One in five retailers dropping suppliers over sustainability concerns, report reveals

The most common reason for terminating contracts was the use of unsustainable materials in packaging or products

Published today (10 February) by Barclays’ Corporate Banking arm, the report covers the period from January 2021 to January 2022. It finds that, within that 12-month period, a fifth (21%) of the UK’s largest retailers cancelled contracts with suppliers on the grounds that they failed to meet environmental, social and governance (ESG) standards.

The most common reasons for cutting contracts with suppliers were the use of materials not meeting sustainability criteria, and evidence that suppliers were not providing good working conditions, pay and hours to staff.

Retailers are also increasingly asking suppliers to join trade bodies and/or sustainability certification schemes to evidence they are meeting standards, the report reveals, with many suppliers failing to act as swiftly as their customers are demanding. More than one-quarter (28%) of the retailers polled joined a new scheme in the 12-month period covered.

The study covers 302 retailers and Barclays Corporate Banking polled at least one senior decision-maker at each firm.

The report concluded that an increased focus on ESG among investors, workers and the general public was a key driver behind decisions to end work with suppliers. Another contributing factor was the way in which Covid-19 has caused international supply chain disruptions, while also shining a light on – and deepening – existing social inequalities.

To this latter point, Barclays Corporate Banking found, promisingly, that 79% of retailers believe long-term improvements to the ESG credentials of their supply chains is more important than overcoming disruption in the short term. In other words, most are not willing to engage in a race to the bottom, forging contracts with suppliers that are not ESG-minded, for a short-term financial boost.

Barclays Corporate Banking’s head of retail and wholesale Karen Johnson said: “We are seeing a marked acceleration and shift among retailers 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.”

To Johnson’s point on consumer demand, the researchers also polled 2,002 UK adults to garner their views on sustainable shipping.

52% said that the ethical and sustainable credentials of a retailer or a product was a factor when they were choosing what to purchase. This makes it the third most important factor, behind product quality and price point.

Additionally, almost two-thirds (63%) said they feel retailers should improve their ESG credentials in the near future.

Climate engagement

The report from Barclays Corporate Banking comes on the same day that CDP has released its latest data from businesses disclosing supply chain sustainability data through its platform. There is a specific focus on emissions data and climate risk.

The findings are damning. More than half (56%) of the suppliers providing to these large firms do not have a target to reduce emissions. Just 3% of the suppliers have an approved science-based target.

Unlike Barclays Corporate Banking’s research, the CDP research is pan-industry, covering sectors such as manufacturing and services as well as retail.

Last year, CDP warned that businesses could face up to $120bn in additional costs across their supply chains from the impacts of climate and environmental breakdown in the next five years. More recently, a study from United Nations Global Compact and Accenture found that half of businesses had extreme weather impacting their supply chains during 2021.

Sarah George