How Retailers Can Establish ESG as a Core Competency for Growth and Resilience
How Retailers Can Establish ESG as a Core Competency for Growth and Resilience
Environmental, social, and governance (ESG) initiatives – encompassing everything from ethical labor practices to the environmental impact of operations – have been a longstanding priority for consumers but have only seen symbolic adoption by most retailers.
Global enterprises haven’t been the only ones dragging their feet. Major world governments have also been slow to act decisively on greenhouse gas emissions reduction goals first established in the 1990s. Most recently, the UN COP26 climate summit, which was supposed to result in firm pledges to slash greenhouse gas emissions, instead ended with what climate experts deemed “incremental progress inadequate to address the climate crisis.”
There came a significantly greater push from voluntary to mandatory regulated corporate disclosure on ESG performance, but as global temperatures continue to rise to catastrophic levels, it’s become clear that enterprises across industries must take a strong leadership position on ESG to unite sustainability initiatives with business models and revenue growth.
In this white paper, Bamboo Rose, the retail industry’s leading Multi-Enterprise Platform, outline some of the core challenges and best practices that retailers and brands must leverage as they design and implement ESG strategies to keep pace with the accelerating expectations of their customers, shareholders, employees, and governing bodies.
Integrating ESG into Broader Sourcing and Supply Chain Transformations Efforts
Disruptive weather events, geopolitical conflict, raw materials shortages, factory closures, carrier capacity constraints, and wild swings in consumer demand have wrought havoc on the retail industry.
Retail sourcing and supply chain leaders have been feeling exposed and underprepared. This disruption started with the global shutdown prompted by the COVID-19 pandemic: An Infosys survey showed that 85% of supply chain leaders were impacted by pandemic shutdowns and only 10% felt prepared to manage the new challenges of the shutdown. This unstable moment in retail exposed underdeveloped sourcing strategies rife with uneven power dynamics and an over-reliance on geographies that don’t always have the wealth or infrastructure to effectively fulfill ESG priorities as fundamental as the safety of employees at work.
The business environment over the last 18 months is undoubtedly spurring change and transformation across retail organizations. In fact, 64% of supply chain executives say that their digital transformation initiatives will accelerate. But business and technology transformations that don’t integrate ESG requirements and focus on mutual value for all members of the retail supply chain won’t have the resilience or agility necessary to manage the next era of retail, which will include more stringent ESG regulations, a higher prevalence of disruptive weather events, and a need for more strategic and mutually beneficial supplier partnerships.
Ultimately, knowing where and under what conditions your products are made is the first step in a retail brand’s sustainability journey. You can’t improve what you can’t see. Supply chain technologies have advanced significantly in recent years, and interest in promoting sustainable sourcing is also steadily rising among both retail organizations and consumers. However, in a 2021 survey by Oxford Economics, only 27 percent of supply chain professionals reported having significant or complete visibility into more sustainable supplier sourcing processes. Technology-driven supply chain visibility and transparent data exchange are key to understanding the challenges, at scale, that underpin opportunities for mutual benefit and sourcing resilience. It is also key to building trust and credibility with sourcing and supply chain partners up and down the value chain.
Of supply chain leaders impacted
by pandemic shutdowns
say digital transformation efforts
Industry competition, unstable supply chain macro-conditions, and emerging ESG requirements are simultaneously driving the next revolution in retail sourcing.
The burgeoning transformation across retail sourcing organizations will result in a next-gen sourcing strategy that inextricably links traceability, geographic diversification, ethical sourcing operations, profitability, surety of supply, and supply chain resilience. Retail sourcing leaders will need to leverage technology-driven supply chain transparency and agility to achieve each of these aims and respond successfully to current market dynamics.
Retailers will need to evolve their sourcing strategy from an “egosystem” reliant on mandates, to an ecosystem approach focused on equitable partnerships and shared ESG and business outcomes. Industry leaders who are already overseeing this transformation are leveraging multi-enterprise platforms as technology catalysts that help retailers as well as their supplier partners stand up and track ESG initiatives while also driving business benefits including cost savings, accelerated time to market, margin improvements, resilience to systemic risk, and revenue growth.
