Retailers and suppliers have always thrived when their relationships are strong. However, the issue of Environmental, Social and Governance (ESG) has become one of the biggest priorities for retailers, and a challenge for suppliers. Environmental, social and governance represent the three factors used to measure a retailer or supplier’s sustainable and ethical impact.
Why retailers and suppliers can’t escape ESG
For retailers and suppliers, the challenge of incorporating ESG into their operations results from several factors, including government legislation, fundamental beliefs from investors and the labour market, and customer expectations.
Retailers must meet the needs of shoppers. For years, shoppers have been collectively increasing their conscious consumerism, slowly gravitating towards companies emphasizing environmentally friendly, sustainable, and ethical practices.
For suppliers, the accommodation of conscious consumerism by retailers warrants a change. Suppliers must find areas of opportunity and adjust to produce products with an ESG-oriented competitive advantage.
In discussing retailer ESG expectations, Advantage Group CEO, John McLoughlin, says, “Retailers have recognized that sustainability is part of their social license to operate and that shoppers will make decisions based upon environmental impact. Retailers are setting the highest standards and expect suppliers to have a cohesive ESG strategy that translates through to the point of difference at the product level. Suppliers that are winning are addressing areas of weakness in their product-characterized stakes or their supply chains and turning them into strengths with ESG priorities embedded in their work.”
3 ways suppliers can meet retailer ESG expectations
1. Build a connection – communicate with retailer partners
Knowledge is power. Before developing a strategy for your organization, consult with your retailer partners on their ESG metrics to ensure that your strategies are aligned with meeting their goals. Frequent and intentional communication fosters solid relationships and helps suppliers listen effectively to retailers.
Many retailers don’t possess the capacity to monitor the operations of all their suppliers, especially as many have multiple suppliers. To combat this lack of management, metrics are often implemented to assess the performance of suppliers on these issues. Aligning these metrics is key to satisfying retailers and maintaining a successful business partnership. The best way to be aware of and fully understand their qualitative and quantitative metrics, and discuss your capacity to fulfill them is to communicate with your retailer partner.
2. Broaden your thinking – assess and implement new strategies
Understand that ESG is not a result but a process that requires thought-out strategies to bring about change in your organization and meet retailers’ expectations.
As shoppers become more aware of the ethics of the supply chain and socially conscious, retailers demand more from their suppliers. Suppliers must be ready to assess their operations and transform their strategies. For example, if your operations are designed to optimize costs, consider that you may need to pivot towards focusing on ESG-aligned goals such as net-zero carbon emissions goals or a commitment to awarding contracts to diverse suppliers (versus partnering with the most cost-effective).
After connecting with your retailer partners, you’ll be equipped with the knowledge needed to determine the most critical areas where ESG needs to focus. Suppliers can identify key priorities, strategize and allocate resources to accomplish ESG goals. We highly recommend implementing accountability measures to focus on your environmental, social and governance goals within your organization and other supplier partners.
3. Prepare for change – internally communicate your goals
Meeting the expectations of retailer partners, especially with ESG-related goals, requires a complete organizational effort. Shifting a company’s focus can take time and restrategizing; it demands collaboration from all stakeholders. Without understanding ESG goals and their purpose, companies will be unable to enact change, achieve their full potential, and ultimately meet their retailer partners’ expectations.
Ensure that ESG goals are linked with the organizational purpose of the company. Remember that achieving your goals is ongoing and may require a significant cultural shift within your organization. Internal communication is key to the execution of your new strategies. Companies should articulate their purpose, goals, vision and strategy about ESG issues through various mediums and provide a platform for clarification and communication.
Looking to the future – how Advantage can help your ESG goals
With Advantage Report, we can help you improve your engagement and align your ESG goals by listening to your business partners and providing you with valuable feedback. Connect with an Engagement Advisor today.