Is going carbon neutral more beneficial to companies than expected?

New evidence suggests green actions can drive profit by putting consumers in the front seat.

March 1, 2022
    By: Sania Ashraf, Vaidehi Uberoi, Rakhim Rakhimov, Erik Thulin

Consumer concern over climate change has soared in the last decade. As people become more aware of climate change’s impact and consider going carbon neutral, seven out of ten consumers want to know what brands are doing to address social and environmental issues and 46% take it into account while buying a product. 

Just 100 companies are responsible for nearly three-quarters of world greenhouse gas (GHG) emissions. Some of these established companies have publicly committed to reducing their carbon footprints in line with the U.S. government’s aggressive goals to reach net-zero emissions economy-wide by no later than 2050. 

Meanwhile, newer companies like Climate Neutral have emerged to meet a shorter-term, urgent need: providing companies and consumers with a straightforward way to participate in creating a net-zero future. Climate Neutral, for example, helps companies move toward carbon neutrality and certifies those who have achieved it. Those certified receive a label to place on their products to signal this green action to consumers—and consumers then have the power to factor in green actions in their purchase decisions. 

But does that label work, and will consumers pay more for it? Climate Neutral worked with us at the Center for Behavior & the Environment at Rare to find out.  


Americans value the label  

A simulated market study revealed that 87% of Americans value carbon-neutral labeled products over similar ‘unlabeled’ products. Using in-depth interviews, we found that this value is driven by better brand perceptions and feeling better when buying the product. 

People placed a considerable monetary value on carbon-neutral products—a point of particular interest to brands who want to know how people will behave when given a choice between two equivalent products. In an online experiment, we found that consumers consistently reported they were willing to pay more for labeled products compared to equivalent products in a shopping scenario. The label held substantial appeal across demographics, skewing slightly towards women. Carbon neutral products were similarly appealing across income, post-high school education levels, race, and age. 

 “[When seeing a carbon-neutral label] I feel like it’s a more ethical company that makes a greater effort to do good. They are not just solely focused on profits, and it makes me feel better, more positive about the purchase and taking action personally.” – Interview respondent. 


Americans value the halo 

Based on our mixed-method research, the label directly affects consumer behavior—and our qualitative insights helped explain why: A striking 92% of surveyed respondents perceived carbon-neutral labeled products to be more sustainable, healthy, and of higher quality. 

 The ‘green halo effect’ – a known psychological phenomenon where people associate unrelated positive attributes to a product, brand, etc. based on one’s opinion or feelings in other areas—drives this behavior, as evidenced by one survey response: 

 “Higher quality, more organic, more natural. I just feel like I’m getting a better overall product that’s going to last longer.” 


Eco-friendly Companies Benefit Too 

As big companies go green, our data support a potential return on investment in doing so. A carbon-neutral label provides brands with a boosted marketing opportunity to leverage positive associations in their advertising. Integrating customer values can motivate customers to choose a carbon-neutral labeled product over a similarly priced product. 

Our findings add to other studies that highlight how efforts to be carbon neutral go beyond just appeasing environmentalists—they boost company profits from higher demand for consumer products. Eco-friendly companies also benefit from tax breaks, subsidies, savings, and increased demand for their products. 

Offsetting carbon is one of the highest-impact actions that companies and consumers can take to reach climate goals. Now we know that labeling products as ‘carbon neutral’ is one avenue to getting us there faster.  

Photo Credit: Luca Bravo