Construction firms willing to pay sustainability premiums
The massive inflation of the last 12 months has seen customers across multiple sectors re-evaluate their willingness to spend extra on sustainability criteria. However, even amid the economic pressures of the last year, building contractors are willing to pay an average of 18% more for sustainable products.
Each year, L.E.K. Consulting surveys industries and consumers on their spending sentiment – with sustainability having become a top priority in both lines of research in recent years. In 2022, the firm published a report finding that half of all consumers would pay extra for sustainable products.
Now, a survey of 1,000 construction companies in France, Germany, Spain and the UK has found that despite the impact of inflation, most building contractors would still be willing to pay extra for sustainable materials. On average, contractors would be willing to stump up an 18.8% premium for goods with enhanced sustainability credentials.
In the case of roofing, contractors were willing to pay a more-than 20% premium, while the lowest the premium fell was 17% for decking. However, sustainability as a spending criteria for many contractors may still be further down the agenda than it might be, due to the current economic picture.
The rise in the cost of materials and procurement having seen a number of construction firms collapse in the last year. Looking ahead, this suggests that producers will need to re-think how they are pricing goods around sustainability, and becoming competitive with non-sustainable goods, rather than treating them as a ‘luxury’ people would be willing to pay extra for.
L.E.K. Partner Tom Diplock commented, “It’s a mistake to think that sustainability is all about loading in costs – for savvy businesses this is a great opportunity to create commercial value.”
Indeed, the majority of UK contractors and tradespeople do still view sustainability as a top strategic priority. A 55% portion said as much. But this significantly less than the 80% proportion in France, or the 70% of Germany and Spain. If producers of sustainable goods are to make the most of that though – particularly in the UK – they will need to find a way to connect to the “thinner margins” contractors now face, according to Diplock. To that end, at present, the top reasons for companies considering sustainable products are geared to an outdated set of ideas.
In the UK, the largest number of respondents said they had turned to sustainable products at the request of customers – and this was a leading cause in other European markets – but if there is a significant cost to pass on to consumers in a recession, this demand is going to decline drastically. By comparison, far fewer thought that sustainable products could yield larger profits, and changing this will be key if their use is to become more common.
