How Retailers Became Serious About Environmental and Social Sustainability
Consumers, employees, investors, and governments are putting greater pressure on companies to conform to higher standards and approaches to social and environmental responsibility. This has brought more attention to supply chains which encompass relationships with suppliers in countries with higher risks of exploitation and involve significant use of resources in the production and transport of goods. As a result, many businesses have established supply chain sustainability as a corporate goal and are implementing measures to assess and quantify the social and environmental impact of the goods they produce and sell.
The big challenge is that once sustainability strategies and goals are developed, they require processes and systems to maintain. This is where dedicated third-party organizations and technology are changing the game by providing a framework and tools to make sure that meaningful corporate social responsibility programs are implemented and automated, much like other business processes.
Corporate Social Responsibility (CSR) is a term with roots in the 1950s, when the idea that organizations should act in consideration of societal values was first introduced. By the late 1980s, the concept of sustainable development became more popular. Until recently, social and environmental issues were addressed as separate entities. While social responsibility focused on social issues such as human and worker rights, sustainable development and environmental issues were covered under the idea that corporations need to be responsible stewards of the planet. Today, Corporate Social Responsibility has evolved as an umbrella term to cover both social and environmental concerns of businesses.
The most current thinking on CSR came out of a September 2015 United Nations Summit, where the U.N. adopted the “Agenda 2030 for Global Sustainable Development,” covering 17 sustainable goals that aim to promote sustainability across all nations, while emphasizing the need to prioritize the sustainable development of smaller more dependent countries. These goals cover workplace issues such as health and safety but extend to societal issues such as education, poverty, gender equality, clean water, clean energy, responsible production and consumption and justice among other priorities.
Forward thinking companies are now also using more current conceptions of corporate social responsibility to make it more meaningful and accountable. Instead of the usual bottom line focused on profit, some companies follow the accounting framework of a triple bottom line (TBL), an idea developed by Freer Speckley in 1981 and expanded on by John Elkington in 1999, which covers the environmental and social in addition to the economic aspects of an organization. By focusing on the triple bottom line, profit, people, and the planet (the three P’s), with metrics covering all three domains, businesses and their supply chains can have a positive impact on the environment and society and still profit financially.
A key principle of the triple bottom line is that a company’s responsibility is to stakeholders not just shareholders. These stakeholders include customers, employees, suppliers, and the community the business operates in and impacts its business activities. Extensive research has shown that in most cases, organizations that focus on the three P’s and who use environmental, social and governance (ESG) metrics ensure their economic viability and long-term competitive advantage. Contrary to the widespread belief that sustainability costs more, it costs less in the long run.
While environmental sustainability covers a wide range of issues, the most relevant aspect for retailers involves the resources that go into making a product, for example the number of raw materials, energy and waste used to make a pair of jeans or any consumer product.
A 2019 survey by the Carbon Disclosure Project (CDP) found that 65% of its members use environmental metrics to inform supplier management and hold their business partners accountable to their supply chain sustainability goals. In this survey, the CDP reported that 29% of 7,000 suppliers to the world’s largest corporations reported a decrease in emissions.
One of the challenges in implementing environmental sustainability is visibility. It is difficult, but possible, to have a clear view into a company’s environmental impact. For example, companies can track how much energy is used in making a product, the impact of choices in raw materials, and what happens at the end of a product’s lifecycle. Some brands have created what they call a Refscale for each of its products, which breaks down the environmental impact of every individual item they produce.
While not every brand has sustainability in its DNA, other brands have committed to being carbon neutral, which means having net-zero carbon emissions. Those claims are verified by third party organizations such as Climate Neutral, which works with hundreds of retailers and brands to help them reduce greenhouse gases with the goal of achieving global “net-zero” emissions by 2050.
While progress is being made in environmental sustainability there are clear opportunities for improvement. One issue prevalent in the CSR domain is when brands exaggerate the extent of their environmental efforts, or “greenwash” their messaging. Numerous well-known corporations and brands, including many market leaders, have been called out for the practice.
Businesses that exploit consumers’ willingness to choose and sometimes pay more for a brand that is genuinely “green” are not following the spirit of true corporate social responsibility. This makes it more of an imperative to rely on third party frameworks, accepted assessment measures, and CSR metrics.
The international Organization for Standardization (ISO) published an international standard (ISO 26000) to help companies evaluate and address their social responsibilities. This standard defines social responsibility as “the responsibility of an organization for the impacts of its decisions and activities on society and the environment, through transparent and ethical behavior.”
Social responsibility programs are proven to increase employee satisfaction, improve their public image, and increase customer loyalty. Yet despite the increased media attention and demand from consumers, compared to economic and environmental issues, social issues across retail supply chain operations have been less emphasized.
Environmental sustainability is easier to quantify and measure than social responsibility. According to the Global Reporting Index (GRI) in 2019 over 90% of the largest corporations file sustainability reports. The financial sector also increasingly uses this information for investment purposes, with around $23 trillion in assets being managed under responsible investment strategies.
One of the challenges with widespread implementation of social responsibility is that larger organizations have more resources for sustainability programs compared to small and medium sized businesses. It is also partly a generational issue, with millennials and Gen Z having grown up with more of a focus on environmental issues, diversity, and equity than older generations.
Nevertheless, consumers are making it clear that social issues rank alongside environmental and economic issues in their buying decisions. A study by Cone Communications found that 87% of American would purchase products from businesses that advocate for social and environmental responsibility and 76% would boycott businesses that behave irresponsibly.
Aside from the obvious issues of human rights and the expectation that corporations behave responsibly, research also shows that consumers believe it is important for brands to advocate for social change. Over two thirds of consumers believe that brands can affect real change when they take a stand on a social issue.
Brands still have a long way to go toward winning consumers’ trust. When the U.S. Department of Labor released its Comply Chain App in 2018 to help American businesses eliminate child labor in their supply chains, it listed 148 types of goods from 76 countries produced by child or forced labor. But going forward we can expect to see more brands with sustainability at their core as opposed to it being an afterthought, especially as younger generations take leadership roles and companies truly partner with their suppliers.
Our flagship product, CBX Cloud, can help your company meet its ESG benchmarks and back its sustainability claims. Our connected software ensures ESG compliance by creating transparency earlier in the supply chain. To learn more about CBX’s product lifecycle management, retail sourcing, and supply chain management solutions, contact us today.