What’s holding retailers back from establishing a successful ESG strategy?

The concept of Environmental and Social Governance (ESG) has been around for some time and has been gaining traction in recent years, with research suggesting that investment in global sustainability funds has catapulted over the past five years. Despite a growing appetite amongst consumers for sustainable products and services, some retailers still appear to be behind on their environmental goals and strategies. Senior reporter Ross Henry Law reports.

The Global Reporting Initiative’s (GRI) standards provided the world with the first global framework for sustainability reporting when they were launched in the year 2000. The guidelines outlined a credible way for companies to understand and report on their impacts on the economy, environment and people, thereby providing an appreciable method of increasing transparency on their contribution to sustainable development.

Recent research by the Governance and Accountability Institute found that 92 per cent of S&P 500 companies and 70 per cent of Russell 1000 companies published sustainability reports in 2020, suggesting that being socially conscious is no longer something that companies can afford not to pay attention to.

A December 2022 study by Willis Towers Watson found that two thirds – 65 per cent -- of European companies had implemented environmental policies that deal with issues including climate change, lowering carbon emissions and wise use of natural resources. In the UK, the number of companies using at least one ESG measure in their long-term executive incentive plans increase from 24 per cent in 2021 to 37 per cent last year. While these figures are encouraging, it is concerning that many retailers are still behind on their ESG journeys.

Making the case

In the retail industry, working with a myriad of suppliers can mean that achieving supply chain sustainability can be a particularly nettlesome task.
Simon Geale, EVP procurement at supply chain consultancy Proxima, believes that half the problem is linked to the general mood around implementing sustainability measures within organisations.

“Right at the heart of enacting a sustainability strategy, there's what drives someone over the line from knowing this is something they ought to do, to understanding that this is something they have to do,” he says, noting that sustainability is often a large undertaking and the payback on such investment case is not immediate.

“Generally speaking, you are asking the organisation to make some simple but also very substantial changes, which will pay back over a period of time,” he says. “Therefore, the ability to make that case is a fundamental barrier to get the business to agree to do this - and this is even before you come up against the ensuing challenges of actually doing it.”

Geale explains that getting a sustainability plan off the ground is even harder in the current economic climate, with such matters not as high on the agenda for boards. He adds that because of the current cost-of-living crisis, customers are not necessarily “voting with their social conscience” as much as they may have been in the past.

"Until all such parties squeeze you enough, you can procrastinate on this rather than know that you have to do this now," he says, "and this is the general reality in the boardroom."

Crossing the starting line

Once an organisation has made the decision to invest in a sustainability plan, there are often further obstacles to navigate.

Due to the relative nascency of implementing sustainability plans, Geale describes the move as something of a “leap of faith” for organisations to set a course and actually get a plan together after making the decision to do so.
Being a relatively new area of focus, he says that the organisations Proxima works with are faced with a roster of questions about how and where to invest, which people to reach out to, and where to start first.

"The next challenge is that when you look at Scope 3, in particular, and the landscape of any companies' emissions, it's all in the supply chain," he says.
Scope 3 emissions are defined as those tied to activities that are not owned or controlled by the reporting organisation, but that the organisation indirectly affects in its value chain.

But given that many retailers engage with several core providers, which potentially have hundreds of their own suppliers, who too have their own set of suppliers, means that it’s difficult to find a starting point.

"It is therefore very complex to build an accurate picture of what's happening, and people can get very caught up in trying to build this picture and get the data right rather than necessarily taking action,” says Geale.

The bare minimum

When faced with such potential complexity, Geale believes it is borne out in the evidence that many organisations embark on a sustainability plan from a ‘bare minimum’ standpoint.

Referring to the CDP, a non-profit that runs the global disclosure system for investors, companies, cities, states and regions to manage their environmental impacts, he says: “They have around 18,000 companies who have submitted data, and of those who have submitted a climate action plan, less than half of a per cent are credible.”

Elaborating on the potential reasons for this, based on Proxima’s own recent Scope 3 benchmarking report, Geale says: "What we're seeing is that businesses are making commitments and setting targets, but they're not yet investing in the underlying infrastructure that it is going to take towards delivering towards them."

He concludes that for many organisations, there is an evident lag between proclaiming what they are going to do and investing in the necessary steps to achieve it.

We are at a point in time where it is crucial for organisations to have an effective ESG strategy in place if not to satisfy the increasingly eco-conscious consumer, then to address growing concerns amongst shareholders.

However, it is clear that this is not a simple undertaking, with trepidation and an overall lack of clarity around how to ‘reach the starting line’ remaining a key challenge for organisations, particularly when the long-term value of these strategies can be difficult to quantify.

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