Sustainability increasingly influences consumer decisions about which brands they shop with. We discussed sustainability in this blog, and are turning our attention in this article toward ESG scores and reporting. The U.S. Security and Exchange Commission (SEC) is working on passing ESG regulations that will require retailers to report their ESG scores. This change will require eCommerce retailers to track and report on numerous factors and for many, will require either working with an ESG reporting vendor or implementing an internal reporting process.
What do eCommerce retailers need to know about ESG scores and reporting?
Radial can help with sustainability initiatives.
What is ESG?
ESG stands for “environmental, social, and governance” and is a set of standards used to measure an organization’s performance and impact on the environment and society. Tracking ESG helps stakeholders understand and shape future financial performance, resilience, risk, and their reputation with consumers and investors. ESG is one criteria that society, government regulators, and investors track.
Does ESG Matter to Consumers?
Yes, it does. ESG influences consumer shopping decisions about which brands and products they select. In fact, according to this study:
- 82% of shoppers prefer a consumer brand’s values to align with their own, and will choose another brand if it does not
- 66% seek out eco-friendly brands and products
- 55% say they’ll pay more for sustainability
Clearly, there’s money on the table for retailers that prioritize sustainable retail practices.
What Does ESG Measure?
According to the National Retail Federation, the E, S, and G represent the following criteria:
The E, S and G
- Land management
- Human rights
- Diversity, equity and inclusion
- Labor practices
- Human capital management
- Product safety
- Community impact
- Occupational safety
- Board diversity
- Executive pay
- Customer satisfaction
- Data security
- Risk management
- Code of conduct
- Tax strategy
- Supply chain
- ESG oversight
One area that ESG rating platforms are monitoring is the occurence of greenwashing.
What is Greenwashing?
Greenwashing is the practice of claiming products, services, or the business is more sustainable than it actually is, usually through misleading claims, marketing, or sustainability disclosures. Whether intentional or not, regulators and investors are scrutinizing and investigating those that fail to live up to their ESG claims. ESG validation through disclosures, reports and standards-based ESG scoring can help provide ESG assurance.
Measuring ESG performance has become important and may soon be law within the United States. Rating agencies use ESG scores to track ESG performance and exposure to long-term ESG-related risks. These risks are categorized by the NRF as:
- Supply chain disruptions
- Plastics and packaging
- Product labeling and marketing transparency
- Materials sourcing and product traceability
- Shifts in consumer and market behavior
- Human rights and labor relations
Retailers that do not prioritize ESG may find themselves susceptible to these risks and unable to compete effectively in the future with brands that excel at ESG practices.
There are hundreds of ESG rating platforms that measure ESG performance, and may publicly disclose findings to stakeholders and consumers. One of the goals of ESG scoring is transparency, so that consumers have a standardized method of comparing brands and products.
There are two types of rating methods, active and passive. In active rating, retailers voluntarily contribute data to the ESG rating platform like CDP, or to an assessor, like S&P Global. This allows retailers to participate in their scoring process.
Passive ratings are based on publicly available information and assess company performance without the retailer knowing they are being evaluated. These ratings are often based on disclosed policies, reports, goals, and statements.
Top ESG Raters
There are numerous ESG rating agencies, but the following are the most prominent:
Can You Trust an ESG Score?
As of this writing, there is no universal ESG rating platform or scoring methodology that produces a standardized score. Even the top ESG rating agencies may produce different scores for the same retailer — which leaves consumers and investors with having to combine all available ESG scores to get an overview of that retailer’s ESG performance. The lack of standardization means that ESG scores can be confusing and conflicting for consumers. Standardization is one of the SEC’s goals for their pending regulations.
Retailers Need to Build an ESG Framework, Not a Program
The idea of tracking and reporting on ESG data can seem daunting, and many retailers that aim to do so internally will need to address their data management processes. Rather than building an ESG program, retailers are encouraged to adopt a framework and align their goals to it. The SEC has been working to unify ESG frameworks and develop reporting requirements for public companies, but private companies do well to adopt frameworks as they embrace the importance that ESG has to consumers, their brand reputation, investors, and their impact on the world.
The following are notable ESG standards-setting entities that have or are developing ESG frameworks:
Building an ESG policy based on a framework not only helps with future compliance, but gives retailers the basis to create a sustainability program that aligns with their values and fulfills a deeper purpose in the world.
How Radial Addresses ESG
As a logistics provider, we have an impact on the environment. So it’s our duty to take concrete steps to reduce our environmental footprint and play our part in conserving our planet.
Radial, a bpostgroup company, is deeply committed to sustainability and environmental protection; our number one priority is to reduce our environmental footprint. Through our environmental initiatives, we are working to limit carbon emissions, energy consumption, and waste volume across Radial.
Explore Radial’s ESG initiatives.