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Retail businesses, take heed: the industry has reached a tipping point. Consumers are no longer turning a blind eye to the environmental impact of their purchases. Retail and government organizations are cracking down on sustainability, and new regulations for sustainability compliance are being rolled out each month. Retail businesses need to create sustainable business models to adhere to the SEC and other organizations' sustainability regulations, without increasing prices. Let's talk strategy.
With SEC regulations going into effect and independent organizations rallying for change, sustainability is the must-have focal point for all retailers going forward. While the secondhand apparel market is growing at 3x the rate of the global apparel market at large, many retail categories simply can’t be sold second hand.
The CPG industry, for instance. Nobody is standing in line for used CPG products, and the industry is a top offender when it comes to carbon emissions.
- 60% of global greenhouse gas (GHG) emissions.
- 80% of global water usage.
- 66% of tropical forest loss around the world.
The fashion industry is the most widely referenced when it comes to sustainable production. "Sustainable fashion" and "sustainable clothing brands" are arguably the biggest buzzwords of the last decade.
While sustainable fashion brands get most of the positive press, fashion isn’t the only industry that’s been forced to evolve. Every retail vertical now needs a sustainable production strategy: consumer packaged goods (CPG), cosmetics, raw materials, sporting goods, manufacturers, consumer electronics, furniture, and even luxury jewelers.
But what exactly is sustainability in retail? What universal factors are involved in creating a sustainable business model? There are a lot of moving parts to each retailer's sustainability strategy, which are largely based on the sustainability regulations pertaining to their unique vertical. But a few factors are universal.
Here’s how Science Direct’s Journal of Retailing defines sustainable consumption and production:
“Retailers’ sustainability initiatives reduce the negative impact of products on both people and the environment throughout the supply chain, which continues to be a top consumer demand. Retail Industry Leaders Association reports that 93% of global consumers expect brands to support social and environmental issues.”
SEC Requirements and Surrounding Legislature
The SEC (Securities and Exchange Commission) recently proposed a new set of regulations to govern retailers’ sustainability initiatives, which will soon become the gold standard for retail operations. Impending SEC regulations require retailers to report any climate-related risks that may have a material impact on their business, business operations, or financial situation.
SEC requirements will require all retail businesses to disclose:
- Governance of climate-related risks and relevant risk management processes.
- How any climate-related risks have had or may have a material impact on their business and financial statements.
- How any identified climate risks have affected or are likely to affect their strategy, business model, and outlook.
- The impact of climate-related events (weather events and other natural conditions) on their consolidated financial statements, financial estimates, and assumptions.
- A company’s direct greenhouse gas (GHG) emissions.
- Indirect emissions from purchased electricity or other forms of energy.
- GHG emissions from upstream and downstream activities in their supply chain, including GHG emissions targets/goals.
So, what about retail businesses that don’t create a reporting structure that adheres to the SEC guidelines within the right time frame? While the SEC hasn’t released a list of tiered penalties for non compliance, past penalties for those that don’t comply with SEC guidelines included fines of anywhere from $25,000 to $50,000 or more. Non compliance penalties for the sustainability initiative are still in negotiations. SEC regulations are constantly evolving.
Investing in a sustainable business model today can save a retailer or supplier substantial fines and penalties down the line. There are benefits to being a first responder. Positive consumer and industry sentiment are reserved for retailers/suppliers that create a sustainability initiative of their own volition. All retail businesses will soon need to comply with SEC regulations, so it’s better to create a sustainable business model right off the bat to reap the benefits of early adoption.
To adhere to SEC guidelines, retailers first need the ability to audit and certify their production partners, facilities, and factories. They also need to track whether vendors and factories are up to date with certifications and sustainability criteria. After all, the SEC regulations aren’t the only thing retailers need to worry about.
- The electronics industry has the Illinois Sustainable Technology Center’s Sustainable Electronics Initiative, which was created back in 2009 and took off in recent years.
- Global raw material use grew at about twice the rate of the general population during the 20th century. This inspired the Environmental Protection Agency to create a Sustainable Materials Management (SMM) approach to reuse and recycle raw materials.
- The global eco furniture market was valued at a whopping $43.26 billion in 2022 and is expected to expand at a CAGR of 8.6% between 2022 to 2030.
Are you starting to see the universality of pending sustainability legislations? Sustainability in retail is no longer just a trend, it’s a global movement that’s only going to pick up speed. As sustainability regulations develop, retailers will need a supply chain infrastructure that makes it easy to collect information from factories on certifications and audits, and flag the branches that aren’t up to par.
While retailers need to make sure factories are aligned, suppliers will need a deeper understanding of their products and production components. Suppliers need to test each product to certify it meets sustainability criteria before they can add it to their system. Communication is key here, suppliers that have the capability to digitally ping their partners for updated info and verification will be far better positioned than those that try to do so manually.
Did you know that over 95% of a retailer’s sustainability footprint is determined by their supply chain? Most organizations will need to restructure to adhere to SEC sustainability guidelines. But there’s a plus side: Businesses that manage to offer sustainable goods at affordable price-points will skyrocket to the top of the retail food chain. The right technology makes this process easier than it sounds. Supply chain transparency is the first step to enforcing sustainability initiatives.
Track Sustainability Compliance While Decreasing Bottlenecks
In "The State of Sustainability: Q4 Guide," we will go over the SEC regulations and surrounding legislature that retailers/suppliers need to know. We'll share how consumer interest in sustainability has evolved since the pandemic. Finally, we'll discuss how implementing a product lifecycle management solution that's built by and for the retail industry can make sustainability compliance intuitive.
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