ESG Reporting Insights: Consumer markets

Canadians engage with retailers and consumer goods companies each day to fulfill their essential needs and discretionary wants. This places these brands front and centre in the minds of a stakeholder group that’s increasingly attuned to the sustainability impact of their purchases. For retailers and consumer goods companies, sustainability is much more than an internal reporting exercise. It’s also a critical demonstration of their commitment to the planet and its people that can help meet the rising expectations of their customers.

Meeting diverse consumer priorities such as reducing plastic waste, improving labour standards and lowering carbon emissions starts with a clear stakeholder engagement process and a commitment to increased transparency through product labelling. But in most cases, it’s difficult for retailers and consumer goods companies to meet their customers’ expectations on their own. Achieving meaningful improvements in their sustainability performance that can be communicated through ESG reporting and other channels typically requires collaboration and information sharing throughout the supply chain.

We recently analyzed the sustainability reports and other disclosures of Canada’s top retailers and consumer goods companies, as well as businesses from other sectors. Across all industries, we found that many companies’ disclosures fall short of what’s required to meet new regulatory requirements and the climate change reporting expectations of stakeholders. But we also saw sector-specific opportunities for organizations to build trust with stakeholders and increase their long-term enterprise value.

Many retailers and consumer goods companies appreciate the importance of telling their sustainability story to customers and other stakeholders. What’s sometimes less appreciated are the reputational risks and consumer backlash companies can face if their ESG claims are publicly challenged. 

Elsewhere, new regulations such as Canada’s modern slavery rules are introducing additional compliance risks and increasing the pressure on companies to better understand how their suppliers are sourcing materials and manufacturing the products that end up on store shelves. Many companies are also required to collect and disclose emissions data from their suppliers to meet new ESG reporting regulations. And a proposed federal plastics registry¹ may force businesses to collect and report data on their management of plastic waste.

At the same time, investors are looking for more information on sustainability-related risks and opportunities, including how companies are managing transition risks such as carbon taxes. For retailers and consumer goods companies, this means calculating these additional costs of energy used to power their stores, warehouses and vehicle fleets—as well as uncovering opportunities to lower these expenses through efficiency upgrades and other measures.

Organizations that develop a strategy-led plan for action and transform their business to create sustainable value can mitigate these risks and unlock new opportunities. For example, companies that understand their electricity and fuel consumption can make targeted energy-efficient upgrades that reduce their operating costs. Similarly, innovations that reduce packaging waste through the use of lighter and more efficient materials can potentially reduce shipping costs.

We’re also seeing retailers and consumer goods companies incorporate their customers’ sustainability priorities into new products and services. For example, some apparel companies buy back and resell certain used clothing items. This helps their customers reduce waste and engage with their brand in new ways. Elsewhere, some retailers are considering dedicating shelf space to products that meet certain sustainability standards—a concept akin to the organic produce section found in many grocery stores. Our research shows consumers are willing to pay a premium for such products. Nearly two-thirds (65%) of Canadian consumers told us they’d pay up to 5% extra for products made from recycled, sustainable or eco-friendly materials—good news for retailers and consumer goods companies looking to boost their pricing power without sacrificing their commitment to sustainable practices.

These initiatives can help earn the loyalty of environmentally conscious consumers who understand the impact you’re creating. In our 2023 Holiday Outlook survey, 80% of Canadian consumers told us that they consider a retailer’s sustainability performance before making a purchase. Among those sustainability-minded consumers, 57% said they want companies to set and publicly report measurable ESG targets, as well as disclose progress being made toward reaching those targets.

Meeting the information needs of consumers and other stakeholders requires companies to produce investor-grade ESG reporting that’s of the same quality as financial reporting and can be trusted for use in decision making. In addition to setting and reporting progress against targets, investor-grade reporting requires assessing your material topics, pinpointing the related risks and opportunities and disclosing metrics that show how you’re managing those risks and opportunities.

Regulators are taking notice of these stakeholder expectations and have responded with new reporting requirements. Many Canadian companies will be covered by multiple regulations, including the European Union’s Corporate Sustainability Reporting Directive (CSRD), California’s climate disclosure rules and soon-to-be-released requirements from securities regulators in Canada and the United States.

Creating a reporting process that meets these different regulations is an effective way of providing your stakeholders with relevant and comparable ESG information. In our 2023 Global Investor Survey, 83% of respondents told us that companies can provide much of the information needed for investment decision making by complying with leading sustainability reporting regulations and standards. Many Canadian retailers and consumer goods companies are working toward these standards. But most have significant work ahead. Only 51% disclose more than a limited narrative around the Task Force on Climate-related Financial Disclosures or its principles. And just 63% refer to the Sustainability Accounting Standards Board (SASB). Similarly, 60% refer to the Global Reporting Initiative (GRI).

Retailers and consumer goods companies build trust with consumers when they demonstrate that they share the values of their customers. Unlocking this value creation opportunity requires working within your industry ecosystem to develop, source and label products that meet consumers’ sustainability expectations. 

It lets you produce disclosures that transparently convey your ESG priorities and strategic objectives. This helps you communicate your customers’ ESG priorities with suppliers and create a joint action plan that achieves meaningful and measurable change.

This, in turn, can make it easier for shoppers to purchase sustainably produced products with confidence from your company—helping to differentiate your brand and creating a competitive advantage for your business.

^{1 “The Government of Canada is seeking feedback on developing a federal plastics registry to help tackle plastic pollution,” Environment and Climate Change Canada, January 2, 2024.}