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How and why retail businesses should be buying into ESG

How and why retail businesses should be buying into ESG 1

By Fathia Murphy, ESG Product Specialist at NAVEX Global

The appetite to be more sustainable and ethical in the way we live is growing and according to a Deloitte Global survey, 32% of consumers are highly engaged with adopting a more sustainable lifestyle.

As people become more conscious about the purchases they are making or the brands they are engaging with, retailers are recognising the need to appeal and stay relevant. That’s why more and more retailers are aligning their businesses with environmental, social and governance (ESG) issues – from sustainable products and packaging to supporting huge social movements.

But, while there is opportunity, there is also pressure from consumers, stakeholders, NGOs, governments, and investors on businesses to prove they take ESG commitments seriously.

The increase in ESG related policies adopted by retailers

Over the years the retail sector has faced controversy surrounding its environmental footprint, aimed at fast-fashion and single-use plastic. This, combined with eco-conscious millennials, means there is now a responsibility for retailers to be transparent when it comes to their efforts supporting the climate crisis, BLM movement, LGBTQ+ communities and other global issues. This is especially important when 73% of consumers say they are willing to pay more for a product if they love the brand, according to a Khoros study. And according to Retail Gazette, when it comes to sustainability, 90 per cent of Gen Z consumers said they have made changes to be more sustainable in their daily lives. It’s an opportunity many retailers can and should tap into.

As such, community relations and inclusion initiatives are driving top performing companies. We’re seeing leading retailers take action and use their authority in the industry to make a difference towards reaching sustainability goals. For example, as reported in Alva’s ESG sector index, M&S has launched new sustainability standard for denim, using kinder dyes and 86% less water than industry average. Also, John Lewis is the first shop to join the Prince’s green initiative, Terra Carta, a set of guidelines geared towards preserving natural capital, building a sustainable future and addressing climate change. There is also the new Conflict Minerals Regulation across the EU which aims to put an end to forced labour in trading minerals. As well as Germany recently enforcing a new act on corporate due diligence responsibilities in supply chains to ensure compliance with human rights and environmental concerns. With regulation in place there is transparency to consumers in knowing the impact of the product they are buying to help put a stop to funding violence, human rights abuses or other crimes overseas.

And it doesn’t stop there. Recently Walmart adopted socially responsible policies, and Joules announced an ESG-linked financing facility. Abercrombie & Fitch Co also created a new senior role specifically for this part of the business to have a positive impact on global communities. It’s promising to see retailers aligning ESG issues to business strategies as this is a positive step to making a difference and ensuring action is taken. I expect we’ll increasingly see businesses, especially retailers, adopt this approach.

So, what more can be done if businesses want to keep pace with the demand for ESG?

Understanding the E, S and G

As a starting point, for businesses leaders, it’s important to understand why implementing ESG strategies is essential and why retailers are adopting such policies. A NAVEX Global study revealed that whilst 82% of companies have ESG goals, less than half are performing well against individual ESG metrics. To successfully deploy an ESG strategy you need to understand what ESG means. The ESG acronym refers to a trio of business measures, typically used by environmentally and socially conscious investors, to identify and vet investments. Each measure adds its own value:

  • Environmentalbenchmarks address the way an organisation responds to environmental issues, such as climate change and greenhouse gas (GHG) emissions, energy efficiency, renewable energy, green products and infrastructure, carbon footprint, and water use.
  • Socialoutlines how companies should respond to complex and evolving issues like data privacy, pay equity, health and safety, diversity and inclusion, social justice positions, and employee treatment.
  • Governancedeals with issues such as executive compensation, diversity and independence of the board of directors and management team, proxy access, whether the chairman and CEO roles are separate, and transparency in communication with shareholders.

The key to success in deploying ESG programme is with the identification of relevant regulations and frameworks implementation.

Implementing the right ESG strategy

To report ESG risks accurately organisations need a framework or set of standards to assess the business operations. Implementing ESG software like NAVEX ESG helps to manage internal ESG initiatives, as well as external activities and reporting. Those who align ESG goals with wider business goals will have more long-term success as better information is collected by the appropriate professionals – the retailers mentioned above are a great example of this. Linking policies with goals demonstrates their commitment and adds further appeal to the conscious consumer.

Acting on ESG is a must 

While ESG commitment is growing, questions have been raised around the legitimacy of these retailers and businesses adopting such policies. Recently The Big Four accounting firms were called out for ‘jumping on the ESG bandwagon’. But, whether retailers are adopting ESG practices because of pressures from society and governments, or because they fundamentally believe in making a difference, we will and should continue to see ESG at the top of business agendas.

While it’s one thing talking about ESG in boardroom, it’s another to take corrective actions to make a real difference. It’s fundamental to report ESG risks accurately; businesses need insights, a framework, set of standards, and software to assess operations to take appropriate action. This is especially important for retailers who must keep up with consumer-conscious demand or ultimately risk losing business.

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