Taking action now is the key to retailers’ long-term ESG success

Karen Johnson, National Head of Retail and Wholesale, Barclays Corporate Banking, poses some important questions about the ESG journey facing retailers to Radi Ivanova, Sustainable Finance, Barclays.

(KJ) We know ESG and the move to net zero is fundamentally important but why do retailers need to take action now?

(RI) There are a raft of regulations due to hit businesses over the next couple of years and these will involve various reporting requirements. Companies will need to assess the risks from climate change and the capturing of emissions levels across their business will be essential.???For large companies they will need to look at their full supply chains, which invariably involves lots of smaller suppliers. This is crucial as we know the majority of emissions – in excess of 90% in many cases – sit within the broader supply chain. This will all need to be reported so retailers can comply with the impending legislation.

Are companies prepared for upcoming regulations and the overall transition journey?

The larger ones are more prepared when it comes to upcoming reporting requirements, but according to a YouGov survey on behalf of Veolia *, less than a third of UK businesses have a strategy for achieving Net Zero. As many as 42% of companies are feeling overwhelmed by the actions they need to take to achieve these goals.

What are the key actions that should be taken?

A Materiality Assessment is a strategic tool for companies to engage with their key stakeholders. The goal is to show the intersection of priorities of stakeholders (including employees, NGOs and industry bodies) versus those of the business for ESG-related issues. These priorities are specific to each sector and for retail, we often see considerations such as emissions, plastics use, food waste, biodiversity and sustainable sourcing as being key. Such an assessment will enable companies to focus on the initial priority areas that deliver early, meaningful results. Retailers can then focus on measuring their impact effectively and setting medium and long-term targets to drive ongoing change.

How does a retailer measure environmental impact?

This is not easy! Many retailers have initiated stand-alone projects, for example installation of solar panels on roofs of warehouses or replacing vehicle fleets with electric alternatives.?Businesses often look for help from external experts when it comes to this process with the intention to carry out a carbon audit, identifying different categories of emissions such as energy, transport and procurement while also beginning to form an idea of low-hanging fruit to achieve improvements and longer-term goals that need to be set.

How difficult is it to validate the data related to environmental impact?

There is a big challenge around good quality sustainability data, so increasingly there is an expectation for items such as emissions to be externally validated by an independent party. It is becoming more common for financial auditors to provide this review alongside the annual financial reporting process, but companies can also work with dedicated experts on this aspect. There is a clear cost-benefit attached to external validation – it is an additional expense but it also adds credibility to a company’s sustainability commitments in dealings with investors, customers and suppliers and removes some of the risks around ‘greenwashing’. Reliable data is also essential to being able to access sustainable financing such as sustainability-linked loans, bonds and trade finance.

Why should companies consider sustainability-linked loans?

Sustainable finance allows for the merging of the financing and sustainability of a business into a single coherent strategy. Companies such as Dunelm and Joules who have both taken out sustainability-linked finance have committed to setting annual ESG targets and depending on their performance, see the interest on their loans increase or reduce.???In this way, businesses demonstrate to the market and to stakeholders that they have robust sustainability strategies in place, measured against external environmental standards and benchmarks.

Why should retailers act now rather than later when it comes to creating credible strategies?

The cost of inaction could be high, both in the context of regulation but also reputational impact, and ultimately loss of business. Barclays February 2022 research, Reshaping Retail, shows a clear drive from UK retailers to uphold the highest ethical and sustainable standards, where 1 in 5 UK retailers cancelled contracts last year with suppliers who fell foul of ethical and sustainable standards. The cumulative value of these contracts was ￡7.1bn. In addition, our research also identified 65% of younger shoppers would abandon their favourite retailers if they don’t show a strong commitment to ethics and sustainability.

Where can companies get support in their transition to net zero and more sustainable operations?

At Barclays, we are going through our own transition journey and that includes supporting our clients on their net zero journey. As just one example, we’re working with SaveMoneyCutCarbon, which provides an online platform that brings together products and specialist advice that can help make your operations more sustainable.

Within the retail sector, industry bodies such as the British Retail Consortium (BRC) offer collaborative opportunities for companies to achieve sustainability progress as a common objective. The Waste & Resources Action Programme (WRAP) is another key initiative setting an approach to tackling emissions, plastic and waste, through measurement methodologies and robust target setting. Increasingly, companies are also committing to science-based targets aligned with the Science Based Targets Initiative (SBTI), which offers a scientific approach towards setting Paris-aligned decarbonisation objectives.

Why is Barclays focused on helping clients on their ESG journey?

Apart from it being the right thing to do, like any other business the bank is measured on its emissions and this extends to the activities of our clients. We’ll therefore do what we can to support them on this complex journey.

* https://www.veolia.co.uk/insight/less-third-businesses-have-net-zero-strategy