Suppliers to British retailers lose contracts over failure to meet ESG standards

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At least 21 per cent or one in five retailers in the United Kingdom are cancelling their contracts with their suppliers for failing to meet environmental, social, and governance (ESG) standards, according to a new study published by Barclays. The report has found that a combined GBP 7.1 billion worth of contracts have been cancelled by British retailers from January 2021 to January 2022 for not meeting sustainability criteria.

The businesses comprising 302 retailers surveyed by Barclays’ Corporate Banking unit stated that the most common reason for ending their contracts was the use of unsustainable materials in their packaging or their products. Another important factor that retailers looked for was providing good working conditions to employees, including pay and work hours.


In addition, more retailers are seeking for evidences from their suppliers, asking them to join trade bodies and/ or sustainability certification schemes to show that they are meeting the standards. During the 12-month covered period, Barclays reported that 28 per cent of retailers have joined a new scheme.


In addition, majority of retailers or79 per cent of participants are not willing to compromise their commitment to ESG, and find it important over short-term gains, when disruptions in the supply chain such as the COVID-19 pandemic has put pressure in their supply chain. 


“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,” Karen Johnson, head of retail and wholesale at Barclays Corporate Banking, said in a statement.


Johnson explained that this trend among retailers are driven by consumers where more young people such as the Gen Z who are environmentally conscious make preferences of products that have been produced sustainably. “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,” she noted.


The study also include a survey among over 2,000 adults in the UK regarding their views on sustainable shipping and found that 52 per cent value the ethical and sustainable qualifications of a retailer or a product when deciding on their purchase. A high percentage of those surveyed or 63 per cent also express their views that retailers should improve their ESG credentials in the future.