Introduction
Environmental, social and corporate governance (ESG) risk refers to the firm’s ESG factors that negatively impact company’s reputation and influence overall financial position of business entity. The various type of ESG risk includes Pollution, resources depletion, climate change and biodiversity loss which is caused due to organization’s operations. Woolworth Group limited is the Australia’s biggest retail organization whose headquarter lies at Bella Vista, Sydney. The firm was established on 2 September 1924 by Percy Christmas and Stanley Chatterton and employ more than 201000 employees (Description of Woolworth, 2024). Rydges Hotels and Resort is the hospitality organization that was established in year 1995 and operates with 409 hotels across world. The firm is known for serving over one million guest annually and earn an annual revenue of 26.5 million dollar in year 2023 (Description of Rydges Hotel, 2023). The current report is based on analysing ESG risk matrix of both the organization. Further various activities that have been undertaken by the firm based on TCFD’s recommendation will also be depicted through the report.
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Main Body
Literature review on ESG risk
Retail industry
According to the view point of Freeburn and Ramsay (2021) retail industry is impacted by large number of ESG issues that is impacting on the overall well being of the business entity. Supply chain disruption is the major issue which include forced labour, modern slavery and human trafficking which is found in multiple stages of the supply chain. However, this issue in supply chain is not related to business remit but organization needs to ensure that clean supply chain is maintained by following all the regulations. Moreover Grabara (2024) stated that Green washing and blue washing is another risk related to the retail industry of Australia. Green washing includes the advertisement and marketing strategies incorporated by company that provides misleading, exaggerated and unsubstantiated claims regarding firm’s operation. Blue washing risk refers to fraudulent claim of organization related to promoting effective human rights.
Parfitt (2024) stated that carbonisation and increasing pollution is major risk impacting on overall reputation of the business entity. It has identified that retail industry is responsible for emitting 25% of total global green house gas. It has estimated that in the upcoming years, retail organization’s needs to incur 10 to 15% of their profits towards reducing carbon emission which will creates negative impact on overall profitability. The retail value chain that is procurement of goods, transportation, distribution and delivering of the final goods and services creates huge impact on overall environment and enhancing pollution within country. On the contrary point Robinson et al, (2024) explicated that incompliance with the government regulations and rules creates obstacles in aligning with ESG principle. Retail industry needs to follow large number of regulations that are related to health and safety of the consumer as non alignment might results in creating legal obligations.
Hospitality industry
Based on the view point of Parker (2021) it has identified that staff shortage and high work burden on employees is one of the significant ESG risk related to hospitality industry. It has been identified that Australia has recorded 21400 staff shortage in year 2023 which leads to high work burden and violation of the human right within industry. On the other hand, Legrand and Matthew-Bolofinde (2022) explicated that increasing greenhouse gas emission due to high level of energy consumption, waste generation are causing huge negative impact on overall natural resources and environment of the country. The hotel industry is producing large amount of carbon dioxide and waste that also contribute towards climate change. Su and Chen (2020) stated that hospitality industry has focused over automating all the service as to increasing efficiency; however this is resulting in increasing unemployment rate. Increasing shift towards technology is creating negative impacting on overall financial and economical position of the individual.
Further, Arici, Aladag and Koseoglu (2024) professed that incompliance with the regulatory framework creating issues in mitigating legal compliances of the hospitality industry. There are large numbers of regulation that are imposed within the hospitality industry of Australia and incompliance with any of the regulation enhances the risk. On the contrary point of view, Buallay (2022) claimed that food waste is the prominent risk which creates issue for hospitality industry in effectively initiating ESG principles. It has identified that among the total waste 35% of food waste is initiated by the hospitality industry. Along with this, Bagali, Rajini and MS (2024) explicated that Hospitality industry of Australia has been claimed for providing ineffective labour practices within its operation. The industry has not providing adequate wages to its employees according to their performance lack focused towards worker’s safety, inclusivity and diversity are major risk associated with ESG.
Material risk of both companies
There are large number of risk and issues that are creating obstacles for both the companies in effectively integrating ESG principle within their operations. Following are various material ESG risks that are impacting on the overall reputation and economic position of the companies:
ESG risk of Woolworth
From the analysis of ESG risk matrix of Woolworth, it has identified that firm is having risk rating of 20.9 point which indicates medium amount of risk associated with the business entity (ESG risk of Woolworth, 2024). This risk will result in creating various financial obligations and negatively impacting on overall reputation of the business entity. Some of the major material risk impacting on the working of the Woolworth is as follows:
Morden slavery: This risk refers to the exploitation situation in which an individual is unable to leave or refuse to work due to violence, threats, deception, coercion and abuse of power. This situation results in non compliance of organisation’s operation with regulation that leads to imposing large number of financial penalties and enhance legal obligation (Bazrafshan, 2023). The firm that is claimed for modern slavery generally reduces the satisfaction and motivation level of employees leading to impacting on overall performance of the business entity. The unethical activities also results in reducing trust and confidence of customer towards the organization that end up decreasing overall sales and profitability of organization.
