Thanks to the climate crisis, there has been a significant global movement towards holding retail businesses accountable for their environmental and social impacts. Not only is this shift driven by the risk of transnational litigation by pressure groups, but also by consumers and employees, who want to purchase from and work for a brand that reflects their own morals. Retailers are at particular risk of ESG litigation because of their extensive supply chains. Reporting obligations mean that brands have to make public statements about the level of supply chain control and oversight, so that they are vulnerable to negative publicity. Tesco is a great example of this, having recently been in the news for its supplier’s use of alleged forced labour in a Thai garment factory. For this reason, developing a strong ESG strategy is clearly vital to retailers.
Legislative Changes
Equally important in the development of a retailer’s ESG strategy is the required response to legislative and regulatory reform. In Europe, legislative changes are being spearheaded by the European Commission through directives such as the Corporate Sustainability Reporting Directive and the Corporate Sustainability Due Diligence Directive. These directives aim to make businesses part of the solution to environmental and social issues by mandating comprehensive reporting and due diligence practices.
The UK is following Europe’s lead albeit at this stage in a more piecemeal fashion introducing a myriad of ‘ESG’ related legislation which is aimed at promoting ‘good corporate citizenship’ and responsible business practices. Examples include the Bribery Act, the Modern Slavery Act, the Energy Performance Regime, Building Safety Act and Proceeds of Crime Act/anti-money laundering laws that seek to address fraud and financial crimes.
Important to the ever-expanding remit of the Annual Report is the requirement to report on areas of non-financial conduct and behaviours where agencies are often cited who will rate and benchmark standards of environmental and social impacts. The exponential growth of ESG rating agencies reflects the increasing demand from legislation, regulation, and investors for companies to report on ESG criteria, disclose adverse impacts, and outline strategies to address these issues.
In 2025, the UK Government is expected to introduce new legislation to regulate agencies that evaluate ESG factors. The Financial Conduct Authority (FCA) will be responsible for drafting the rules for this new regime, and a new watchdog may be established to supervise rating agencies operating in the UK. This move is anticipated to promote transparency and accountability in ESG reporting and assessment.
Tackling Greenwashing
In the UK, there has to date been a strong focus on promoting transparency and accountability for green claims. Retailers must be especially cautious of greenwashing (using green credentials to hide other detrimental behaviours) and greenshouting (over promising and delivering on green credentials). The Advertising Standards Authority provides guidance on avoiding misleading environmental and social responsibility claims, emphasising the need for verifiable and substantiated claims. This aligns with the Competition and Markets Authority’s Green Claims Code, reinforcing collaboration between both authorities and providing guidance on how a retailer may advertise and promote green credentials.
The Power of B.Corp status
Modern slavery can manifest in various forms, including forced labour, human trafficking, and child labour. Retail companies, with their complex and extensive supply chains, are particularly vulnerable to these risks. Factors contributing to this vulnerability include global sourcing, multiple layers of suppliers and subcontractors that can obscure unethical practices, and cost pressures that can drive suppliers to cut corners, including exploiting workers. Retailers like Seasalt, The White Company, and Fatface have been accredited with B Corp status (i.e., companies verified by B Lab to meet high standards of social and environmental performance, transparency, and accountability). It is notable that, as with Adidas, Nike, Primark, Puma, M&S, H&M, and Hugo Boss, a key determinant is effective audit and transparency afforded by publishing detailed supplier lists. These lists include factory names and addresses, demonstrating a commitment to ethical sourcing and increased accountability.
Directors have a legal and ethical duty to ensure their companies do not engage in or benefit from modern slavery. Key responsibilities include implementing robust due diligence processes to identify and mitigate risks, ensuring transparency in supply chain practices, reporting on measures taken to combat modern slavery, and establishing policies and providing training to staff on identifying and addressing modern slavery risks. By fulfilling these duties, directors can help protect vulnerable workers, uphold ethical standards, and safeguard the company’s reputation.
While there is no explicit criminal liability for directors, they remain bound by their fiduciary duties to act in good faith and in the best interests of the company, which includes addressing modern slavery risks. An independent review of the Modern Slavery Act recommended that businesses should have a designated board member personally accountable for producing the modern slavery statement. Proposed criminal offences include knowingly or recklessly publishing a false or incomplete modern slavery statement and continuing to source from non-compliant suppliers after a formal warning.
Businesses as Drivers of Social Policy
Businesses are not only responsible for their environmental impact and ensuring ethical supply chains but also play a crucial role in driving social policy. A recent example is Martyn’s Law, introduced in September 2024, which mandates new safety measures for premises and public events to protect against terrorist attacks. Martyn’s Law, officially known as the Terrorism (Protection of Premises) Bill, was introduced in September 2024. This legislation is named in tribute to Martyn Hett, who tragically lost his life along with 21 others in the 2017 Manchester Arena attack. The primary aim of Martyn’s Law is to ensure that public premises and events are better prepared for terrorist attacks and ready to respond effectively. The law mandates that those responsible for such venues take reasonably practicable actions to mitigate the impact of a terrorist attack and reduce physical harm. Martyn’s Law introduces a tiered approach based on the size and capacity of the premises or venue.
The law is designed to reflect the varying levels of risk associated with different types of venues and events, for example with shopping centres likely to be subject to greater burden than a single site unit. By requiring tailored security measures, Martyn’s Law aims to enhance public safety without imposing undue burdens on smaller venues. Martyn’s Law represents a significant step in the UK’s efforts to protect the public from terrorism. It underscores the importance of preparedness and proactive measures in safeguarding public spaces. The legislation also highlights the role of retailers and event organisers in contributing to national security efforts.
In conclusion
The movement towards greater business accountability for environmental and social impacts is gaining momentum. This article highlights just a few of the areas where a retailer’s ESG strategy must adapt and provide for robust practices to mitigate risk and ensure good governance in consequent decision making. Additionally, opportunities arise for those who are proactive in contributing to a more sustainable and secure ethical business environment. By doing so, a retailer can build trust with consumers and stakeholders, enhance brand reputation, and gain competitive advantage.
If you want to find out more about the key trends shaping the retail industry, download the EDGE of retail 2025 report now.
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