The report out today from Barclays Corporate Banking – Reshaping retail: how ethics and sustainability are changing retail’s ecosystem – shows the pandemic and an increasing focus on Environment, Sustainability and Governance (ESG) are shifting business priorities.

In a study of more than 300 retail decision-makers, 51% in Scotland say sustainability is more important now than it was two years ago and 49% say the same about ethical standards.

Additionally, 83% of retailers in Scotland think that a long-term strategy to improve their ethical and sustainable credentials is more important than overcoming short-term supply chain disruption. On average, retail businesses with more than 10 staff are investing £504,000 per year to improve their own footprints.

However, the imperative to be more sustainable and ethical is now being felt financially across the supply chain. Across the UK, the average is six contracts cancelled per retailer, with an average value of £306,000 per contract. Cumulatively, £7.1 billion worth of contracts have been cancelled across the industry over the last 12 months.

The most common reasons for cancelling contracts with suppliers were:

• Use of unsustainable materials (39%)
• Unfair working hours (37%)
• Lack of membership to trade body that monitors ethical and sustainable standards (32%)

The importance of monitoring standards throughout the supply chain is reflected in the £179m retailers invested last year in joining trade bodies that monitor supplier performance in ethics and sustainability. Over a quarter (28%) of retailers signed up to new bodies last year, spending an average of £34,500 each in doing so.

Euan Murray, relationship director and retail sector expert at Barclays Corporate Banking, Scotland, said: “The impact of COP26 in Glasgow and the need for all businesses to become more sustainable is now starting to hit home amongst retailers. We are seeing a marked acceleration and shift among retailers in Scotland towards prioritising sustainable and ethical standards in every part of their business operations. That is now starting to take its toll on retail suppliers with billions of pounds worth of contracts being cancelled every year.

“It’s being driven by increasing consumer demand and will rise even further as Gen Z enter the workplace and begin to earn their own money. Retailers must continue to monitor and improve their ethical and sustainability standards if they are to appeal strongly to younger demographics.”

The consumer demand for improved credentials is highlighted in Barclays’ research among 2,000 members of the public. While quality of product (84%) and price (76%) are shown to be the purchasing factors of most importance to consumers in Scotland, ethical and sustainable credentials (52% and 53% respectively) are not far behind.

Younger consumers are leading the demand. In fact, two thirds of 16-24-year-olds would stop shopping with their favourite retailer due to ethical concerns and 68% of 25-34-year-olds would cut ties and shop elsewhere if their favourite retailer was found not to meet sustainability standards.

There is, however, an upside for retailers, in that consumers are prepared to pay a premium for these higher standards. On average, Scotland shoppers will pay 5% more for an ethically-sound product and the same for sustainably-sourced goods.

Consumers do also feel there is room for further improvement with 69% wanting to see retailers make more ethical and sustainable upgrades in future.