Supply Chain

Retailers cancel £7.1bn in contracts over ethical concerns

The majority (51%) of retailers said sustainability is more important now than it was two years ago and 49% said the same about ethical standards

UK retailers cancelled £7.1bn in contracts over the last 12 months over concerns about suppliers meeting “stringent” ethical and sustainable standards, new research from Barclays reveals. 

The latest report from Barclays Corporate Banking, ‘Reshaping retail: how ethics and sustainability are changing retail’s ecosystem’, found that the pandemic and an increasing focus on Environment, Sustainability and Governance (ESG) were shifting business priorities. 

The majority (51%) of retailer respondents said sustainability is more important now than it was two years ago and 49% said the same about ethical standards. 

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Additionally, 79% retailers thought that a long-term strategy to improve their ethical and sustainable credentials was more important than overcoming short-term supply chain disruption. On average, Barclays found that retail businesses with more than 10 staff are investing £504,000 per year to improve their own carbon footprints.

Meanwhile, over a fifth of retailers (21%) surveyed cut ties with suppliers in the last year because they were not meeting required standards. Among this group, the average is six contracts cancelled per retailer, with an average value of £306,000 per contract.  

The most common reasons for cancelling contracts with suppliers were:

  1. Use of unsustainable materials (39%)
  2. Unfair working hours (37%)
  3. Lack of membership to trade body that monitors ethical and sustainable standards (32%)

In addition, retailers invested £179m last year in joining trade bodies that monitor supplier performance in ethics and sustainability. Over a quarter (28%) of retailers signed up to new bodies last year, spending an average of £34,500 each in doing so.

It comes as the consumer demand for improved credentials was highlighted in Barclays’ research among 2,000 members of the public. While quality of product (78%) and price (76%) were shown to be the most important purchasing factors for consumers, ethical and sustainable credentials (both 52%) were not far behind.

Younger consumers are leading this demand, as two thirds of 16-24-year-olds would stop shopping with their favourite retailer due to ethical concerns and 68% of 25-34-year-olds would cut ties and shop elsewhere if their favourite retailer was found not to meet sustainability standards. 

Barclays also found that consumers are prepared to pay a premium for these higher standards and on average, shoppers will pay 4.55% more for an ethically-sound product and 4.36% more for sustainably-sourced goods.

Overall, consumers felt there was room for further improvement with nearly two thirds (63%) wanting to see retailers make more ethical and sustainable upgrades in future. 

Karen Johnson, head of Retail and Wholesale, Barclays Corporate Banking, said: “We are seeing a marked acceleration and shift among retailers towards prioritising sustainable and ethical standards in every part of their business operations. That is now starting to take its toll on retail suppliers with billions of pounds worth of contracts being cancelled every year. 

“It’s being driven by increasing consumer demand and will rise even further as Gen Z enter the workplace and begin to earn their own money. Retailers must continue to monitor and improve their ethical and sustainability standards if they are to appeal strongly to younger demographics.”

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