Green by default: The case for eco-essential innovation

In brief 

• Consumers worldwide want green products and services, and demand in the fast-growing economies is nearly 2X that in North America and Europe.
  
  
• Most green offerings are bought by prominent green consumers – the 29% of people who pick eco-friendly options, regardless of price or convenience.
  
  
• Eco-essential innovation – developing simpler, more relevant green offerings – expands the target market to more than 80% of consumers.

Solving the green goods paradox

Strong demand, cautious consumption

The transition to the green economy presents a significant opportunity for businesses. Growth in demand for green goods and services is predicted to add $10.3 trillion to global GDP by 2050.¹

The desire to consume in an eco-friendlier way is especially pronounced in the fastest-growing economies of Latin America (LATAM), Asia Pacific (APAC), and the Middle East and Africa (MEA). Here, demand for eco-friendly products is nearly 2X higher compared to Europe and North America. However, strong demand for eco-friendly products doesn’t automatically translate into purchases.

Why? Because to buy a product or service, people also need to believe in the offering’s value and be willing and able to pay. And that’s not always the case, especially amid rising costs and low consumer confidence.

_{¹ Oxford Economics (2022, November 8). $10.3 trillion: the value of the green opportunity.}

Reinventing green innovation

Making green the mainstream

How can companies turn their green offerings from niche into the norm? By making green products simple, durable, reusable, accessible and affordable, so that they become the default option.

We call this approach “eco-essential innovation.” It calls for a radical new way of thinking about green. Companies need to reimagine their products, zeroing in on the best way to deliver value to consumers while meeting sustainability regulations. Crucially, eco-essential innovation challenges the status quo — from existing business models and growth strategies to supply chain dynamics.

The two extremes of the green innovation spectrum

Despite its promise, our analysis found that only 16% of leading organizations are currently pursuing eco-essential innovation.

The vast majority – 85% – are taking the additive green approach: making products incrementally greener without changing the fundamental business model or product design. This is a low-risk option, but it generates lower returns as it targets only prominent green consumers.

At the other end of the green innovation spectrum is boundless eco-ingenuity: the 37% of businesses creating radical new offerings that disrupt consumption patterns and reshape markets. Although these innovations are extremely powerful, their development requires significant investment. The result? Greater risk for companies, and increased costs for consumers.

Design, drive, deliver:
Three dimensions of eco-essential innovation

How can businesses make the leap to eco-essential innovation? We recommend a focus on three key areas:

1. Design for value

Adopt a “meaningful green product” approach focused on making products functional rather than flashy. 

Consumers’ purchase decisions are increasingly swayed by eco-friendly features that emphasize both ecological and functional performance. This shift requires businesses to reinvent their product and service development to ensure offerings deliver the right combination of features (eg durable, reusable, repairable and recyclable) that are most valued by consumers. In addition, these functional attributes lower the emissions intensity per product, reduce the amount of new material needed and extend a product’s lifespan — all of which are a win for the environment.

2. Drive with insights

Stimulate new green demand and forecast green opportunities by harnessing data and AI.

Capturing fresh commercial opportunities requires new approaches to sales and marketing. Companies should use data and AI to identify and target untapped consumer segments — including people who aren’t particularly eco-conscious — as well as to incentivize eco-friendly consumption.

Businesses can also harness the power of data and AI to effectively shape consumer behavior towards green consumption.

The convergence of data, AI, product genomes, and eco-design also presents an emerging field with the potential to significantly enhance the environmental impact of products.

3. Deliver beyond price

Optimize the total cost of experience for consumers with value-centric business models.

When considering the `affordability' of a product or service, consumers are looking beyond upfront cost. Instead, it's about delivering savings and value over the long run. For instance, new service-led business models can lower "out-of-pocket" expenses for consumers over time. Companies can also create extra consumer value by embedding digital technology within their green offerings.

Take the lead in green innovation

There’s an unprecedented opportunity to drive growth by making green products and services the default choice. And eco-essential innovation is the key to realizing its potential. 

Companies that successfully reinvent themselves won’t just be protecting the planet. They’ll create new value and achieve their ESG goals too. That’s a legacy to be proud of.