Levers for Success – Demonstrating the Business Value of ESG
While the concept of sustainability has been batted around board rooms and touted as a priority to consumers, few retailers have made the necessary adjustments to their business models, processes, and financial reporting to drive measurable, meaningful progress.
To demonstrate value in their ESG initiatives, retailers will need to adhere to forthcoming regulations and proactively address consumer pressure to avoid penalties and damage to their brand down the road. Environmentally conscious consumers – an increasingly large swath of retail buyers – want more than greenwashed marketing campaigns and vague promises to reduce emissions from large corporations.
It’s become clear that a tactical and holistic ESG strategy is a critical business lever for retail organizations. Dynamics such as brand reputation with consumers, regulations related to product design, and the extended supply chain network will directly connect ESG maturity to business operations. These dynamics, combined with increasingly unstable global operations, will significantly impact profit margins, customer retention, and company valuation. To prepare for this new era of business strategy, retailers and brands will need to partner with ESG experts, oversee technology investment, and remodel their ecosystem strategy to maintain margins and growth while adhering to emergent ESG requirements.
Just as it’s important to connect business value and ESG value to the same holistic outcomes, it’s equally important to connect the systems you’re using to manage core business processes and emergent ESG initiatives.
The Bamboo Rose Multi-Enterprise Platform equips retailers and partners with the business process applications, collaboration capabilities, and data visibility they need to execute on their core goals while also supporting emergent ESG metrics, reporting, and continuous improvement.
Leveraging a multi-enterprise supply chain strategy can help retailers tactically adjust product development, sourcing, and supply chain processes to account for ESG initiatives and regulations in close collaboration with their partner community. For example, Bamboo Rose Supplier Recommendations identifies and recommends suppliers most equipped to support product requirements against a range of configurable business criteria. This tool analyzes production capabilities, past win rate, audit performance, transportation costs, sustainability metrics, and risk exposure to deliver a recommendation for the optimal vendor partner capable of accounting for both business and ESG requirements holistically.
Finding the Metrics to Track, Report, and Act on ESG Initiatives
Associations on both the regulatory and industry level are pushing companies to keep ESG at top of mind across the product development lifecycle and throughout the supply chain.
This practice made it difficult and sometimes impossible for companies to assess the level of sustainability of their manufacturing processes and materials. Ensuring retailers, brands, and their partners are adhering to consistent and rigorous metrics frameworks will be key to ensuring that ESG initiatives are achieving real progress. It will also become a key reference point for banks and investors as they look to analyze, valuate, and invest in organizations with strong, quantifiable ESG strategies.
Increasingly, regulatory standards bodies and associations, including the Sustainable Apparel Coalition (SAC) Higg Index, the Global Reporting Initiative, and the Value Reporting Foundation, are taking steps to provide retailers with consistent, quantifiable metrics that can drive meaningful improvement for product development and supply chain operations and are comparable across retailers. Digital traceability based on trusted data presented in a digestible, actionable way enables brands to track performance against relevant ESG metrics and potentially set even more ambitious goals to achieve operational excellence in a more sustainable way.
Retailers and brands are finally starting to see more defined guidance from government bodies on ESG.
At the same time, industry associations and standards bodies have started to consolidate and drive more consistent adoption across the retail industry. Retailers should consider framework properties such as financial materiality, decision useful, evidence based, market informed, and low cost when agreeing on metrics to drive forward their ESG initiatives. As predominant metrics solidify, leveraging the technology to track, manage, and analyze this data becomes vital for reporting, risk analysis, and continuous improvement.
Bamboo Rose clients can leverage sourcing and vendor management capabilities within the unified platform to aggregate supplier data and monitor ESG compliance against internal and regulatory standards. This consistent source of truth drives supplier accountability, reduced risk, stronger partnerships, and the ability to track progress quantifiably and consistently against ESG goals and initiatives. Clients leveraging supplier management across their vendor base on Bamboo Rose have seen a 65% reduction in responsible sourcing at risk audits and a 96% reduction in Sev 1 compliance issues.
more expensive to produce sustainble products vs non-sustainable products
Interfacing with the Board on ESG
Retail boards have been reticent in the past to aggressively integrate ESG requirements into core supply chain and business model strategies due to the lack of a compelling business case.
