Environmental, social, and governance (ESG) policies and practices are a continuously growing aspect of business in today’s world, with impact across industries. The retail sector is on the forefront of the ESG movement—as consumers, stakeholders and regulators look for retail companies that are making efforts to improve ESG practices.
ESG policies address environmental and social injustice issues that might arise due to the actions of a company, including effects on climate change; and where human rights might be in jeopardy due to manufacturing processes. Robust ESG initiatives have been linked to access to funding at lower rates, with higher volumes of investments in companies which have solidified ESG principles.
Another driver of ESG in retail and other sectors is the risk implications that come with ESG-related regulations and reporting. A goal of more transparency is created by ESG, as people are questioning methods used by large retail corporations more than ever. While the reasoning behind this questioning might be caused by changing attitudes or realizations, the fact is that regulation of the industry is increasing. Regulatory scrutiny has increased among regulators including the EU Emissions Trading System. The cost of future noncompliance with ESG regulation will likely be higher than proactive action now.
The standards set forth for ESG in the retail industry are created by high-profile companies with large representation. Examples include The Home Depot (U.S.), Rewe (Germany), and Carrefour (France), which are helping set standards across the globe. The emphasis for these companies includes utilizing renewable energy sources, creating sustainable products and having full transparency in emissions released. A major goal of large retailers is to attract ethical consumers, alongside the positive global effects of increasing ESG compliance efforts.
Key risks within retail companies implementing ESG practices involve supply chain methods, greenwashing and shareholder activism.
- When it comes to supply chain, forced labor and human trafficking are key items to prevent. With new efforts, including regulations demanding responsibility among businesses for their practices, businesses must implement greater monitoring to ensure that sustainable methods and humane working practices are used throughout manufacturing and distribution of products for retail.
- Greenwashing (misleading claims on environmentally sound products/services) has been an issue for companies looking to falsely improve their image. In 2023, companies risk legal action over such false claims, and therefore, must be even more conscious of their transparency.
- Shareholder activism campaigns related to ESG have substantially increased in the past few years; which again, can lead to legal action against companies who are seen as having bad practices or behavior when it comes to ESG.
ESG has a large upside for retailers who choose to invest in sustainable and transparent business practices. However, with the risks involved with the process of ESG implementation, retailers are wary of going about the process “correctly,” to ensure that their efforts create positive impacts for themselves as well as the world around them. When moving towards more sustainable practices that support the ESG movement, retail companies have a lot to keep in mind.
About Schneider Downs Retail and Business-to-Consumer Services
At Schneider Downs, we strive to maximize the potential of our retail clients’ operations, while growing revenue and reducing costs. As one of the largest firms in the tri-state region, we know the value of personal focus and are a PCI Certified Quality Security Assessor. Our Retail industry group professionals have experience working with several regional, national and international organizations, and we possess the knowledge and capability to provide value to any entity within the retail industry.
To learn more, visit our Retail and Business-to-Consumer Industry Group page.
About Schneider Downs ESG Consulting
With our industry expertise and extensive knowledge of the risk advisory landscape, the Schneider Downs team can help your organization perform a gap assessment relative to the finalized regulation, suggest areas of improvement, and meet the SEC Name disclosure requirements.
Learn more about our ESG consulting services at www.schneiderdowns.com/esg or contact the team at [email protected].
