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Balancing Innovation & Responsibility

The retail sector finds itself at a critical juncture. Today's consumers are not just passive buyers; they are informed and passionate about environmental issues and expect retailers to offer products that align with their values and lead by example in adopting responsible practices. Regulatory bodies, meanwhile, are ramping up scrutiny, compelling retailers to stay ahead of evolving standards and exhibit a genuine commitment to Environmental, Social and Governance (ESG) principles.

Retailers occupy a unique position as the link between producers and consumers, making them pivotal in the drive for sustainability and ethical practices. This means that retail leaders must navigate the complexity of setting ESG goals and strategies while immediately working out how to make them happen.

This article explores how future-facing retailers are meeting this challenge head-on, harnessing Artificial Intelligence (AI), advanced analytics and domain expertise to drive ESG transformation.

Unpacking ESG

ESG encompasses a broad range of practices – reducing carbon emissions, enhancing supply chain transparency to ensure fair labor practices, and fostering diversity and inclusion. Over the years, it has transitioned from a niche concern to a strategic imperative within the retail sector, with ESG journeys driven by pressure from all directions:

Conscious Consumers

Consumer sentiment is a primary motivator. A recent survey showed that two-thirds of customers have stopped buying from companies whose values did not align with theirs, while 78 percent say that companies’ environmental practices influenced their purchase decisions.1 Another study revealed that products that promote themselves as ESG-compliant experience stronger sales growth than those that don’t.2

Boardroom and Shareholder Pressure

The influence of ESG considerations extends into the boardroom and among shareholders. Sustainable investment has surged to over USD 30 Trillion globally, reflecting a growing demand for companies to adopt and report on ESG metrics.3 This shift is also evident in executive compensation structures, where ESG performance increasingly factors into C-suite remuneration packages. The pressure from investors and boards to meet ESG expectations is fundamentally re-shaping corporate strategies.

Regulatory Scrutiny

Regulatory changes have added another layer of urgency to ESG integration. With heightened scrutiny and evolving regulations, retailers are facing tangible consequences for non-compliance. For instance, under the Uyghur Forced Labor Prevention Act (UFLPA), textile shipments valued at USD 29.55 Million have been halted since June 2022.4 Regulatory requirements for retailers are complex and evolving, affecting multiple parts of their business model, particularly supply chain, employee relations and environmental footprint.

Competitive Advantage

Embracing ESG is not just about managing risks; it also presents significant opportunities. Companies that lead in ESG practices can differentiate themselves in the marketplace, build stronger brand loyalty, improve performance and attract investment. Showcasing a commitment to sustainable and ethical practices can serve as a powerful differentiator in a competitive retail landscape.

The ESG imperative is pushing the retail sector to re-imagine how it operates, with 85 percent of global CXOs increasing sustainability investment in 2024, compared to 75 percent in 2023.5

The ESG Implementation Gap

This is where the real challenge of ESG comes into focus. What are the right tools, techniques and technologies for implementing a retail ESG vision? And how should these journeys be approached to deliver the most value?

This ‘implementation gap’ is clear: A massive 75 percent of large businesses feel they don’t have the policies, skills and systems in place to meet ESG assurance requirements.6 Meanwhile, collating and assessing relevant ESG data across all touchpoints of an organizational value chain can prove a burden on an analyst’s time and resources. A glance at a typical retailer’s ESG commitment demonstrates why:

ESG across Retail

Figure 1: ESG across Retail

To succeed with ESG, retailers must master multiple areas:

Environmental Impact

  • Carbon Emissions Monitoring: Tracking greenhouse gas emissions across the supply chain, including production, transportation and distribution

  • Resource Usage Tracking: Monitoring water, energy and material consumption during production to identify opportunities for efficiency improvements and resource conservation

  • Waste Management: Evaluating the amount and type of waste generated by retail operations, including packaging waste, food waste and product returns, assessing overarching waste generation and management practices

  • Regulatory Compliance: Evaluating environmental certifications and compliance with regulations

  • Sustainable Innovation: Implementing sustainable alternatives across the value chain, from eco-friendly packaging to electric transportation solutions

 

 

Social Responsibility

  • Labor Practices Audits: Conducting audits to assess working conditions and labor practices within facilities

  • Supplier Diversity Initiatives: Monitoring and promoting supplier diversity to support the development of inclusive supply chains

  • Community Impact: Assessing community engagement and philanthropic activities

  • Employee Experience: Tracking employee wellbeing and building true diversity in the workforce

  • Human Rights Adherence: Evaluating human rights policies and ensuring adherence to international standards

 

 

Governance Compliance

  • Governance Structures: Monitoring corporate governance frameworks and policies to ensure ethical management

  • Board Diversity and Independence: Assessing the diversity and independence of board members

  • Compliance Tracking:Tracking compliance with regulatory requirements and industry standards

  • Disclosure and Transparency: Integrating ESG issues into transparency and disclosure practices

  • Ethics and Integrity: Implementing ethics and anti-corruption policies

  • Human Rights Adherence: Evaluating human rights policies and ensuring adherence to international standards

Next-generation ESG Tools and Techniques

Faced with the scale of this challenge, future-facing retailers are developing best practices, tools and platforms to help them accelerate their ESG transformation and realize tangible gains at speed. Wherever retailers find themselves on their ESG journeys, solutions that harness AI, advanced analytics and domain expertise are providing answers.

