ESG in the retail industry
ESG in the retail industry is crucial. Issues like fast fashion and single-use plastics dominate the debate, and manufacturers are expected to end them.
Retail gets a lot of criticism. Customers, employees and governments continue to push for better working conditions and higher pay. Without concessions in these areas, disagreements and hot debates will continue.
Ultimately, retail has an enormous role in ESG (environment, social and governance). Whether companies like it or not, manufacturing, transport, sales, and working conditions are core issues in the sector. Companies could face major headaches without an ESG strategy that addresses them sustainability.
- Investors and customers are attaching more importance to ESG in retail
- Adopting ESG practices can lead to greater sustainability.
- Purpose and reputation should be at the heart of decision-making.
- Retail companies can and should engage with local communities.
- Investing in ESG training can be a great enabler for corporate leaders.
What are the benefits of ESG in the retail industry?
- Reputation. ESG often helps your company’s image. People and investors will likely consider you more responsible around people and the planet. This is a valuable asset.
- Loyalty. Because of the above, stakeholders will trust your brand, endorse it, and return to it. If you’re doubtful, just look at how much value consumers place on social and environmental issues. They share ESG’s core values.
- Reduced risk. Companies focused on ESG can mitigate reputational risk. Sustainable sourcing and transport can also reduce the chance of supply champion disruption.
- Reduced costs. Going green will likely cost less in the long term.
What is the best way to measure ESG?
Reports and ratings which conform to recognised standards and frameworks are the best way. Companies should focus on their carbon footprint, their treatment of employees (and ensuring similar standards across borders) and their impact on local communities.
Common ratings agencies are Sustainalytics or CSRHub. Common frameworks for the retail industry are Sustainable Apparel Coalitions Higg Index or the Retail Sustainability Management Program.
Other relevant standards include ISO 14001 for environmental management, ISO 26000 for social responsibility and Fair Trade certification, which many consider a globally recognised seal of approval.
What should be the main areas of focus?
If unsure where to start, consider where the business significantly impacts ESG-related factors. What KPIs can be tracked? How will you communicate this new approach?
Common goals are:
- reducing excess packaging (E)
- more recyclable materials (E)
- improving supply chain efficiencies (E)
- fairer labour practices (S)
- charitable donations (S)
- relationship-building in communities (S)
- diversity and inclusion initiatives (S)
- addressing any accusations of corruption (G)
- learning more about ESG through recognised qualifications
What are the challenges in implementing ESG in the retail industry?
Often, companies will struggle to justify the costs of implementing ESG-related practices.
Tight margins govern retail decisions. It can be challenging for ESG to factor in. Other industries with higher margins will find it easier to craft a balance.
To justify such investments, retailers should consider the long-term and the lifetime value of the customers they depend on. Ultimately, strong ESG practices are linked to stronger profits. An excellent retail CEO will recognise this and act progressively.
So, what does this look like in practice?
- Ethical sourcing. Initially, it can look costlier due to supply factors or lack of ability to buy in bulk. However, it can gain heavy endorsement from consumers and investors.
- Supply chain analysis. Starting out, companies can view this as a cumbersome activity that gets in the way of business. Still, in the long term, it produces chains that are more resilient to market shocks and natural disasters because they take ESG into account.
Most retailers accept the need to define their ESG path but may need help knowing where to start.
Moreover, progress is driven by stakeholders, not just the companies themselves. Stakeholders apply their assessment criteria and judge based on those.
Ultimately, retail is a front-line business where brands are always in the minds of investors and stakeholders. For that reason, companies should always keep these people updated and satisfied.
Company purpose and reputation should be at the heart of decision-making, and stakeholder outlooks should always influence this process.
While there may be some challenges in justifying the short-term costs associated with ESG, these changes can be linked to sustainable profits in the long term.