Why boards need to take social responsibility seriously

This is part of Retail Outlook, a series of articles running over the next four weeks that explore timely topics and trends for the retail industry in 2020. Click here to see more stories in the series.

Retail businesses are facing a wave of black tape in the growing and competitive Australian retail landscape, as the social licence to operate becomes a factor consumers are increasingly concerned about.

For retail boards today, the objective is not only revenue and profit growth but also how their organisation meets the new community standard, of what it means to be a socially responsible retailer today.

As a greater number of consumers shift their focus to social and environmental trends such as plastic pollution, climate change and public health, the spotlight is on retailers to reflect these changing values and respond to societal challenges.

With the green generation making sustainable shopping a priority, the need for ethical, social and environmental business models that underpin purpose-driven companies is critical.

New research by Unilever shows a third of consumers now choose to buy brands based on their social and environmental impact and one in five consumers say they would choose a brand if its sustainability credentials were made clearer on packaging or in the product’s marketing.

Today’s discerning consumers are more informed and now shop with their emotions and values, instead of just their wallets. Retailers and consumer brands are presented with both opportunities and challenges with the rise of the savvy shopper.

Businesses that make meaningful sustainability commitments by ensuring environmental, social and corporate governance policies reflect these values are likely to be seen as favourable by consumers.

KPMG’s Customer Experience Excellence Report 2019 highlights the average customer experience excellence rating in the Australian market was 7.14 out of 10, with the grocery retail sector maintaining its leading position for customer experience and improving its overall score to 7.4. 

The report shows community-centric brands are rated as customer experience leaders in Australia.

These organisations exemplify authenticity through altruistic initiatives that reflect the intrinsic values of Australian society. As a result, a relationship of trust instilled and perceived customer experience is elevated.

Failure by businesses to define and act on sustainability initiatives can significantly impact a retailer’s brand and financial performance.

Over the past year, a series of Royal Commissions and subsequent media coverage have placed integrity and the social licence to operate at the forefront of any great retail experience.

The regulatory landscape has also reinforced responsible business conduct with the threat of heavy fines for non-compliance. Stricter regulations to protect consumer data and privacy, safeguard employee welfare and ensure accurate and fair business reporting for shareholders have come into effect.

It’s also clear from recently introduced legislation such as the Modern Slavery Act, Notifiable Data Breaches Scheme [NDB] and the General Data Protection Regulation [GDPR], that retailers must be transparent about the impact of their business activities across a range of areas.

Understanding the regulatory environment and the cost of non-compliance

It’s known that regulations in retail have been growing in number and rigour, with the cost of non-compliance on the rise.

Placing compliance at the heart of a retail business can create a strategic advantage by helping retailers manage risk in their supply chain, protect customers and safeguard employees more effectively.

Four pillars to align customer values and compliance requirements

To ensure compliance, protect your brand and manage financial risk effectively, every executive in a retail business has an important role to play.

1. Know your customers

Consumers are becoming increasingly aware of the damaging effects of plastic pollution on land and marine life, and they expect retailers to take action.

The source of food produce has also become a hot topic whereby grocery retailers offering regional produce are seen to be supporting local Australian businesses.

As consumers better understand the link between corporate activities and social impact, retailers need to consider the value their business can create for the economy and society as a whole.

Retailers need to focus on their supply chain and identify areas to improve environmental sustainability to reflect consumer values and allow them to make more informed choices.

Nowadays, organisations cannot just say they have a sustainability strategy, they need to show the consumer that they are acting upon it.

2. Protect your customers

Changes to privacy regulations in Australia are a top priority for businesses with regulations such as the NDB and the GDPR lifting the standard on security measures, organisation-wide data awareness and restoring trust of personal data with consumers.

Retailers should be aware of their data privacy obligations, while ensuring customers are at the heart of everything they do.

It’s critical that organisations understand data privacy changes and what action is necessary to comply with and how a data breach would be handled, especially as data breaches have potential for a significant brand and reputation damage.

3. Protect your people

An ever-growing number of household brands continue to fail to meet industry standards and regulations. In Australia, retailers must adhere to minimum wage regulations, national employment standards, as well as relevant awards and enterprise agreements.

According to The Fair Work Ombudsmen, more than $40 million in unpaid wages was handed back to Australian workers in the past financial year, with the Ombudsmen recovering money for 17,718 workers in 2018/19.

Understanding wage requirements and ensuring robust payroll process are in place remain essential steps for organisations to uphold brand integrity and maintain trust in the eyes of employees and the wider community.

4. Understand regulatory requirements

Organisations not only have to transform to remain relevant in this dynamic market, but must keep one step ahead of their obligations to prevent breaches across a number of potential exposures.

Retailers must define, identify and help mitigate conduct risks in their business and embed conduct risk management into daily operations and existing risk management frameworks.

Failure to manage the continual changes can have costly consequences – such as fines, suspensions, loss of operating rights, loss of customers, or severe reputational damage.

As human rights and social risks become mainstream and are placed on the corporate agenda, the onus is on retailers to ensure they have a sound strategy in place to keep track of updates and mitigate risk.

Effective compliance results in better outcomes for businesses, their customers and shareholders.

Five key questions to consider for managing regulatory compliance

  1. How well do you understand and prioritise regulations that impact your business?
  2. Can you clearly articulate how your business complies with regulations to policy makers?
  3. Do you have sufficient internal and external assurance to give confidence to regulators, the board and your customers, in the non-financial information you’re reporting externally?
  4. Have you implemented strategic, cost-effective internal risk and control systems to ensure regulatory compliance?
  5. Are you able to anticipate new regulatory developments and plan and implement new strategies to ensure compliance once they come into effect?

Download your free copy of the Australian Retail Outlook 2020 here.

Carly Richards, director, Retail Lead, Risk Consulting, KPMG

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