For instance, WNS is collaborating with a leading publicly traded supermarket group, which, having successfully implemented its Scope 1 and 2 decarbonization strategy, is now focused on Scope 3 emissions to enhance sustainability. The consultancy is developing a comprehensive Scope 3 decarbonization plan, setting net-zero targets for 2030 and 2040 aligned with the Science Based Targets Initiative (SBTi). This approach includes identifying carbon hotspots, forecasting Scope 3 emissions and leveraging the WNS platform to engage high-risk suppliers, ensuring supply chain decarbonization and effective emissions management across the value chain.

By developing the right capabilities – internally or through partnerships – retail and CPG organizations can set the groundwork for ESG maturity growth, chart optimal roadmaps for managing ESG goals and access end-to-end solutions powered by next-generation technologies that help make ESG journeys seamless.

For example, a global pharma and consumer goods manufacturer partnered with WNS to monitor the sustainability of its supplier base through ESG assessments. WNS conducted in-depth secondary research across multiple sources, including databases, company websites and analyst reports, to evaluate each supplier's business profile, offerings and financial / operating metrics. The findings provided insights into key business risks – financial, social, economic and governance-related – helping the client assess ESG contributions to shareholder value and ensure the long-term sustainability of their suppliers while identifying both short- and long-term risks.

Successful ESG transformation relies on this holistic approach, with ESG integrated into the heart of overall business strategies rather than standalone initiatives. Here’s how retailers are harnessing new techniques to drive ESG transformation forward:

1. AI-powered Data Capabilities

An increasing number of businesses are harnessing the power of AI-led data extraction and contextualization to automate ESG data collection. By tapping into these tools’ capabilities, retailers can collate high-quality ESG data across the value chain, seamlessly collected from suppliers and customers, providing a holistic enterprise-wide view of performance against ESG goals.

Such capabilities are integral to solving challenges around the accuracy and completeness of sustainability data. Research reveals that 35 percent of executives list quality as the top data challenge in enhancing sustainability disclosures.7 In overcoming this barrier, businesses can offer a level of ESG transparency that builds trust with stakeholders, demonstrates responsible behavior and differentiates in the long-term.

Walmart is a prime example of a retailer leveraging AI-powered data capabilities to enhance its ESG processes. For instance, by leveraging Walmart’s AI technology, employees can make data-driven decisions to effectively manage perishable items. Similarly, Walmart minimizes clothing waste through AI-led insights that help shape sales and promotional strategies.8 This helps avoid excess inventory. Watches of Switzerland, meanwhile, is another retailer showcasing what this looks like in practice. The retailer is leveraging AI to track the ESG profiles of its suppliers and retail partners through publicly available data and third-party reports while monitoring its sustainability initiatives as part of a UK government-funded pilot scheme.9

2. Advanced Analytics

Advanced analytics tools powered by AI and Machine Learning (ML) can deliver the right information to the right stakeholders at the right time, enabling action-oriented, informed decision-making across the enterprise.

The use cases are numerous and wide-ranging, but they could include up-to-the-minute risk profiling of supplier performance on sustainability, alerting organizations where interventions could be made. Sophisticated analytics platforms can visualize this information for seamless understanding, fully contextualized for the retail industry.

For instance, Adidas’ supply chain structure, powered by AI analytics, ensures its products reach the right destination with minimal waste. This AI-led inventory management has optimized Adidas’ supply chain management. Similarly, Levi Strauss & Co. leverages an AI-powered engine to optimize inventory management, enhancing their ability to assess sales trends and quickly adapt to demand shifts. By anticipating stock needs, they can build a more agile and sustainable supply chain.10

3. Real-time Reporting

Robust ESG reporting platforms are facilitating adherence to global reporting standards and frameworks. Given the escalating importance of disclosures, stringent data integrity requirements and the wide array of data sources, the role of technology within reporting has grown significantly.

Leading solutions can disclose across ESG reporting frameworks and ratings systems using auto-mapping capabilities, which ensure that data captured once is used for multiple reporting and rating requirements. This helps retailers develop an essential understanding of compliance with ESG regulations and requirements in near real-time.

Blockchain is one technology that facilitates the data integrity required for this kind of real-time analysis. UK-based New Look is embracing blockchain technology to enhance the traceability of its supply chain as part of an objective to reduce carbon emissions by 46 percent by 2031.11

4. GHG Calculations

Leading retailers are also applying expertise that taps into AI, data science, scenario planning and reporting when assessing internal Greenhouse Gas (GHG) emissions. Solutions include scenario-based CO2 calculations, GHG hotspot reporting and vendor rationalization, harnessing the contextualized data and advanced analytics mentioned above.

