Posted: 17 May 2022 by starindexadmin

The Green Gap: the price of sustainable goods vs the rising cost of living

The Green Gap looks set to increase with the price of sustainable goods vs the rising cost of living.

The Green Gap is a term for the disparity between what consumers are willing to pay for sustainable goods and their actual buying habits. Closing the Green Gap is a challenging hurdle to clear on the journey towards a sustainable society, particularly of late, with the steep rise in the cost of living.

The Resolution Foundation estimates that 1.3 million people are set to fall into the UK’s poverty bracket over the next year. This number includes a staggering 500,000 children. The number of people within this bracket by then will total around 12.5 million.

The cost of living crisis

The report compiled by the Resolution Foundation highlighted a number of worrying projections. Peak inflation looks set to rise above 8% in 2022-23.

Real incomes could fall by as much as 2% under pay forecasts in 2023-24. All this with an additional squeeze from the closure of the Government’s energy bills support package. UK energy bills alone rose by 54% in April 2022.

So in a time when struggling households are already having to choose between heating and eating, how can businesses support their consumers to pay for higher priced sustainable goods?

 

Why the premium for sustainable goods?

Looking at the numbers gathered by Kearney, sustainable goods tend to cost between 75% and 85% more than their conventional counterparts. That’s quite a price hike!

The question is why?

What causes such a steep margin?

The answer is a surprising one.

Sustainable production requires responsible sourcing that’s good for the environment, is free of damaging toxins, pays workers a fair wage and obtains the necessary certifications. These additional costs are passed onto the consumer.

However, sustainable production costs only make up around 10% of the final product price. The main costs in the sustainable premium markup would appear to be the margins added on by brand owners, wholesalers and retailers. These margins can equate to as much as 70% of the final product’s price tag.

Could accounting be the solution to the Green Gap?

If companies continue to account for margins the same way they’ve done previously then progress will be hindered. It’s time for a much needed revamping of the old systems. If the added sustainable production costs can be held at around a 10% markup, then consumers will be more willing to part with their money for responsibly sourced products.

STAR Index is a big believer in responsible sourcing. We maintain that it’s not only possible but good practice to work on margins that balance sustainable production costs with competitive pricing in the market.

You needn’t be put off by the thought of sustainably sourced goods being priced out of the market during times of austerity. The added costs of sustainability can be solved at the beginning of the value chain.

Interested in learning more?

Talk to us today

Related content

Posted: 17 May 2022

Could the ‘new code’ that Unilever and Google have signed up for end Greenwashing for good?

Read full article
Posted: 17 May 2022

Building nutrient neutrality into your housing development

Read full article