The global retail sector is undergoing a metamorphosis. From the opening up of new sales channels (think digital) and hybrid stores to supply chain efficiencies and the keen focus on sustainability and environmental consciousness, the sector is surely in for some unprecedented, wide-sweeping changes. The deployment of Environmental, Social, and Governance (ESG) practices, in particular, is gaining significant mileage with customers, and by extension, with retailers aiming to set new benchmarks for customer experience.
What’s more, today, both consumers and employees expect organizations to make conscious efforts for sustainable improvements in the environment and society instead of merely complying with regulations. And they invariably reward or penalize brands accordingly.
According to a 2021 report by PwC, 76% of consumers stated that they would stop buying from companies that treat the environment, communities, and their employees poorly. Also, 86% of employees prefer to work for brands that care about the ideas they do. Climate change is another priority on retail’s ESG investment wishlist, with consumers and employees supporting the corporate race to net zero.
According to the same report, investors parked $51 billion into ES-impact funds in 2020, and they believe that businesses can perform well by doing good. Besides, at the heart of UN Agenda 2030 are 17 sustainable development goals that apply to all industries worldwide and must be actively worked upon.
Top ESG Tasks for the Retail Industry
While the pandemic triggered myriad changes in the retail sector, ESG continues to remain a critical issue in this sector. As awareness about brands’ attitudes towards their employees, communities, and environment increases on social media, people want to buy products and services from companies that act responsibly. For retail brands, the issues to address in such a scenario include:
Ethical sourcing: Sourcing ethically implies that while procuring stocks from their suppliers, retailers consider their impacts on the people who create them and the environments in which they are manufactured, tested and packed. As against certifications like fair trade, vegan, and cruelty-free, ethically sourced is not yet a standard term and can encompass an array of ethical concerns in the industry.
Building a circular economy: As an industrial framework, a circular economy reduces waste by reusing, repurposing, and reconfiguring products and materials. Instead of transporting waste to a landfill, retail players need to move it back to their own supply chain. To transition to such as process, organizations must overhaul their supply chains and reverse logistics management practices with intelligent planning. They must also forecast, strategize, and use data more flexibly.
Promoting employee well-being: Data gathered from more than 1,500 retail employees in the Health of Retail report shows that more than 8 out of 10 workers experienced declining mental health in the past year (2021), and 20% of them plan to leave their jobs. Such indicators pose long-term challenges for the industry. To prevent the exodus, retailers must take concrete steps by creating a supportive work environment that positively impacts their employees’ health, welfare, and happiness.
Ensuring transparency and disclosure: Organizations with a transparent work culture tend to be more successful at their operations. They enhance team engagement and encourage employees to feel valued and be more productive. From recruitment and goal-setting to collaboration and performance management, workplace transparency can help retail companies to achieve their ESG goals more effectively.
Building Technology-Based ESG Compliance in Retail
Disruptive technologies such as IoT, AI, automation, cloud computing, and data analytics streamline business operations, reduce the gap between physical and digital spheres, enhance customer experience, and transform how companies work. Such technology solutions can also offer a framework for analyzing ESG impact and optimizing it. Retail companies can leverage their digital transformation technologies to drive their ESG goals with:
Supply chain optimizationWhile optimizing their supply chains for ESG and implementing automation in the process, retailers can work on:
- Instituting supplier diversity and carbon offset programs
- Keeping EV delivery fleets
- Using environmental friendly packaging
- Maintaining visibility into suppliers’ labor and operating practices with periodic audits
With cloud-based management and reporting, retailers can automate and standardize their data pools while also improving the transparency within the organization to help the leadership understand different environmental and social risks. ESG reporting can be inherently complex as data is sourced from a mix of financial and non-financial systems and external vendors.
Top tech players are already launching customized solutions to help businesses harness the advantage of the cloud for ESG. An example is “Microsoft Cloud for Sustainability,” a SaaS offering that allows enterprises to effectively record, report, and reduce their emissions toward net zero.
Data analytics, ML, and NLP
Data, machine learning (ML), and natural language processing (NLP) help to measure the ESG performance of companies. It starts with ESG metrics datasets that can be sourced from multiple sources, including business reports, government agencies, and third parties. The data passes through the quality assurance stage and is subsequently processed employing ML and NLP methods such as word embedding, topic & theme tagging, and sentiment analysis.
The processed data is then categorized into one to five distributions, where five indicates the highest ESG risk or worst performing unit/ company, and one is for the lowest ESG risk or most favorably performing unit/company.
Conclusion: Progress Toward ESG
Although retailers have started building upon their digital transformation to manage ESG initiatives, they must take it as seriously as their business’s main, revenue-generating operations. It is also critical to avoid greenwashing, which presents an untrue image of the company in terms of fulfilling environmental responsibilities.
At Xebia, we understand the significance of reconfiguring supply chains and streamlining other digital transformation technologies to achieve your ESG objectives. We also help clients understand consumer expectations, address logistics challenges, and strengthen ESG reporting while implementing sustainability practices.
Our experience in providing cloud, data analytics, and AI-based solutions for digital transformation across verticals has helped our retail customers get the most out of their ESG investments. Our low-code business arm, Appcino, has also launched a unique ESG app built on low-code to automate end-to-end ESG processes from strategy to execution.
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