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.
