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Neglecting ESG in retail may lead to increased reputational risks

February 28, 2024

Retail businesses need to make greater progress on environmental, social and governance (ESG) issues to protect their reputation, according to WTW’s latest Reputation Risk Readiness survey.
ESG and Sustainability|Direct and Facultative
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Environmental, social and governance (ESG) concerns are an increasing driver of reputation in retail. According to Google search data, interest in “ethical brands” and “ethical online shopping” grew by 300% and 600% respectively in 2020 alone.[1]

Meanwhile the sector faces increasing public scrutiny and regulation on a range of topics, from fast fashion and potential human rights abuses in the supply chain to climate-related financial disclosures and use of non-recycled plastic.

These pressures were reflected in our Reputation Risk Readiness survey, with environmental, social and governance issues emerging as three of the top five reputational risks. However, the results a suggest that progress in managing ESG and reputation risks may be stalling or even going backwards compared to our last survey two years ago.

Key findings: firms are less confident about ESG risk management

  • Only 17% had the highest level of governance process for managing reputation and ESG risks (processes linked to board KPIs), compared to 23% in 2021.
  • Perceptions of overall resilience to reputation issues, such as ESG, has also fallen. In 2021, 20% rated this as very good, but only 16% said the same in 2023.
  • Only 7% of businesses communicate with customers and stakeholders at least monthly on issues that might affect their reputation, compared to 39% in 2021.

Barriers to progress on ESG and reputation

So, what’s behind this uncertainty and caution? One reason may be that firms have more urgent priorities. Many are struggling to keep pace with digital transformation, while tough trading conditions over the last few years caused by the pandemic, inflation and high interest rates, have left others fighting for survival.

Retailers may also be reacting to the backlash against the ESG agenda in certain countries. For example, companies may feel pressure to pull back from what may be seen as ‘woke’ positions on social issue. Or they may fear accusations of greenwashing if they make strong sustainability claims.

For example, one fashion retailer introduced new eco-friendly materials in their products but suffered a severe reputational backlash after an investigation found some evidence of child labor in their supply chain.

Communication on ESG and reputation issues has fallen

Keeping on top of what’s being said about your company on ESG-related topics can be critical. Engaging with customers and stakeholders to understand sentiment and trends in opinion can help identify and address any that could risk a reputational backlash.

However, we found that while 91% of companies rate social media as their most important marketing activity, only 11% of C-suite members communicate on social media at least monthly – down from 36% in 2021.

Business leaders should keep up a conversation with customers and stakeholders on social media, engaging in forums and webinars and posting regularly on the platforms that customers use. By listening and engaging with them, they’ll be more likely to hear your side of the story if an incident happens.

Risk mitigation: finding the right balance

The survey suggests there may be a dip in confidence around ESG programs, some of which may relate to fears of getting it wrong or pushback on the social agenda.

ESG is here to stay. Retail businesses should take a measured approach, listening to customer and stakeholder sentiment where there is pushback but also maintaining a strong focus on ESG commitments that align with the brand and company values.

How to get it right on ESG and reputation

How to get it right on ESG and reputation

Review your ESG priorities – and stick to them

Decide which ESG commitments are core to your mission. But avoid kneejerk reactions to current headlines and debates. Retreating from a position quickly can make you seem inauthentic, denting trust in your brand and increasing your reputation risks.

Build reputation into ESG business planning

Make it a senior management responsibility, as part of your ESG agenda and horizon scanning. Include reputation on your risk register and carry out regular reputational risk assessments.

Know what people are saying about you

It’s vital to monitor conversations on ESG-related issues. WTW has partnered with Polecat to develop a risk monitoring tool powered by artificial intelligence (AI) that allows you to track live sentiment and get ahead of any brewing story before it hits the headlines.

Measure and prioritize your potential risks

We’ve developed a Reputational Risk Quantification Model that can help you establish an evidence-based value for the potential reputational damage that could follow incidents most relevant to your business. The model can also help you map any gaps in your mitigation measures and design a targeted program of reputational risk protection.

Learn from your peers and competitors

It’s a good idea to benchmark your business’s resilience to reputational risks. Our Reputational Risk Benchmarking Portal can help you compare your business against the strategies used in 500+ companies worldwide.

Improve your climate reporting

WTW has introduced a Climate Reporting Comparative Table that can help firms quickly identify the main reporting criteria and compare between climate reporting regimes.

Talk to us about your reputation risks

WTW can help you track live sentiment, quantify your risks and compare your preparedness against your peers. We also offer a complete reputation risk management solution, including crisis communication, brand rehabilitation and insurance to protect profits and maintain cash flows during and after an event.

To find out more about our reputational risk solutions, get in touch.

Footnote

  1. Think with Google Return to article
For further information, please contact

Brendan Meaney
Director of Retail Sales – Corporate Risks & Broking
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