Sustainability in Challenging Economic Times: A Fading Trend or Strategic Imperative?

As we navigate through 2024, the discourse around sustainability in retail seems to be undergoing a shift. Once a dominant narrative in corporate strategies and consumer

demands, sustainability initiatives now appear to face reassessment.

With the ongoing economic pressures, some are asking the question: Has sustainability run its course? Was it merely a trend? However, The Purpose Agents argue that, by

now, sustainability should have already evolved into a core business strategy—a necessity for enhanced resilience, risk management and longterm financial success.

The Status Quo

In the early 2020s, sustainability was at the forefront of retail strategies worldwide. Consumers, particularly younger demographics, demanded that brands reduce their

environmental impact and enhance social responsibility. Retailers responded with eco-friendly product lines, commitments to carbon neutrality, and ethical supply chain

reforms.

However, as economic challenges have intensified - driven by inflation

and supply chain disruptions - retailers are now under dual pressure: maintaining profitability

while adhering to sustainability commitments. This balancing act may cause some to reassess their sustainability goals.

In a recent survey of 250 Australian business leaders conducted by SAP, 40% stated that they struggle to prove the return on investment on their sustainability initiatives, also citing issues like lack of funding, expertise, and environmental impact strategies.

A study from the IBM Institute for Business Value further revealed that while most organisations recognise sustainability’s importance, economic uncertainties have led many to reduce their sustainability investments. Nearly half of executives (47%) face challenges in funding these initiatives, and 60% struggle to balance financial and sustainability goals.

The Continued Business Case for Sustainability

This development is concerning because research has now firmly shown that sustainable practices are vital for long-term resilience, consumer trust, and innovation. They attract and retain talent, improve environmental and financial performance, and enhance cost efficiencies. Companies with sustainability embedded in their strategies are also more likely to be resilient, especially during economic shocks.

A global corporate sustainability study by NTT and ThoughtLab found that 44% of companies have seen improved profitability from sustainability programs, making them both an ethical and business imperative. The aforementioned SAP study indicates that 68% of Australian businesses saw sustainability strategies contributing to outcomes like revenue or profit growth as well as efficiency of business processes.

The SAP study further states that 60% of executives expect a positive financial return on their sustainability investments within the next five years. Already, 11% of them said they have found sustainability to be material to their business results, and a further 36% expect this to be the case within five years. SAP's regional CFO for Asia-Pacific and Japan Gina McNamara comments: “Sustainability can no longer be considered separately to the wider financial performance of the business because it is increasingly clear that more sustainable organisations are more successful organisations”.

Sustainability Remaining Resilient in Australia

Despite economic pressures, leading Australian retailers have also remained committed to their sustainability initiatives, citing benefits such as brand equity, customer loyalty, and cost efficiency. For these companies, sustainability is not a fleeting trend but a core element

of long-term strategy. David Jones CEO Scott Fyfe emphasises, “Sustainability is ingrained in our business strategy. Maintaining our sustainability commitments is crucial to staying relevant and trusted by our customers."

“Sustainability is not something we can afford to ignore. It’s about building a business that

can thrive in the long term, and that means being responsible stewards of the environment.”

Michael Schneider, Bunnings, Managing Director

Outgoing Woolworths Group CEO, Brad Banducci, has also commented that, “Sustainability is not just a trend for us - it’s a core part of how we do business. Investing in sustainability today is crucial for future resilience.”

Submissions to the Sustainability Spotlight paint a similar picture, with many brands believing that their customers still prioritise sustainability when making purchasing decisions.

Although economic pressures may lead some consumers to prioritise affordability, there is a growing interest in environmentally friendly products (according to both Okanui and Wild Earth). Lush Cosmetics notes that customers are increasingly seeking options aligned with their personal values and providing value for money. Reebelo concludes that the current economic climate is actually driving consumer to get the best value for their money in second hand options. Second hand sales, being the best of both sustainability and affordability, have seen a considerable rise in sales, as described in one of our other feature articles on page 21.

Regulatory Pressures in Australia: Modern Slavery Act (2018) and Australian Sustainability Reporting Standards (ASRS)

Globally, regulatory changes are proliferating, with ESG regulation increasing by 155% over the past decade (ESG Book, 2024). This also makes sustainability no longer optional - with mounting reporting and disclosure requirements, it is critical for continued business operations and mitigating regulatory risk.

In Australia, two key regulations have been and will shape retailers’ sustainability approaches into the future: the Modern Slavery Act (2018) and the Australian Sustainability

Reporting Standards (ASRS) reporting requirements. Australia’s Modern Slavery Act, introduced in 2018, requires businesses with an annual consolidated revenue of at least $100 million to report on the risks of modern slavery in their operations and supply chains and the

actions they are taking to address those risks. In 2024, following a comprehensive review of the Act, significant changes are expected, such as a lowering of the revenue threshold to $50 million, introduction of penalties and enhanced reporting requirements.These changes reflect growing demand for greater corporate accountability in human rights. For Australian retailers, this means sustainability efforts must be comprehensive, covering both environmental initiatives and stringent social responsibility measures.

The Australian Sustainability Reporting Standards (ASRS) are a framework for climate-related financial disclosures coming in 2025. Businesses with a specific size will need to prepare a sustainability report as part of their annual financial report, detailing the company’s governance structure, strategy and risk management processes with regard to climate, as well as reporting all scope 1, 2 and 3 carbon emissions. In Australia, the Accounting Standards Board (AASB) has developed this reporting framework to align with the International Sustainability Standards Board (ISSB) reporting requirements, which are global

sustainability reporting standards that are rapidly gaining traction around the world. On September 9, 2024, the Bill to make ASRS climate reporting mandatory in Australia was passed by the House of Representatives, with the first businesses needing to comply from January 1, 2025.

The Long-Term Perspective: Sustainability as a Business Imperative

While the initial buzz around sustainability may have faded in some areas due to economic pressures, its importance has only grown. Instead, it has become an essential element of long-term business strategy. Retailers that continue to invest in sustainability not only contribute to environmental and social goals but position themselves to drive long-term financial success and resilience, and manage risk as global and local regulations tighten.

In Australia, there are many businesses who are unwavering in their efforts, with leaders also reporting a continued interest from their customers and their sustainability strategies contributing to revenue or profit growth.

As we look ahead, the question is not whether sustainability has run its course but how businesses will continue to integrate sustainable practices in an increasingly complex and regulated world, and do it in a way where these are cost-effective and affordable for

consumers in challenging economic times. The retailers that can successfully answer this question will not only survive but thrive in the years to come.

This article was first published in the Power Retail Sustainability Spotlight.