As Environmental, Social, and Governance (ESG) topics become increasingly important across all industries, it’s critical for business leaders to incorporate ESG into strategy and operations. In fact, ESG proposals from shareholders are up 22% from last year. For retail, there are specific nuances of ESG that are particularly pertinent. This article examines five ESG trends that should be top of mind for retailers in the coming years:
ESG Trends for Retailers
ESG Trend 1: Circular Economy (Resale)
Secondhand retail continues to be a growing trend, and since last year, the number of brands that have introduced resale programs has grown exponentially. Recent examples include Lululemon, PacSun, and Dick’s Sporting Goods. Retailers continue to see potential in the resale market for capturing a new customer segment and increasing the longevity of their products. It will become more important for retailers to consider the environmental impact of the products they sell – not only from sourcing to the point of sale, but all the way to eventual disposal. Resale programs are one way to decrease this environmental impact and capture a financial gain.
ESG Trend 2: Employee Well-Being
Several trends have converged and highlighted the importance of fostering a positive experience for retail workers. First, the COVID-19 pandemic brought increased visibility to the value of “frontline” employees. Second, the Great Resignation has shifted dynamics in the job market. Finally, the trend toward unionization further underscored the dissatisfaction with status quo workplace conditions. Beyond base pay, retailers should consider benefits to the “whole employee,” such as flexibility, PTO, career advancement, and financial planning – to name a few. Retailers who view employees as critical assets to the business, rather than costs to be minimized, will yield higher retention and productivity.
ESG Trend 3: Diversity & Representation
DE&I is a core tenet of the retail industry’s ESG agenda, especially because retailers wield significant power in influencing consumer choices simply through the products they carry. For example, since 2020, 28 retailers have made a “15% Pledge” to dedicate shelf space to Black-owned brands. Additionally, diverse representation in leadership makeup and advancement opportunities will continue to be important for retail, as will implicit bias training for store employees. Consumers, employees, and investors alike will increasingly choose to align with companies that demonstrate strong DE&I practices and commitments, and there are tools available to help them do just that.
ESG Trend 4: Ethical Sourcing
There’s growing demand for retailers to prioritize ethical sourcing throughout their supply chains. Within just the last couple of years, the percentage of customers who consider ethical sourcing in purchase decisions has increased. Some products are more material to ethical sourcing than others. For example, electronics carry the highest risk for modern slavery, followed by apparel, and the next three are agricultural products. As customers’ access to information increases, it’s important for retailers to likewise gain visibility and truly understand their full supply chains – including suppliers’ suppliers.
ESG Trend 5: Transparency & Disclosure
Reporting on ESG performance will become a critical factor for retailers across all of the aforementioned topics. Historically, retail has lagged behind other industries in ESG reporting. While there are certainly challenges (for example, a lack of standardization), the only way for retailers to succeed in the intended impact of their ESG goals is to measure, track, and report. As the saying goes: “the best time to plant a tree was 20 years ago; the second-best time is now.” Retailers who set the foundation now will benefit from richer data and a proven track-record in the future.
Whether you are just starting to set an ESG strategy or getting ready to publish your next report, Clarkston can provide expertise on ESG best practices.