Fortunately, shareholders are now bearing down on boards across industries to incorporate ESG metrics into performance measures, performance goals, and vesting conditions. Bain Capital asserts that traceability is the next phase of the supply chain revolution. The rising interest in traceability among retailers and investors underscores the importance of centering ESG topics at the core of the retailer business strategy. “The pressure is growing on leadership teams in every industry to improve sustainability, performance, and resilience in an increasingly volatile global economy,” wrote Bain & Company authors. “Traceability can help companies achieve all three of these goals and develop a powerful competitive advantage.”
Financial markets are aligned on this point of view and are now including ESG initiatives as a core factor in calculating a company’s valuation. The ESG Disclosure Simplification Act of 2021 is currently making its way through the US legal system, representing another example of regulation which would require major corporations to be more transparent in disclosing economic and social risks to investors, including climate-related risks. Even more compelling is the EU Green Deal, which promises the EU will achieve no net emissions of greenhouse gases, decouple economic growth from resource use, and honor a “no person and no place left behind” creed by 2050. This will place pressure on retail boards and executive teams to not only disclose their level of ESG risk to shareholders but also to have the technologies in place to achieve transparency with suppliers to trace activities and materials throughout the supply chain. It will also be incumbent on retailers to track ESG metrics for reporting purposes.
Ultimately, Boards of Directors at enterprise retail organizations have an obligation to employees and shareholders to provide oversight and guidance on potential sources of ESG risk.
In recent years, boards that have failed to adequately account for ESG have seen litigation from shareholders and the replacement of directors. The Bamboo Rose Multi-Enterprise Platform can be configured to account for emergent ESG processes and metrics across all stages of product development, sourcing, and global trade operations. But providing the frameworks to realign business processes and supply chain strategies to account for and report on ESG initiatives is only a portion of board-level governance on the topic.
Multi-enterprise supply chain technologies and strategies also allow retailers to remain agile and resilient to climate-driven disruption on strategic sourcing and supply chain operations. Boards expect companies to have the infrastructure in place to maintain revenue goals despite increasingly prevalent extreme weather events, geopolitical disruption, and unstable commodity costs. Leveraging an MEP to catalyze ESG change allows firms to report accurately and transparently to boards on ESG risk while simultaneously building resilience to systemic risk and operational agility amidst increasingly unstable global markets.
ESG Will Underpin Broader Sourcing Transformation Efforts
Evolving geopolitical dynamics, supply chain disruptions, shifting consumer expectations, and emerging ESG requirements are all contributing to major transformation in retailer sourcing strategy. To achieve your sustainable sourcing goals, you need to know where and how your products are made. The transformation to a more sustainable sourcing industry will only continue to accelerate, and the fundamental ingredient for an agile ESG sourcing strategy is visibility and trusted, transparent data at scale. Only with this visibility and intelligence can a brand invite end consumers to make better purchasing decisions favoring their brand.
Digital Data Feeds Form the Bedrock of ESG Metrics
Digital traceability based on trusted data enables brands to track performance toward relevant metrics and business objectives such as resilience, responsiveness, and sustainability. It also allows brands to set even more ambitious goals with the purpose of achieving operational excellence in a more sustainable way. There are tools available to empower brands to track performance according to 3rd -party verified and transparent data, enabling traceability and better decision-making.
Strong ESG Strategies Today Lead to Growth Tomorrow
Once organizations buy into a strong ESG strategy as a key lever for growth, the path to building ESG into their ecosystem approach and business model will become clear. But a transparent, quantifiable ESG strategy will require organizations to implement a technology suite that unites all partners and processes across the product lifecycle. A multi-enterprise platform facilitating process transformation and open communication across the supply chain is fundamental to driving resilience to systemic risk and maintaining growth goals through deeper supply chain partnerships and agility to emergent ESG regulations.
Prepare for Increased Board Scrutiny on ESG
Risk Investment banks, shareholders, and Boards of Directors are now pressing businesses to disclose their level of ESG risk and take meaningful action to reduce emissions across the supply chain. They also expect retailers to prioritize ethical sourcing and labor practices. The most successful oversight will come from boards that don’t silo ESG and instead encourage all directors to be fluent on the topic, leveraging assets like the SASB Engagement Guide to support this education.