For a goal with universal appeal — saving the planet from pollution, waste, and global warming — the sustainability movement has been generating a surprising amount of controversy lately, the political and cultural kind that should make retailers nervous. The tip of the iceberg is the recent debate over what’s been labeled by critics as “woke capitalism,” referring in particular to disinvestment by large investment companies in the fossil fuel industry.
The issue has become politically potent in energy-rich places like Texas, which has been the lead in a national movement to blacklist from public pension assets any Wall Street firms that offer products based on ESG investing. ESG is an acronym for investment decisions that, in addition to financials, evaluate and score a company’s environmental, social, and governance records. Texas public officials claim ESG investing is a threat to the state’s economic future.
What does a dust-up over oil and gas have to do with retailing? Neither industry is sustainable. Fossil fuels are by definition unsustainable.
On the other hand, consumers are nearly unanimous in survey after survey in their expectations for retailers that they want and expect them to be sustainable and responsible. But in apparel alone, the impact on the environment is staggering and becoming more apparent all the time in documentaries and news stories depicting landfills full of used and unsaleable clothing.
That the controversy over ESG investing is finding its way into our political discourse suggests it is likely to generate more heat than solutions. The potential downside for retailers is that consumers are becoming wise to lofty-sounding mission and policy statements and initiatives that sound good but defy concrete definitions.
Any evidence of hypocrisy — there will inevitably be more scandals like the destruction of overstock luxury goods by Burberry — will be a threat to brand values at a time when consumers are choosing where they shop based on their perceptions of corporate behavior. Companies that brag about how sustainable they are would do well to avoid using language that is murky and ill-defined and call what they’re trying to accomplish what it is: less waste at every stage of the design, production, transportation, and sale of their products.
These developments in the investing world could have an outsized impact on the retail industry. For more than a decade, private equity has been playing a growing role in the acquisition, financing, and, dismembering of brands. So-called “vulture capitalists” bought out struggling chains like Toys’R’Us on the cheap, squeezed out all the cashflow, and then sold off the remaining assets.
According to a 2019 report by The Stakeholder Project, private equity-owned companies are "twice as likely to go bankrupt as public companies," with 10 of the 14 largest retailer bankruptcies between 2012 and 2019 happening at private-equity owned companies.
With ever-more onerous ESG requirements and government regulations emerging around the globe, capital available for the retail industry may shrink and brands will be under even more pressure to do about sustainability what consumers overwhelmingly say they expect: MORE!
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