The Increasing Role of ESG in Retail Operations

As climate change continues to dominate the headlines, businesses all over the world are feeling the pressure to prioritize ESG considerations in their daily operations.

Customers – particularly those belonging to the younger generations – are increasingly seeking out retailers which have a strong ESG ethos which aligns with their own. Those brands which fail to take environmental concerns seriously, or only pay lip service to them are struggling to attract business from shoppers with a conscience.

According to Deloitte Global, 32% of retail customers claim to be adopting a more sustainable way of living. As younger generations acquire more buying power, we can only expect this proportion to rise meaning retailers need to take ESG concerns seriously in order to succeed in the future.

ESG Pain Points

Research from Strategy& identified 15 subsectors of the retail and consumer goods industry and assigned them each an ESG impact score which would rank them in terms of their impact on the environment and their position in the esteem of retail customers.

Of the 15 subsectors identified, eleven were found to be either sweet or bitter spots for ESG. In the bitter category were meat products, plastic fabrics in fashion, plastic packaging, dairy products, and grocery/beverage delivery. In the sweet spot were sustainable materials, sustainable/reusable packaging, supplements, plant-based food products, insect-based products, and second hand/rental products.

The results of this research point to two broad conclusions – customers are looking to incorporate more sustainable options into both their diet and other shopping habits. Customers also want the products they purchase to come in minimal and sustainable packaging, and they want clothing made from natural materials.

This suggests that retailers selling any products which these concerns apply to would do well to consider ESG when vetting products and suppliers. Grocery brands would do well to incorporate more plant-based options into their inventory, clothing stores should try and avoid cheap fast-fashion articles, and retailers in all segments need to consider the amount of packaging waste they are generating both directly and through the products they sell.

"We found that certain subsectors, like those related to meat and dairy products have been hurt by some ESG considerations, largely things like concerns related to their CO2 footprint,” said Strategy& in their report. "On the other hand, other subsectors such as plant-based food products have benefitted significantly.”

Retail Investment for ESG

According to global financial services provider, Standard Chartered published a report which suggests $8.2 trillion of investible retail wealth could be funneled into sustainable investments by 2030 to finance ESG objectives in growth markets.

In the report, Standard Charter state that 40% of retail investors across all markets and income brackets consider climate change and carbon emissions a top investment priority and that the capital could be crucial in bridging funding gaps in areas including energy, food security, poverty alleviation, and reaching global net zero carbon.

These findings tell us that pressure to prioritize ESG in the retail space is not only coming from customers, but also from investors seeking to bet on the sector. However, barriers have been identified which are preventing investors and retailers from making the most of these opportunities.

• Accessibility: 48% of investors find it hard to even locate these investment products.
• Perceived low returns/higher risks: 47% consider it not to be worth their time due to an incorrect perception of a lack of return.
• Understanding: 47% cite a lack of understanding as a barrier and that more education is needed to help understand the impact of retail wealth moving into sustainable investment and ESG.

"Our research shows that $8.2trn of retail investor wealth could flow into sustainable investments if we remove the barriers that are holding them back,” said Global Head of Wealth Management at Standard Chartered, Marc Van de Walle. "The top ESG-related issues across the 10 markets we surveyed – climate change, pollution, poverty, corruption, food scarcity and energy security – correspond to the areas that investors are most interested in addressing.”

Final Thoughts

Whether from investors or customers, retail brands need to prioritize their ESG credential if they want to remain successful and relevant in 2023 and beyond. There is no denying the detrimental effect of manmade climate change on our planet and the time is now to ensure industry is doing whatever it can to mitigate the worst of it.

"Individuals have the power to be catalysts for change,” added Van de Walle. "We know that a rapidly growing number of our clients want their investments to make a positive impact on the environment and in society, and there is significant appetite to take ESG investment from a niche play to a mainstream investment strategy.”

ESG concerns are sure to be part of the conversation at Future Stores Seattle 2023, being held in June at The Sheraton Seattle.

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