One organization, for instance, sought to identify and forecast carbon hotspots across three emissions scopes to ensure its targets are achieved through to 2030. Data from suppliers was collected and ingested into a platform before being aligned against GHG protocols. Through this process, high-risk suppliers were identified, and the organization then engaged with them on supplier decarbonization projects, enabling retailers to quantify sustainability efforts and protect against charges of greenwashing.12

5. Scenario Planning

Retailers are turning to increasingly advanced techniques and tools to forecast performance against longer-term ESG goals, including emissions and their likelihood of achievement, whether set for 2030, 2050 or beyond. Scenario simulation and what-if analyses powered by AI are shedding light on companies’ current path, projecting decarbonization journeys and identifying whether interventions should be made to ensure goals are attained.

Outside of retail, organizations like the EU Commission and NVIDIA are harnessing the latest in AI to simulate and model future climate-related scenarios to better prepare for natural disasters. As the retail value chain becomes increasingly connected, such capabilities are also within the reach of leading retailers. They can simulate emissions trajectories and visualize how decisions will impact their decarbonization paths.

6. Continuous Improvement

Retailers are establishing feedback loops for continuous assessment and improvement of ESG strategies based on performance metrics, stakeholder input and scenario simulation. Unlocking insights in this manner will ensure that businesses' ESG journeys undergo the continual enhancements necessary for success, with sustainable innovation not feasible without the rapid deployment of new technologies and iterative approaches to retailing.

A Korean-based global beauty retailer is leading the charge toward this new era of innovation by embracing AI and 3D printing to reduce the lead time for launching new products by up to 50 percent. Technological integration has enabled the creation of a new “manufactured in-store” business model, allowing for on-demand production that reduces waste and takes advantage of local resources, simplifying supply chains.13

The Role of ESG Transformation Partners

In addition to new techniques and technologies, retailers are boosting their access to industry-specific ESG expertise to help deliver on ESG – project-based advice or long-term hires. One UK study revealed a 116 percent increase in ESG-related job postings between 2019 and 2024, highlighting a rising demand for these roles.14

However, building know-how and capabilities internally can be complex, particularly where a step change is needed. This is encouraging many leading retailers to get third-party help from transformation partners. In doing so, organizations can instantly access the next-generation tools and techniques explored above while tapping into ESG domain expertise developed over decades.

For example, in data and analytics, research from WNS and Forrester Consulting highlights that 42 percent of decision-makers regard third-party service providers as pivotal enablers. Meanwhile, as carbon accounting becomes increasingly critical, transformation partners can help retailers integrate finance and accounting practices with their ESG strategies, ensuring accurate tracking and reporting of carbon emissions alongside financial performance.

The right partner can take on key aspects of ESG implementation and additional supporting functions, boosting operational excellence, implementing sustainable practices and assisting in the development of retained ESG talent.

ESG will continue to be a driving force in shaping the retail industry. Without strong ESG implementation processes and capabilities, retailers risk failure and loss of value. The good news is that, as highlighted above, wherever retailers find themselves on their ESG journeys, there is new thinking to help them step up. Successful retailers are combining new tools, techniques and technology (particularly AI, advanced analytics and domain expertise) with talent and partnerships. As retailers move from ESG vision to execution, there is a growing range of options as retailers bridge the implementation gap.

Explore more on how your retail organization can navigate the ESG challenge to be future-ready.

About the Author(s)

Paul Morrison is a Practice Lead for Manufacturing, Retail and Consumer Goods in Europe. He has over 25 years of experience working with clients to achieve their long-term transformational goals, particularly covering the outsourcing and GBS strategy, operating model design and technology-led change. Paul is an expert in digital strategy, adept at harnessing the full potential of automation, analytics and AI.

Vineeta Sehgal is a Senior Consultant in the WNS Retail and Consumer Goods Practice, based in India. With over 17 years of experience, she specializes in sales enablement, research and competitive intelligence. Vineeta has a proven track record of helping organizations identify revenue growth opportunities and gather external and internal competitive intelligence.

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References

  1. Customer engagement research | Salesforce

  2. Customers care about sustainability—and back it up with their wallets | McKinsey

  3. Global sustainable investment review finds US$30 trillion invested in sustainable assets | GSIA

  4. ESG in the consumer and retail industry – key legal issues and risks | White & Case

  5. 2024 CxO sustainability report | Deloitte

  6. Road to readiness | KPMG

  7. Sustainability action report | Deloitte

  8. A new Walmart in-store AI is giving employees advice on how to sell products before it’s too late | CNBC

  9. Watches of Switzerland trials AI to enforce EST targets | Financial Times

  10. How top fashion brands use artificial intelligence | Medium

  11. New Look adopts blockchain traceability for sustainability | Ledger Insights

  12. Aldi commits to ambitious science-based targets | Retail Times

  13. Global Lighthouse Network: Transforming advanced manufacturing | World Economic Forum

  14. Growing confidence in sustainability jobs but intervention is needed | The HR Director

Disclaimer: WNS has sourced the data from various publicly available websites. WNS is not responsible for the content or accuracy of any linked sites.

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