Supply chain issues: It has been identified that Woolworth has faced high criticism for ineffective and unsustainable supply chin operation. The company has been claimed for high deforestation, greenhouse gas emission, waste usage and increasing pollution within the country. The unethical supply chain result in creating scepticism among customer due to loss of goodwill and ultimately results in reducing sales and overall profitability of the business entity. Further the employee’s disengaged and demoralized in such a negative environment that impact on overall productivity of business entity.
Lack safety measures for employees: Total number of injury rate within Woolworth has increased by 11.13% in year 23 which indicates the ineffective emphasis over promoting safety within employees. It has identified that this situation has risen due to high level of stressing and work burden, slip, trips and falls (Nafisa, Ashraful and Qian, 2023). This high number of injuries resulted in increasing turnover within the organization that eventually end up enhancing overall cost of operation for the business entity.
ESG risk Rydges Hotels
After analysing the ESG risk metric of Rydges Hotel, it has depicted that firm is having score of 26.7 which indicate that firm faces medium amount of risk (ESG risk of Rydges Hotel, 2023). This includes various material risk which impacting on overall financial position of the business entity which are as follows:
Lack of employee’s welfare: it has identified that Rydges hotel has faced high employee’s turnover rate which creates issues in successfully initiating ESG policies within its operations. The firm has been claimed for higher employee’s turnover ratio due to lack of effective safety measures, lack of diversity and inclusive environment, huge work burden inappropriate staff benefits (Su and Chen, 2020). This all measures collectively end up reducing overall motivation and satisfaction of the workers that leads to impacting on quality of services offers to customer. This lack of quality service result in decreasing satisfaction of the customers which eventually end up losing large number of customer and reducing overall profitability of the business entity.
Ineffective compliances with legal regulation: Rydges Hotels has been facing issue of ineffective compliance will all the government regulation and rules which is creating legal obligation for the company. There is large number of legislation which Rydges needs to follows that includes Australian Consumer law (ACL), food standard codes etc. Incompliance with any of the law results in depicting unfair and unethical activities that resist in losing trust and confidence of customer. Further, firm have been penalized for incompliance that results in increasing overall cost of operation for the business entity.
Violating human rights: From the past experience of the customer it has determined that firm does not promotes transparency and ethnicity in its operation which result in negatively impacting on overall reputation (Legendre Ding and Back, 2024). Further the firm did not provide equal and fair opportunity to all its employees which results in violating workers right.
Alignment of ESG risk with SASB’s industry guide
Woolworth
The risks identified under Woolworth are strongly aligning with SASB’s industry guide as the modern slavery, supply chain issue and lack of effective labour practices are faced by the company. This indicates that this all risk together creates issues in effectively initiating sustainable measures with the firm’s operation. The firm is effectively creating awareness regarding firm’s operation and undertake reporting by aligning with GRI standard (Leung and You, 2023). The company is aligned with GRI 2 general disclosures under which information related to remedies to mitigate negative impact are clearly stated. Further GRI 3, GRI 202, GRI 204 and GRI 303 and GRI 304 are effective followed for reporting firm’s sustainable operations.
Rydges hotels
All the ESG risk of Rydges are aligning with the SASB’s industry specific risk guide which indicates that all the identified risk will have huge impact on overall cash flow of the business entity (Saini et al, 2023). For reporting sustainable operations of the business entity GRI 1, GRI 204, GRI 303, GRI 306, GRI 308, GRI 403, GRI6 and GRI 408 has been effectively followed. This helps in providing all the information related to ESG policies of the business entity along with its risk and impact.
Actions taken based on TCFD’s recommendation:
Woolworth:
Woolworth has initiated various activities as to overcome ESG risk and successful working of the business entity. Under this, firm has donated over 34 Million meals to charity as to avoid food waste and 33K tonnes of food has been provided to framers for utilizing it in agriculture (Sustainability report of Woolworth, 2023). Further, firm has initiated various strict regulation and rules in its operation which help in mitigating modern slavery. Organisation also focused over including various key stakeholders in decision making process that includes customers, suppliers, employees, environmentalist and communities which help in forming informed strategies.
Rydges hotels:
After analysing all the ESG risk the firm has implemented various TCFD’s recommendations in their operation for effective mitigating the risk. The organization has focused over reviewing its employees’ benefits policy as to maximize their satisfaction. Further organization has focused over promoting inclusivity and diversity in their operation for creating effective workplace environment (Sustainability report of Rydges Hotel, 2024). An AI technology has been initiated with the motive of reducing wastages and decreasing overall negative impact on natural resources. Further business entity has focused over promoting fairness and transparency in their operation as to avoid violation of human right.
