Unlocking the Ethical Market: Four approaches and real-world examples

3 June 2024

Japanese version: 1 March 2024

Yuta Asai
Center for Policy and the Economy

Takeaways

Balancing competing values—altruism and self-interest—is the first step in unlocking the ethical consumption market
Effective communication and co-creation with consumers enable the necessary cost passthrough
Costs can be kept under control by coordinating across business sectors and domains

The search is on for ways to tap into the ethical market

Ethical consumption is aimed at addressing issues that affect us all as a society, from broad ones like the environment to narrower ones like food loss. Higher costs for providing ethical goods and services poses the biggest hurdle for businesses to become more involved in ethical practices. We propose four approaches to tapping into ethical consumption markets, each a potential key for awakening consumers to the value of ethical goods and services and unlocking benefits that outweigh their expense (Figure).

Figure: Four approaches to unlocking ethical markets and successful examples

Source: Mitsubishi Research Institute, Inc.

1 Balance altruism and self-interest

The first approach is to simultaneously address societal issues and benefit consumers. Our research has found that ethical consumption for purely altruistic reasons is a rarity.* It almost always entails an altruistic component (doing something for the environment, the public good, for community) and a self-interest component (what the consumer can expect to gain, how it might benefit family members).

Kuradashi Co., Ltd. has built a program for bringing businesses and consumers together and managed to both reduce food loss and achieve lower prices. Its Kuradashi Social Good Market website retails affordable products sourced at prices agreed with manufacturers that share its enthusiasm for reducing food loss. The company donates a portion of the proceeds to organizations involved in activities to benefit society at large. Kuradashi has succeeded in creating a whole new 1.5 sector—a market positioned between the primary and secondary sectors. Kuradashi gives goods new value by characterizing them as upcycled^† since their ingredients would have otherwise ended up on the garbage heap. In Kuradashi’s fiscal year ending June 2023, the undertaking generated ¥2.9 billion in revenues.

*See this article (in Japanese) for details

†Find new value by transforming materials that would otherwise be discarded into new products

2 Effective communication converts ethical endeavors into value

The second approach is to make ethical endeavors effectively visible. The objective is to earn the enthusiasm of consumers. And the keys to that are unique storytelling and earning public trust.

a) Storytelling
This entails each organization using its own words to convey its ethical endeavors. Outdoor gear major Patagonia has been quite successful at this. In addition to donating one percent of revenues to environmental conservation organizations, the company—positioning marketing as a tool for nudging people to modify their behavior in socially beneficial ways—reaches out to consumers about the social commitment it embodies in its products. It makes particular mention of how it ensures transparency of its labor practices and environmental footprint. It also focuses messaging on how it fulfills its commitment to social and environmental sustainability. Patagonia has won consumers over to the worldview it strives for, and it and its consumers have come to share its values.

b) Earning public trust
Earning the public’s trust entails changing how society perceives an organization. To do this, more and more businesses worldwide are seeking B Corp* certification, which is awarded to companies, like Patagonia, with excellent sustainability records.

The motivation for these moves is potential benefits that are both tangible and intangible, including branding. In fact, CFCL, the first Japanese apparel brand to acquire it, has managed to sell to consumers in over 20 countries a mere three years from the brand’s launch, partly thanks to the consumer trust certification engenders.^† And awareness of ethical engagement is gradually gaining ground in Japan, with many businesses taking action such as the 37—among them Kuradashi—that have acquired B Corp certification as of February 2024.

*B Corp certification is awarded to businesses by the US-based nonprofit, B Lab, through a program attesting to their excellence in the environmental and social responsibility domains in terms of performance, transparency, accountability, and sustainability

†“Patagonia ni tsugu kotokuten ‘Nihon-hatsu brand’ no seitai (‘A true picture of the Japan-based brand with the next highest marks after Patagonia’),” Toyo Keizai Online, 29 December 2023 (Japanese only)

3 Co-creation with consumers grows ethical value

The third approach is to involve consumers in ethical endeavors. One undertaking drawing interest is Makuake, Inc. and its “‘support’ pre-order platform”. The company—whose name means “dawn of something new”—champions its support consumption model in which consumers can give a boost to crafters and creators with whom their aspirations resonate by purchasing their goods and services.

Makuake’s website features a host of products that yet remain unknown to most other consumers. Supporters—consumers who want to boost creators—pay for ware made under philosophies or ideals that resonate with them. A good example is the Ecuvo (stylized as ecuvo,) project and its sustainability driven brand. Ecuvo retails Imabari towels of 100% undyed organic cotton.

A salient facet of this support–consumption model is that it allows sellers and consumers to work together to create better products while maintaining their relationship as one between equals. Most sellers take onboard and reflect in their product development feedback they get through Makuake, which is rapidly turning into a co-creation platform for ethical products.

4 Cross-sector coordination keeps costs down

The final approach is to collaborate across businesses sectors and industries. Nissin Food Products Co., Ltd. and Sapporo Holdings Limited are doing just this, working together for better transport efficiency. They share a route between Shizuoka and Osaka, having one truck haul a combined consignment of lightweight products (instant noodles) and heavy ones (beer).* The joint scheme cuts the number of trucks needed by 20% and reduces CO₂ emissions by 10 tonnes annually^† compared to when they shipped separately.

Interest in ethical consumption is on the rise, and the day is near when the endeavors of businesses, schools, and other like institutions take hold among the public at large. Businesses need to move now to ensure that they can optimally balance pursuit of profit and coexistence with the earth and society. We hope the four approaches described here will be of reference as they work to unlock ethical markets for their goods and services.

*When trucks haul only one or the other type of product, they cannot be optimally loaded: a full load of noodles takes up 100% of a truck’s capacity by volume but wastes 50% of its capacity by weight; conversely, a full load of beer nearly maxes out a truck’s capacity by weight but wastes 50% of its capacity by volume. Mixing consignments of lightweight goods (instant noodles) and heavy ones (beer) in one shipment utilizes nearly 100% of trucks’ combined capacity for weight and volume

†This annual CO₂ emissions reduction is premised on two round trips a week and derived from a comparison of emissions calculated from fuel burned for delivery runs before and after switching to combined shipments

Author profile

Yuta Asai

Center for Policy and the Economy

Yuta Asai is engaged in research and policy recommendations on wellbeing. He is also involved in macroeconomic surveys and analysis with focus on the US economy. He hopes perform analyses and make proposals that will serve as a direction for policymakers working to bring about greater social resilience and sustainability.