Organizational environmental, social and governance (ESG) policies – a collection that I like to define simply as “sustainable business practices” – mark an increasingly important driver of overall success. That’s especially the case in the retail industry, where ESG considerations range from sustainable distribution, to recruiting strategies, to packaging decisions.
Business leaders’ performance on ESG mandates can be a career-maker – or breaker – according to research by my company, KPMG. In our 2021 CEO Outlook, more than 70 percent of respondents indicated that “CEOs will be increasingly held personally responsible for driving progress in addressing social issues.” In our 2020 CEO Outlook, 65 percent of top executives reported that managing climate-related risks will play a pivotal role in determining how long they retain their jobs (more on that here).
Tax leaders in the retail sector should take note, and keep a close eye on the forces driving ESG commitments, including:
- Consumers: Buyers are increasingly interested in, and well informed about, corporate ESG impacts and practices. Many are making purchasing decisions based on ESG-related perceptions. These often extend beyond sustainable products to scrutiny of packaging, logistics, sourcing, labor conditions and other supply chain activities.
- Employees: ESG practices can serve as a talent magnet – or a substantial recruiting and retention risk.
- Regulators: Global business regulators are rapidly adopting and recalibrating ESG-related requirements. In 2015, the Financial Stability Board (FSB) – an international body that monitors global financial systems – created the Task Force on Climate-Related Financial Disclosures (TCFD) to recommend how companies should disclose climate-related risks to financial stakeholders. Since then, the TCFD has published and steadily revised disclosure guidelines concerning greenhouse gas emissions. In the U.S., the SEC seems likely to issue ESG reporting requirements in 2022.
- Investors: Banks, pension funds, asset managers, insurers and other investment institutions are requiring businesses to demonstrate sound ESG practices and to apply the ESG recommendations issued by global bodies such as the TCFD. As metrics and reporting practices mature, ESG data will play a larger role in the investment decisions that asset management firms make.
- Industry leaders: Business norms are shifting, and ESG developments will likely exert a growing influence on your competitors and peers. In 2019, the Business Roundtable updated its definition of the corporation’s primary purpose from “maximizing shareholder return” to serving a broader range of stakeholders, fostering diversity and inclusion, and protecting the environment by embracing sustainable practices. The statement was signed by more than 180 CEOs of the largest companies in the U.S.
Tracking these drivers will help retailers’ tax departments to put in place the right skills, processes and technologies to respond quickly and effectively to ESG risks and opportunities.
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