The New Retail Regulatory Norm, and What Business Needs to Do About It
In recent years, increasingly savvy NGO advocacy campaigns and socially responsible investors (SRIs) have directly motivated fundamental change across sectors, by encouraging retailers and consumer brands to stake out new sustainability policies across their global supply chains.
For example, Greenpeace’s Detox campaign quickly prompted apparel brands to focus on eliminating the discharge of hazardous waste from their operations in Asia and Latin America. The Safer Chemicals Healthy Families coalition, changing tactics from legislative advocacy to a market campaign, skillfully motivated two of the largest retailers—Walmart and Target—to adopt landmark chemicals management policies. At present, Sierra Club and ForestEthics are applying pressure to change beverage-makers’ fuel sourcing choices for their corporate vehicle fleets. In perhaps the most successful campaign of recent years, energized advocates pushed the seemingly immovable pulp and paper industry to adopt unprecedented zero-deforestation commitments.
These are just a few examples. Consumer brands face mounting pressure from advocacy stakeholders to further change their procurement standards in energy, minerals, water, agriculture, chemicals, and other commodities. Business has never been more closely scrutinized by external stakeholders and the accountability bar has never been higher.
Why Such Scrutiny Now?
Campaigns against big businesses are nothing new; what has changed is the pace and scale at which advocacy-driven market campaigns are motivating corporate change. Of course, social media tools now allow advocates to focus unprecedented pressure on a consumer brand. But even more fundamentally, two phenomena are driving increased corporate scrutiny.
The first is the increasing global nature of the corporate supply chain, which has accelerated over the past 20 years. Corporate suppliers and manufacturers are now located mostly in countries with poorer regulatory regimes, and retail outlets and consumers primarily in the West. With no real global regulatory body that can oversee the environmental and social concerns of this arrangement, advocates have found market campaigns and consumer pressure an increasingly effective strategy to address their concerns.
Second, escalating political dysfunction at the U.S. Federal level has knocked-out a major avenue through which advocates and industry have traditionally brokered deals. Without an effective Federal regulatory process in the U.S. through which stakeholders feel they can advocate change, market campaigns take on even greater importance.
For example, the failure of 2009’s cap-and-trade legislation to place a Federal price on carbon and resulting Congressional stagnation has refocused advocacy on infrastructure like Keystone XL, and market campaigns like Future Fleets. The ongoing inability to reform U.S. chemicals legislation has reoriented toxics advocacy groups away from targeting politics to targeting Walmart and Target, and by extension their massive global supply chains.
Increased globalization and U.S. political dysfunction have accelerated the establishment of a new norm of regulatory action—not regulation by law, but regulation by retail—stemming from advocacy and consumer demands that push consumer-facing brands to take ownership of the social and environmental impacts of their global supply chain.
What Should Corporations Do?
In this new norm, an organization’s currency is its reputation with its external stakeholders: upstream suppliers, brands and retailers, investors, NGOs, activists, community and indigenous groups. A corporation that has built up its reputation with its external stakeholders will be taken seriously by them; an activist group that has built up its reputation with its corporate targets will be listened to. Reputation in this dynamic is not built solely on the power that a company or an NGO can wield, but is founded on trust, rapport, and authentic relationships.
For corporations, sincere and effective stakeholder engagement requires that corporate leaders commit to engaging with stakeholders that they may actively disagree with them and, at times, demonize their corporation or sector. The ineffective “cycle of demonization” cannot be broken until those skeptical stakeholders engage repeatedly in ways that stakeholders perceive show a company’s openness, willingness to cultivate mutual respect, and that candidly acknowledges past disagreements without blame.
Furthermore, this dynamic requires brands and even suppliers dive into environmental and social issues that they may have historically ignored and stake positions out in consultation with external stakeholders and advocates. This process can only be validated by the external stakeholders’ opinions of the organization.
However, each individual corporation operating alone can only do so much, and with each corporation creating a different CSR policy to tackle each issue, will confuse the supply chain with uncoordinated demands that do little to create the market signal for change. To truly tackle these global sustainability challenges and unlock radical innovation, companies must adopt a precompetitive collaboration mindset—that is, competitors collaborate to share research and methodologies on environmental and social issues that benefit all. Precompetitive collaboration has worked in the pharmaceutical industry, and is recognized as a priority by industry collaborations like the Green Chemistry and Commerce Council.
The world has shifted. If corporations avoid robust and authentic stakeholder engagement and innovative precompetitive collaboration, they will only further the pitched activist-corporate battles, uncoordinated retail regulation, unnecessary costs, and social and environmental harm seen today.
This article was originally published in Justmeans.
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