The Consumer Discretionary sector is almost as infinite a category as the economy itself, taking into account the diverse needs and wants of different consumer groups and product groupings spanning cars, clothes, furniture, as well as hospitality, retail, and restaurants. With a staggering 76% of consumers stating that they would cease buying from firms that neglect environmental, employee, or community well-being, getting ESG practices right is key for consumer-facing company success. To make sense of the chaos, we have outlined the key ESG trends for the sector, divided into sub-sectors and tertiary sectors:
| Sub-Sector | Tertiary Sub-sector | ESG Trends |
|---|---|---|
| Automobiles & Components | Automobile Components |
|
| Automobiles |
| |
| Consumer Durables & Apparel | Household Durables |
|
| Leisure Products |
| |
| Textiles, Apparel & Luxury Goods |
| |
| Consumer Services | Hotels, Restaurants & Leisure |
|
| Diversified Consumer Services |
| |
| Consumer Discretionary Distribution & Retail | Distributors | Circular economy; DE&I; energy efficiency; Scope 3 emissions; sustainable last-mile logistics |
| Broadline Retail | Circular economy; DE&I; energy efficiency; Scope 3 emissions; sustainable last-mile logistics | |
| Specialty Retail | Circular economy; DE&I; energy efficiency; Scope 3 emissions; sustainable last-mile logistics |
One great sub-sector to analyse is the auto industry, because it represents perhaps the ultimate consumer discretionary purchase. The industry is also a microcosm of the sector’s broader ESG challenges. Namely, the need to balance ESG compliance with market demands. For instance, transportation is estimated to account for between 15% and 25% of global carbon emissions, with road vehicles responsible for almost three-quarters of that share. Even with EVs, there are broader ESG issues surrounding responsible resource use and mineral extraction. For instance, the auto industry uses about 30% of the leather hides produced in Brazil, creating reputational risk regarding deforestation.
If the industry is not careful, the green EV story could quickly become a ‘greenwashing’ exercise in the mind of consumers, potentially slowing actual green transit adoption. The Auto industry is also a large consumer of rare earth minerals, making up 27% of all rare earth minerals extracted each year. Rare earth elements such as neodymium, praseodymium, and dysprosium are required to create the powerful magnets used in electric motors.
However, there are ways to reduce resource use by scaling up circular economy practices, which would enable us to meet 70% of future neodymium demand for EV motors by 2050, helping secure critical resources sustainably. There are also opportunities around DE&I in the sector through a partnership approach to encouraging women and minorities into STEM careers within the auto industry.
Among consumer durables, Household & Personal Products (H&PP) companies are facing increasingly fierce competition, with better-informed customers and tightening regulatory requirements. With the demand for green products growing in the consumer mind, product sustainability and clean ethical supply chain practices offer a great opportunity for consumer-driven H&PP companies to foster brand value and boost sales figures, states Sustainalytics. Consumer trust can boost the bottom line too, with McKinsey finding that consumer discretionary products making ESG-related claims averaged 28% cumulative growth over five years, versus 20% for products that made no such claims. Some easy wins in terms of boosting consumer trust, ESG scores, and the bottom line are to avoid animal testing and, more broadly, to get serious about product provenance. For instance, fashion brand L’Oréal got into trouble for misleading consumers as to the sustainability of their products (Greenwashing), creating conflict with regulators, and causing reputational and financial damage to the fashion brand. Ways to avoid this are to join supply chain and sustainability certification schemes, to ensure compliance is fully integrated into the value chain.
For instance, analysis by Harvard Business Review finds that companies implementing appropriate quality and safety standards are ideally positioned to mitigate related controversy exposure. With more than half of Household and Consumables companies considered to obstruct the achievement of the Sustainable Development Goals (SDGs) by offering products that are potentially harmful to human health and/or the environment, ESG leaders have an opportunity to differentiate for enhanced brand trust and better ESG ratings.
For consumer discretionary leaders to win at ESG, it’s not just about consumer or regulator perception; meaningful climate action is also crucial for long-term resiliency. For instance, by next year (2026), it is expected that climate-related weather events will cost suppliers a staggering $1.3 trillion.
As one example of proactivity in climate action, the home appliance brand Beko has committed to achieving net-zero greenhouse gas emissions across its entire value chain by 2050 by focusing on energy efficiency and climate resiliency initiatives. This work enabled Beko to achieve an outstanding score of 89/100 in the 2024 S&P Global Corporate Sustainability Assessment (CSA), highlighting its commitment to sustainable practices.
The UAE has many opportunities to lead in catalysing sustainable consumer behaviour and benefiting from ESG trends. For instance, as a leader in luxury, the UAE could now pivot to meet evolving consumer preferences from Gen Z and millennial consumers who are driving a shift towards ‘accessible luxury’. Younger generations are prioritising quality, sustainability, and a secure, seamless shopping experience, according to new research from the open banking platform Tink. In terms of UAE supply chains, the UAE’s Industrial strategy shows clear leadership in harnessing technology for more sustainable products. One area the UAE leads the market is 3D printing, also known as additive manufacturing. This can be harnessed by sub-sectors such as automotive, to promote waste reduction as it allows for the precise use of materials, utilising only what is needed to build components layer by layer. With the government of Abu Dhabi committing to almost double the size of Abu Dhabi’s manufacturing sector, companies that prioritise sustainable supply chain innovations will win in the short, medium, and long term.
Consumer relationship management makes up a considerable part of Scope Ratings ‘Household Durables’ ESG ratings assessment score. With 84% of people in the UAE demanding businesses to be more transparent regarding their performance on ESG issues, consumer-facing companies must get serious about ESG performance. Leading companies in the consumer discretionary sector proactively integrate sustainability into their business models by focusing on product stewardship, operational eco-efficiency, responsible sourcing, enhanced transparency, and product labeling, as well as end-of-life solutions for customers. By leading on relevant ESG issues, consumer-facing companies can also get ahead of legislation, such as the EU’s Corporate Sustainability Reporting Directive (CSRD), which represents a compliance iceberg that other jurisdictions, such as the UAE, should take note of. The CSRD and other regional frameworks, such as the UAE’s own Abu Dhabi Global Market’s (ADGM) ESG Disclosure Framework, are also opportunities to boost growth through transparency and value chain best practices to entice the growing ethical consumer market, which is increasingly the new normal for all consumers.
