Author: Lauren Foye, Head of Reports at Zero Carbon Academy
As ZCA have previously warned, companies are now increasingly judging their supply chain in terms of environmental and ethical credentials. According to Barclays, in the UK retail sector this is leading to a rise in the cancellation of contracts.
Source: The Economic Times
Suppliers see cancellations, as sustainability concerns drive decisive action by retailers
Recent findings from Barclay’s ‘Reshaping Retail’ study[i] have exposed a growing trend by retailers to cut ties with suppliers who are failing to deliver the required standards in sustainable and ethical practices. The UK-centric research discovered that, in terms of value, a staggering £7.1bn worth of supplier contracts were cancelled in the 12 months from January 2021 to January 2022, due to either ethical or sustainability concerns. Further, just over a fifth (21%) of the UK’s largest retailers cancelled contracts with suppliers on the grounds that they failed to meet ESG (environmental, social and governance) standards. The main reasons for cancelling contracts were the use of unsustainable materials (39%), unfair working hours (37%), and lack of accreditation to an ethical/sustainable membership body (32%).
The research surveyed senior executives of 302 UK-based retail businesses, alongside 2,002 UK consumers. The latter group provide particularly interesting reading for business- when asked to prioritise factors in their purchasing decisions, 52% placed both sustainability and ethical credentials within their top considerations. Interestingly, the data shows a slight variation between genders, with women are more concerned than men about sustainability (56% of women vs 48% of men), and ethics (54% vs 50% of men). Yet interestingly, it is men who are more likely to act: 61% of men said they would cease to shop at their favourite retailer because of concerns over sustainability (61% versus 51%) or ethics (61% versus 52%).
Further, industry sectors too show a variation in attitudes by consumers. In terms of ethical credentials, 47% of consumers perceive supermarkets and the food and drink sector as the top performers. Likewise, in terms of sustainability credentials, these sectors also scored 47%. Barclays argue that this could reflect the work done in recent years to greatly improve transparency within the food industry, alongside the demonstration of more ethical purchasing practices made towards farmers and wholesalers. Interestingly, fashion retailers received the lowest score for perceptions of their ethical practices, at just 33%, and it is this sector which is also seeing the highest average number of contracts cancelled per retailer, over the past year. Where the average number of contracts cancelled is just under 6, for the fashion sector it is now 7.5, potentially showing a drive by the industry to improve its standings.
Retailers are utilising a range of incentives and strategies to drive change
However, not all are simply cancelling contracts, retailers are also looking into methods to drive change and make a difference alongside their suppliers. Dunelm is one such example where the home furnishings retailer “regularly audits tier 1 suppliers via an independent agency and is moving to its tier 2 this year. Where social and ethical performance shortfalls are spotted, suppliers are given action plans with tight deadlines to rectify their operations, or risk being dropped from the supply chain. In addition, the company has linked management incentive plans to the purchase of responsibly-sourced cotton.”[ii]
Retailers are also increasingly asking suppliers to join trade bodies and/or sustainability certification schemes to evidence they are meeting standards, more than one-quarter (28%) of the retailers polled joined a new scheme in the 12-month period covered, and 77% of retailers believe that ethical / sustainable membership bodies are effective in helping improve credentials.
Retailers are optimistic on UK government targets, and future strategy
The future for sustainability in retail looks promising, at least from a business perspective. Respondents to the Barclays study were largely satisfied with wider Government targets and regulations, remaining willing to meet these, as well as utilising them to improve their own efforts- for example net-zero targets by either 2040 – or 2030 for larger firms. In fact, the study reports that 71% of retailers believe the UK Government is doing enough to regulate supply chains in the UK. In terms of retailers’ future supply chain strategies, the most favoured action (at 29%) is to start working with smaller suppliers in 2022, whilst 26% are planning to use greener delivery services or green warehousing solutions.
Zero Carbon Academy (www.zerocarbonacademy.com) aims to become the ‘go-to’ resource for the learning, information and community that individuals need to assess, plan, execute and monitor their organisation's migration towards a Zero Carbon footprint.
This blog reflects the authors own opinions, it therefore does not reflect the thoughts or opinions of the business, or any affiliated organisations.
The information presented in this blog is purely for interest, it should not be seen as direct business advice or investment strategy - using it for such purposes remains at your own risk.
Our analysts work hard to gather these insights, as such please do quote and link back to their research, or ask permission, before using excerpts.