The right balance between sustainability and profit margins

Today’s global economy is more volatile and complex than ever. With sustained inflation, declining real wages, more stringent sustainability regulations and evolving consumer needs, companies are facing margin pressure from all sides and must adapt to remain competitive. Despite growing demand for sustainable products and services, the current economic outlook is influencing consumers’ purchasing decisions and emphasises the need for economic resilience. As companies struggle with this multi-faceted challenge, a trade-off exists between investing in sustainability and achieving sufficient profit margins – this is what we call the margin growth paradox.’ 

‘A notable paradox emerges as companies strive to balance sustainability investments and margin growth’, explains PwC expert Jennifer Nelen. ‘While consumers claim to prefer sustainable products, they often choose affordability, convenience, and quality. This challenge is further complicated by increased costs for companies due to inflation and stricter environmental regulations. Companies poised for success are those that deeply understand customer behaviours and needs, and continuously adapt their commercial and operational approaches accordingly.’  

Rising inflation contributes to 'green consumer paradox'

Our 2024 Global Voice of the Consumer Survey indicates a strong consumer interest in sustainability, with the majority of consumers willing to pay above six percent (globally and in the Netherlands) for sustainable produced goods, particularly among younger demographics. 

Jennifer Nelen: ‘This willingness-to-pay represents a potential for value creation, where consumers perceive the intrinsic benefits of sustainable goods as outweighing the cost. However, economic pressures such as inflation, which 64 percent of respondents (67 percent in the Netherlands) identify as their number one concern, contribute to the “green consumer paradox”.

In this paradox the intentions to buy sustainable products do not always translate into purchasing actions. In fact, while 65 percent of consumers favour sustainable brands, only 26 percent make such purchases. Today’s consumers are prioritizing price, speed, value, and convenience over sustainability in their purchasing decisions. 

Looking for a balance that meets consumer expectations

As consumer preferences lean towards sustainability, companies are increasingly turning to climate-friendly investments, according to PwC’s 28th CEO Survey. Thirty-three percent of CEOs globally say revenue from sales of goods and services has increased as a result of these investments.

These efforts are intensified by stringent sustainability regulations like the CSRD and EUDR, pushing companies to integrate sustainability deeply into their operations. This transformation, however, comes with high costs in terms of time, money, and resources, especially when ensuring compliance and collaborating with suppliers to gather necessary sustainability metrics. 

‘Moreover, the financial implications of sustainable production, exacerbated by inflation, leaves companies with increased costs', says Jennifer Nelen. ‘These costs must be balanced against the imperative to remain price-competitive in markets where consumers are increasingly value-conscious, all while sustaining margins. Consequently, companies are compelled to examine their cost structures and pricing strategies to find a balance that meets consumers expectations.’

Margin growth accelerator helps to find the right balance

'To help companies find the right balance, we at PwC work with the “margin growth accelerator”', Jennifer Nelen continues. 'By focusing on (sustainable) consumer insights, combined with commercial and operational effectiveness and efficiency, companies are better able to maintain their margins, while improving their sustainability.' 

'The margin growth accelerator contributes to better margin growth, because companies can more effectively align their price and commercial strategies with consumer needs, market conditions and cost structures.'