Income Shocks and Demand for Sustainable Products

Abstract

As investor and consumer demand for sustainability grows, firms are increasingly incorporating sustainable products into their portfolios. We examine whether firms with a larger share of sustainable products are more exposed to household income shocks. Using scanner data on food purchases from 2004 to 2019, we find that reductions in household income significantly decrease spending on organic food, especially among high-income households. The effect is driven by high-income consumers' lower price sensitivity and stronger preference for organic products, regardless of price. Our findings suggest that firms offering sustainable products may be more susceptible to income shocks, highlighting potential trade-offs in pursuing sustainable strategies.

Keywords: Household finance, Household income risk, Consumer behavior, Retail scanner data, Organic products, Sustainability, ESG

JEL Classification: D12, E21, G32, G50, M14