Brands and retailers reallocate resources to prioritize ESG

Managing Environmental, Social and Governance (ESG) risks was a priority for many retailers in 2022 and will be even more important in 2023, given that companies are pursuing the 2050 carbon neutral goal set by the United Nations. According to the Net Zero business barometer, while 25% of companies are working toward carbon net zero by 2050, 28% are pursuing the lofty goal of net zero by 2030.

TradeBeyond’s Q1 2023 Retail Sourcing Report looked at two different recent surveys from leaders in the ESG and sustainability space, one focused on businesses (by Systainalytics) and one focused on consumers (by Sphera). The following is a portion of our report, which you can download in full here.

While the common perception is that consumers are driving businesses and governments to shift attitudes and actions in the areas of ESG, this research suggests otherwise. There is no question businesses are highly focused on implementing ESG, but this is being driven more by government regulations and businesses are reacting. The shifts are happening quickly, with companies relying primarily on third-party consultants to implement change. At the same time, they are developing internal resources to manage the demands on ESG. Businesses are still playing catch-up in terms of adoption of standards and software to manage ESG, which opens a significant opportunity to bridge the gap.

IDC has predicted that by 2024, 30% of organizations will advance their ESG metrics and data management beyond reporting capabilities to generate sustainably driven cost and competitive advantages. By 2024, IDC forecasts that 75% of large enterprises will implement ESG data management and reporting software as a response to emerging legislation and increased stakeholder expectations.

The report by Sustainalytics, which surveyed over 550 individuals at a cross-section of businesses of varying size, location, and industry, provided insights into where companies currently stand on their ESG readiness. The results show that ESG is evolving rapidly, from a compliance and brand-driven activity to an integral component of business strategy. Leaders have clear goals and metrics with verifiable data to support claims. However, it is also evident that many businesses still lack the resources and tools to effectively implement and report on ESG initiatives.

Measuring ESG progress is paramount

While ESG may be a priority for most businesses with specific strategies created, they are mostly at the beginning of their ESG journey. According to Systainylitics research, the main motivator for ESG compliance still comes from senior leadership and regulatory requirements. Getting adequate budget and human resources are still their main challenges, meaning they cannot effectively measure, report, and disclose their ESG activities.

Most companies today rely on consultants and external guidance to deal with their ESG challenges as opposed to managing them with internal employees, third party software, or sustainable finance. This suggests that companies are still dealing with practical aspects of ESG such as understanding material issues, setting goals and measuring and reporting.

McKinsey’s State of Fashion 2023 Report, meanwhile, highlighted the point that the biggest sustainability challenge facing the fashion industry is the lack of standards to assess sustainability performance. While there are several bodies such as the Sustainable Apparel Coalition’s Higg Index, the industry has a long way to go toward an acceptable level of industry standardization. Successfully tackling this issue will lead to greater trust by consumers, more business and a better outcome for our world.

Retail’s leading multi-enterprise platform, TradeBeyond empowers brands and retailers to monitor, measure, and reduce their environmental and social impact. The platform’s powerful sustainability tools allow businesses to track their suppliers’ carbon emissions as well as their water, energy, and cotton consumption and the social impact of the products they source.