Responsible, Resilient, Relentless: Sustainability in post-crisis retail
If there is a silver lining to COVID-19, it is surely that retailers have a golden opportunity to rebuild from the crisis in a way that strengthens their businesses while mitigating their impact on society. They have a once-in-a-generation opportunity to refocus on purpose, inclusion, restoration and resilience.
In today’s world, ethically minded stakeholders expect nothing less from retail brands: from investors who saw companies with strong values outperform during the crisis, to consumers who are weary of shoddy corporate behavior. In turn, we expect the post-COVID-19 to be one of responsible retail, in which normalizing environmental, social and governance (ESG) thinking will be a key point of competitive differentiation.
These are not completely new concerns, of course. Even before the pandemic, retailers were confronting the climate crisis, inequality and exclusion, and exploitation in the supply chain. Simultaneously, the data were repeatedly and consistently demonstrating the financial case for ESG management, as companies with high ESG performance showed stronger operating margins and greater return to shareholders.
But today we are at a tipping point—and the ambition for change is vast. Leading retailers have committed publicly to sourcing 100% of key materials sustainably by 2025 and to cut greenhouse gas emissions by up to 45% by 2030. They have promised to avoid all hazardous chemicals within five years and to move to 100% renewable energy procurement within a decade. By 2025, they have pledged to educate 80% of women employed in their supply chains.
Are these goals achievable? Well yes, in that the ambition is there and that most retailers are already expert at managing change. Years of responding to consumers’ shifting needs have given them that, at least. And the digital tools and technologies they rely on—including data analytics and AI—will be vital to success. To meet their ambitions, however, they will need to take action simultaneously across many fronts.
The big questions
Improving ESG performance involves some serious re-evaluation. As one example, diversity has always been a critical element of the “S” in ESG. So, retailers need to ask themselves, “When did we last undertake an honest assessment of our inclusion and diversity practices?”
There are also many environmental and governance questions. Retail workforces adapted quickly at the onset of the pandemic, but digital technology can support ongoing transition. Brands should ask how elastic their workforces are and explore what support their employees need as working practices transform. In parallel, they should look hard at environmental performance.
Getting to work on the business
Setting up a sustainability SWOT team is a good way to start making positive change. This identifies where the business stands on sustainability and helps define an action plan for improvement.
As a result of this analysis, many will find that now is the time to reset the expense and operating model. The traditional retail focus on store, business unit or functional P&L may be no longer fit for purpose; instead, retailers might benefit from more granular insight that tracks change and environmental impact.
A holistic approach is essential to achieving the shift, starting with a forensic evaluation of the expenses baseline, and the environmental and employment impact of that baseline. This is the foundation on which to embrace new targets and a category ownership structure that emphasizes shared responsibility. Once you’ve undertaken this groundwork, locking targets into a zero-based budget links resources to the organization’s strategic priorities.
Other priorities include embedding more sustainable supply networks that move beyond the vulnerabilities exposed by COVID-19. That means stepping back from linear supply chains, favoring equitable and agile partnerships that provide diversification. And it means assessing the risk and materiality of every point in the supply network, including from an environmental standpoint.
The speed of technology
Better use of technology will help retailers reach their ESG ambitions more quickly. AI and predictive analytics tools can, for example, maximize sell-through and minimize waste, while advances in digital prototyping and software integration provide a single source of product and process information. Meanwhile, internet of things technology has applications in areas such as energy efficiency.
The data generated by these technologies offers the potential to generate powerful insight, helping retailers identify new products, decipher patterns, and learn how to better serve customers and improve operational efficiencies. The sustainable analytics borne from the data will also help the business record ESG progress and the implications of decisions as it builds predictive and prescriptive models.
Conclusion: Answering the wake-up call
The pandemic and today’s broader debate about societal values, inequality and racism represent a wake-up call to embrace a better future in retail. The justification for reshaping businesses with ESG management, purpose and authenticity has never been clearer, and success—at last—has never been more attainable.
As retailers plot a path to recovery, those with high-carbon models, vulnerable supply chains, and no discernible commitment to consumers, employees, investors and the planet will find themselves left behind. For the others, the future is bright.
Cara Smyth, Managing Director and head of Sustainability in Accenture’s Retail practice and Frank Zambrelli, Executive Director, Responsible Business Coalition at Fordham University.