from managements’ actions. But are these, or need these be, in tension?
The T-shirt Experiment
One test we ran was aimed at getting a better read on how people think of this tension – we called it our T-shirt experiment. Amidst rising inflation where prices for most everything were going up, we asked whether respondents would be willing to pay extra for a T-shirt depending on a variety of company characteristics. 63% of Americans say they would be willing to pay extra for a T-shirt if the company that made it was known for having a positive impact on the environment – and were willing to pay 82% more in price. The numbers are even higher for young Americans aged 18-29 and for women; young people are most likely to say they would do so — about eight in 10 in each case — and for women almost 7 in 10. These consumer groups are both key markets for many companies.
When people were asked how much they would pay for the T-shirt, while given no additional information, the median response was $10.00. This held true for those with personal incomes between $24k and $179k representing a rather large range for those willing to pay extra. So personal income had little effect on this purchase decision.
They were then asked how much more they would pay if the company was known for various types of behavior (i.e. positive environmental impact, positive impact on local community, treating employees well and contributing to charities). For companies known to have a positive environmental impact, the premium was highest of these four, with a median response of $7.00.
From our data, it seems that Americans are, in fact, willing to reward companies for doing good. The clear indication here is, if a company is known for positive environmental performance, then they can charge more for their products. A good example that “doing good to do well” works.
A False Dichotomy?
Historically, business leaders have tended to argue that paying attention to the environment will be harmful to their financial performance. Most of those we surveyed don’t see a tradeoff between good environmental performance and good financial performance. In other words, both can be true. About seven in 10 (69%) say businesses that prioritize making a positive impact on society are just as profitable (47%) or more profitable (22%) than their competitors. Those who said they have expertise in owning, leading or managing a business, are no less likely than Americans without such expertise to say businesses that prioritize making a positive impact are at least as profitable as their competitors.
But there are notable differences when we compared this information to political party. For example, 84% of Democrats say it is extremely important for businesses to operate in an environmentally sustainable manner, versus 31% of Republicans and 59% of independents. However, a large majority of Republicans (80%) say this goal is at least somewhat important. Knowing this might affect a host of company actions from advertising content and spending in red versus blue states to the very design of their products.
Likewise, when we considered ethnicity, we found 70% of black people, 82% of Asian people and 65% of Hispanic people believe it is extremely important for businesses to operate in an environmentally sustainable manner. What’s interesting is that when asked how they feel about focusing on long term benefits like those for the environment versus short term benefits like profits, 77% of Asian people were likely to support that focus (Black and Hispanic, both hovered around 60%) – compared to the overall response of 56%.
Overall, those we surveyed did not see a tradeoff but more of a “both and” even when we asked the question in a slightly different way. For example, when asked about meeting the financial goals of investors, 79% of respondents said they believe it is somewhat or extremely important. And when asked about making the world a better place, 88% of respondents said it is also somewhat or extremely important.
How can your Company become a Force for Good??
Results from this deep dive into what a broad and varied set of Americans believe, suggest there are several things companies should start doing and watch out for.
Pay attention to your local footprint. Small companies are perceived as better at most all stakeholder-related activities. Respondents are twice as likely to say small businesses positively impact people’s lives (82%) as they are to say the same about large businesses (41%). What’s more, Americans are more likely to think large businesses have a negative impact on Americans’ lives in general (38%) than they are to say the same about small businesses, at just 4%. If we combine this data with the results in Figure 1 on positive community impact – across age and gender – companies should pay attention to their local footprint and improve their relationship with their surrounding community, especially if they are a large corporation.
Recognize that younger Americans expect more. Millennial (born between 1981 and 1996) and Gen Z (born between 1997 and 2012) Americans expect more from businesses in terms of social and environmental responsibility than older Americans do. In our T-shirt experiment (see Figure 1), 82% of Americans aged 18-29 were willing to pay more for a T-shirt from a company known for having a positive impact on their local community. When asked how important it is that businesses reduce the carbon footprint and/or emissions, again the largest percentage agreeing with the importance was among young Americans (73%). Companies will need to account for their environmental stewardship among their future employees and customers. These are the people who will be looking to work for your company in the years to come.
Mind the performance-expectation gap. Environmental stakeholders, and regulators, are on the lookout for any discrepancy between what is expected of a firm in terms of responsible management and what it is actually doing – the performance-expectation gap. The vast majority of Americans (89%) say businesses have “a great deal” or “some” power to make a positive impact on people’s lives but just 57% say businesses are very or somewhat effective at doing so. In terms of the environment, the findings illustrate a definite PE gap. The results point to gaps of at least 30 percentage points between “the importance of” and “the performance of” several environmental goals. On questions about reducing business’s carbon footprint, using sustainable manufacturing, and making the world a better place, being excellent or good at it hovers between 24-28% and being extremely important for businesses to do lies between 52-57%. A considerable gap.
While having a dedicated sustainability leader, support from senior management, and education for employees and executives, are necessary and actionable items, watching what you say and what you do should take center stage. Business leaders must pay greater attention to how perceptions of what their company is doing compares to what they are actually doing in what has become a hyper-critical business environment.
Set sustainability goals. Think carefully about how to measure what you are doing. This step follows nicely from gaining the support of senior management and it helps determine the progress your company has made and where is has soft or blind spots. In fact, regulators have proposed requiring disclosure about how the company sets climate related targets and oversees progress. Consider signing on to broadly recognized and accepted goals like the United Nations Global Compact’s Sustainable Development Goals. Not only are they well recognized but also help your company to publicly commit to a plan of action, step by step. There are also required, annual statements on progress to help ward off claims of greenwashing.
Engage stakeholders through a materiality assessment. Determining what is a material aspect of your sustainability plan is not only vital to setting and meeting your goals but also important to narrowing the PE gap. Soon, a materiality assessment of your climate costs and risks will be mandatory. In March 2022, the U.S. Securities and Exchange Commission’s proposed a requirement that public companies report on material greenhouse-gas emissions and climate risks. Any climate costs that are 1% or more of each line-item total of a firm’s financial statements would have to be reported. Included in the SEC’s proposal are disclosures of the processes and frequency by which the company discusses climate-related risks and how it considers these exposures in relation to business strategy, risk management and financial oversight.
WITH INCREASING ATTENTION on the sustainability of the environment, gaining an understanding of how various stakeholders perceive your statements and actions is vital not only to help craft a plan of action but to ultimately improve the environment. By identifying and understanding current perceptions and the implications they pose, as our study does, companies can amend their environmental commitments and processes to ensure that they invigorate their efforts to be a force for good, which will benefit the company and its stakeholders.