Over half of those who work in retail expect ethical sourcing to drive up production costs by at least five percent, according to new data published by Verdict Research. A further 14 percent expect cost increases to exceed 10 percent.

These opinions were voiced in a new report, ‘The Future of Ethical Sourcing.’

“With margins already under increasing pressure from escalating rents and fixed costs, finding a way to absorb the ethical sourcing expense will prove crucial to the profitability and survival of many retail businesses”, said Verdict.

According to the company, the ethical sourcing agenda is widening to incorporate environmental sourcing concerns in addition to those around labour in the supply chain.

Traditionally, the ethical sourcing agenda worked towards minimising the exploitation of labour resources in companies’ supply chains. However, as progress has been made regarding headline labour issues such as worker health and safety, and child labour, new issues are becoming a greater priority on retailers’ corporate social responsibility agendas.

Sourcing in compliance with high labour standards is increasingly considered a basic feature of a product and the extent to which it adds value has lessened. Retailers are turning to alternative methods of adding value to justify higher price points.

Value retailers’ customers are very sensitive to even small price increases, and would be less likely to trade up for ethically sourced products, Verdict points out. Thus, they suggest, this will provide further advantage to larger retailers in the sector, including Tesco and Asda, who can leverage economies of scale and consolidate their market share.