Conclusion
By summing up the report, it has identified that forced labour, human trafficking, modern slavery, green washing, pollution and carbonization are various ESG risk within retail industry. Labour shortages, high work burden, automating services incompliance with regulation and ineffective labour practices are ESG risk. Modern slavery, lack of safety measures, and supply chain issues are major material risk of Woolworth. Moreover, ineffective legal compliance, violating human right and lack of employees’ welfare are Rydges’s ESG risk. Both the firm is effectively aligning with SASB’s industry guide and following all GRI standards for reporting firm’s operations.
References
Books and Journals
Arici, H. E., Aladag, O. F., & Koseoglu, M. A. (2024). How Does CEO Duality Influence ESG Scores in Hospitality and Tourism Companies? Confounding Roles of Governance Mechanisms and Financial Indicators. Journal of Hospitality & Tourism Research, 10963480241266154.
Bagali, M. M., Rajini, K. S., & MS, S. (2024). Environmental, Social, And Governance (ESG) Consider-ations In Retail: An Analysis Of Green Marketing Strate-gies In The Consumer Electronics. Educational Administration: Theory and Practice, 30(5), 3685-3699.
Bazrafshan, E. (2023). The role of ESG ranking in retail and institutional investors' attention and trading behavior. Finance Research Letters, 58, 104462.
Buallay, A. (2022). Sustainability reporting and retail sector performance: worldwide evidence. The International Review of Retail, Distribution and Consumer Research, 32(3), 311-330.
Freeburn, L., & Ramsay, I. (2021). An analysis of ESG shareholder resolutions in Australia. University of New South Wales Law Journal, The, 44(3), 1142-1179.
Grabara, D. (2024). Sustainable E-commerce in the Perspective of SDGs and Online Marketplaces. In Adoption of Emerging Information and Communication Technology for Sustainability (pp. 172-186). CRC Press.
Legendre, T. S., Ding, A., & Back, K. J. (2024). A bibliometric analysis of the hospitality and tourism environmental, social, and governance (ESG) literature. Journal of Hospitality and Tourism Management, 58, 309-321.
Legrand, W., & Matthew-Bolofinde, A. (2022). esg, sdgs, and hospitality: Challenges and opportunities in activating sustainability. Business in the 21st Century: A Sustainable Approach, 25-39.
Leung, T. C. H., & You, C. S. X. (2023). ESG Application in Sustainable Development of the Healthcare Industry. In Environmental, Social and Governance and Sustainable Development in Healthcare (pp. 47-64). Singapore: Springer Nature Singapore.
Nafisa, R., Ashraful, A. M., & Qian, A. (2023). Corporate ESG issues and retail investors’ investment decision: a moral awareness perspective. International Journal of Research in Business and Social Science (2147-4478), 12(9), 113-125.
Parfitt, C. (2024). ESG integration and its derivative logic of ethics: exposing the limits of sustainability capitalism. Finance and Space, 1(1), 221-239.
Parker, C. (2021). Responsible investing for food system sustainability: a review of current practice in Australia. Available at SSRN 3917665.
Robinson, E., Parker, C., Carey, R., Foerster, A., Blake, M., Sievert, K., & Sacks, G. (2024). Putting your money where your mouth is: Accelerating investment action for healthy and sustainable food systems in Australia. Food Policy, 124, 102620.
Saini, M., Aggarwal, V., Dhingra, B., Kumar, P., & Yadav, M. (2023). ESG and financial variables: a systematic review. International Journal of Law and Management, 65(6), 663-682.
Su, C. H. J., & Chen, C. D. (2020). Does sustainability index matter to the hospitality industry?. Tourism Management, 81, 104158.
Su, C. H. J., & Chen, C. D. (2020). Does sustainability index matter to the hospitality industry?. Tourism Management, 81, 104158.
Online
Description of Rydges Hotel. 2023. Online. Available through:< https://www.rydges.com/>
Description of Woolworth. 2024. Online. Available through:< https://www.ibisworld.com/au/company/woolworths-group-limited/7/#:~:text=Woolworths%20Group%20Limited%20is%20a,data%20analytics%2C%20and%20consulting%20services.>
ESG risk of Rydges Hotel. 2023. Online. Available through: < https://www.sustainalytics.com/esg-rating/evt-ltd/1008753612>
ESG risk of Woolworth. 2024. Online. Available through: < https://www.sustainalytics.com/esg-rating/woolworths-group-ltd/1008752933>
Sustainability report of Rydges Hotel. 2024. Online. Available through: https://cdn.rydges.com/wp-content/uploads/sites/2/2022/08/15172449/Rydges-World-Square-Fact-Sheet.pdf
Sustainability report of Woolworth. 2023. Online. Available through:< https://www.woolworthsgroup.com.au/content/dam/wwg/investors/reports/f23/full-year/Woolworths%20Group%202023%20Sustainability%20Report.pdf>
7 Years | MSc
