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Canadians want sustainable products but inflation, interest rates create headwinds

no0621inflation
no0621inflation

Canadians want more sustainable goods and services, but a new survey also suggests there’s a disconnect between consumer and business sentiment about the market for green products, and experts say a tight macroeconomic environment could pose headwinds for a pick-up in such spending.

More than 60 per cent of Canadians “show a willingness” to pay up to 20 per cent more for sustainable products, but 57 per cent say they don’t believe in most “green” or sustainable claims that brands make, according to a report by Deloitte LLP on June 22.

But the business leaders surveyed seem “largely unconcerned” with how consumers view their sustainable product claims or the potential impacts that accusations of greenwashing — misrepresenting how sustainable a product truly is — could have on their brand, said the report, which surveyed 311 consumer business leaders and 1,008 Canadians in April.

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A third of businesses that aren’t pursuing sustainable products said it’s because there’s a lack of consumer demand while almost a quarter said it’s not a priority. And more than 40 per cent said they’re at risk of a backlash if they pursue sustainability goals.

Nevertheless, the results show that consumers are still interested in buying sustainable products, said Joe Solly, Ontario leader for Deloitte’s sustainability and climate change practice.

“Gone are the days of big corporations polluting and nobody knowing about it,” he said. “Here are the days where climate change is a dinner-table, family conversation. People are becoming more aware, and they want to do their part where they can with their wallets.”

Here are the days where climate change is a dinner-table, family conversation

Joe Solly

But getting in consumers’ way of going green is the potentially tight economic environment, said David Soberman, a marketing professor and the Canadian National Chair in Strategic Marketing at the University of Toronto’s Rotman School of Management.

The consumer price index, a key measure of inflation, had been trending downward on a monthly basis since it peaked in June at 8.1 per cent, but the headline number in April ticked up 0.1 percentage points from March.

“Typically, clean or sustainable products do cost more,” Soberman said. “They’re made with ingredients that tend to be somewhat more expensive. They’re made with packaging that is more expensive because it’s either recyclable or compostable. At the same time, we’ve got inflation which is causing people to trade down.”

Consumers are indeed trading down as their budgets become increasingly strained by the costs of higher interest rates. The Bank of Canada raised its policy rate on June 7 to 4.75 per cent from 4.5 per cent, ending its brief pause as it deemed monetary policy has not been restrictive enough to bring supply-and-demand dynamics back into balance.

Meanwhile, gross domestic product grew 3.1 per cent in the first quarter, stronger than the Bank of Canada expected, and the labour market has yet to show signs of meaningful easing, both of which mean the central bank could further raise interest rates to slow the economy down so that inflation returns to its target of two per cent.

In the meantime, people continue to spend more. Consumer spending bounced back in April, increasing 1.1 per cent, after two consecutive months of declines, according to Statistics Canada retail trade data released on June 21.

But looking past the headline numbers shows that most of the growth was price-related, since trade volume rose only 0.3 per cent during the month.

Consumers’ spending resilience can also be attributed to higher population growth, as Canada officially exceeded 40 million people last week, Desjardins economist and senior director Randall Bartlett said in an email.

“When looking at volumes of retail sales on a per capita basis, it’s been trending lower since roughly mid-2021,” he said, adding that consumer spending is expected to slow going forward given that economists are forecasting further rate hikes.

There is demand in the market for sustainably produced goods or services, since 50 per cent of Canadians purchased at least one of them in September 2021, before high inflation began eating into budgets, the Deloitte report said. In March this year, that figure dropped to 37 per cent, with cost cited as the top reason.

But Solly said green products can often be cheaper overall if consumers consider other factors. For example, cold-water laundry detergents can save money on their utility bills, and there are government grants and incentives for heating and ventilation products that can reduce energy use.

“At the end of the day, while everyone may prefer to spend on these sorts of products in the abstract, the reality of paying bills and putting food on the table will take priority for most consumers,” Bartlett said.

• Email: bbharti@postmedia.com | Twitter: