Green grocers? The big chains talk a good game but their true ethical colours are hard to determine

This year has witnessed a surge in ethical pronouncements from Britain's top retailers. Recent initiatives concerning corporate social responsibility (CSR) have included a "Tesco in the community" 10-point strategy plan and reward points for reusing plastic bags; a switch to green electricity at the Co-operative Group; a trial in local sourcing at Asda; a switch to compostable packaging at Sainsbury's; and the recycling of catalogues at Argos.

But are consumers and investors really any clearer on where they should spend their ethical pounds? As the retail reporting season gets under way this week, what exactly is being done on the high street - and will it make any difference?

Institutional investors identify three reasons for the flurry of CSR activity: the success of Marks & Spencer's ethically led "Look Behind the Label" marketing campaign; the recent Competition Commission inquiry into the supermarket sector; and a stream of critical reports from pressure groups.

But retailers have a way to go. The National Consumer Council (NCC) will publish its latest report, Greening Supermarkets, on Thursday, and is expected to criticise the way the supermarkets engage with customers on green issues.

Rachel Crossley, director of investor responsibility at fund manager Insight Investment, says: "Supermarkets seem to have recognised only recently that they can - and must - compete on their environmental/ ethical credentials, as well as price, availability, accessibility and so on, as these factors are influencing where customers shop."

Surveys back this up: research by Mori shows that 35 per cent of consumers find ethical issues very important and 47 per cent rate them as fairly important.

As for investors, they scrutinise CSR procedures for reassurance that the retailer is minimising its exposure to the risk of ethical scandals, potentially damaging to sales. Socially responsible investment (SRI) funds take this one step further and will not invest if they doubt a company's ethical credentials.

Henderson Global Investors has approved J Sainsbury, M&S, Kingfisher (owner of B&Q), GUS (owner of Argos), Boots, DSG (owner of Dixons) and Next as suitable for inclusion in its SRI funds. Wm Morrison, Woolworths and Tesco - despite the latter's high-profile pledges - have yet to make the grade.

"Tesco's recently announced community plan is to be welcomed," says Nick Robins, the head of SRI Funds at Henderson, "but the jury is still out as to whether this will deliver the performance that is expected from the market leader."

Morrisons, he adds, "did not demonstrate sufficient policies, systems, performance and disclosure across the corporate responsibility agenda".

It is the growing influence of ethical investors that explains why publicly listed retailers place more emphasis on communicating their CSR activities - usually in glossy annual reports - than do privately owned retailers (notable exceptions being the Co-op Group and John Lewis).

Yet some top retailers still lag behind. CorporateRegister.com, a directory of non-financial company reports, reveals that Asda, Morrisons, Littlewoods, Spar UK, Arcadia, Iceland, HMV, Carphone Warehouse and Costcutter have all failed to produce reports of any more than six pages.

Of the many environmental and social criteria on which retailers are judged, two are currently at the forefront of public, government and investment attention: obesity and climate change. According to research by the Climate Group, an environmental charity, 28 per cent of British consumers are very concerned about climate change, while another 53 per cent think it is important.

The Carbon Disclosure Project, which is backed by big institutional investors, will reveal later this month how many FTSE 350 companies responded to requests - signed by hundreds of investors - for information on their greenhouse gas emissions. Morrisons, Woolworths, Kesa (the owner of Comet), Carphone Warehouse and HMV were among those that didn't return questionnaires.

Retailers are "potentially a huge power for good" in the influence they exert over suppliers and customers, says Mike Barry, the head of CSR at M&S. "Less than 10 per cent of a retailer's carbon footprint is concerned with the stores and lorries they own - 90 per cent is divided between the supply chain and customer use or disposal of the product."

Retailers come in for particular criticism over food miles, with products travelling hundreds if not thousands of miles before they reach the shelves. Attention here focuses on the top four supermarkets, where consumers purchase 75 per cent of groceries.

"Food is the average household's number-one contributor to climate change," notes the NCC's Greening Supermarkets report, which calls on supermarkets to guide customers towards more ethical purchases, for example making it easier for them to identify locally produced fruit and vegetables.

"We were particularly disappointed by the low level of engagement with customers on green issues," says Sue Dibb, senior policy advocate at the NCC. "This includes scant information about, or promotion of, greener choices, like seasonal produce."

When it comes to obesity, investors favour retailers such as Sainsbury's and Waitrose that have adopted the Food Standards Agency's "traffic light" labelling system. Here, packaging is colour coded, with red indicating unhealthy levels of fat, sugar and salt, and green pointing the consumer towards healthier choices.

There are sound commercial reasons to back the scheme, says Henderson's Mr Robins. "Thecost of obesity for the NHS means the Government will be forced to take stringent measures on both nutrition and activity. Food retailers are in the front line and there could be strong commercial advantages for those that actively encourage well-being."

Yet while obesity and climate change may dominate the headlines, investors have further concerns. Allegations of the unfair treatment of dairy farmers by some supermarkets is a case in point. "It is jeopardising security of supply," says Jo Allen, the head of SRI engagement at the Co-operative Insurance Society. "There is only so long a strategy like that can sustain itself."

A still more serious risk is that of damage to a retailer's reputation after the exposure of human rights or other abuses at suppliers. According to Mori, 94 per cent of consumers agree that companies have a responsibility to check that suppliers are behaving properly. One way to demonstrate this is by saying on labels that a product is ethically produced. Asked what customers wanted to see most on labels, 65 per cent said an assurance that no child labour was used in production - putting this issue ahead of ingredients, nutritional information, animal welfare, fair trade and the product's country of origin.

Many retailers, especially in food and clothing, are members of the Ethical Trading Initiative (ETI), requiring them to impose a code of conduct on their supply chain. Charities, unions and investors back the ETI, but some chains, including Morrisons, Kingfisher, GUS, DSG and Woolworths, remain outside. Somerfield and Littlewoods, both newly privatised, recently withdrew from the scheme.

Codes of practice are pointless without enforcement, so investors look for evidence of factory visits. GUS-owned Argos might not be a member of the ETI, but Laurence Singer, its corporate responsibility manager, says the retailer still benchmarks itself against it, noting that "70 per cent of our direct imports are subject to third-party audits".

Other initiatives are already well known. The Fairtrade mark is recognised by 50 per cent of consumers, according to Mori, and sales hit £195m last year. Yet Fairtrade does not extend to manufacturing or textiles, only to farming. So even if cotton clothes have the Fairtrade mark, this guarantees a fair deal only for the cotton grower and not for anyone else involved.

So there is still a long way to go before the high street can claim to be entirely ethical and environmentally friendly, especially as retailers must balance this with the need to keep prices low. The green-shopping group Ethical Consumer, for example, gives an "ethiscore" as low as 1/15 for Tesco and Sainsbury's and 0.5/15 for Asda. Guides such as this may have little influence on investors - who base their decisions on the wider CSR picture - but they send out a strong message to ethically aware consumers.

Retailers resist calls from both investors and pressure groups for full public disclosure of their ethical-trading performance on the grounds that this is commercially sensitive information. Henderson's Mr Robins reports being asked to sign a confidentiality agreement before being shown one retailer's ethical-trading report - data he believes retailers would benefit from making available to the public.

If retailers really want to seize the moral high ground, they need to do more than just launch publicity campaigns. Accountability, and transparency, are the real way forward. After all, if the big high-street names are as ethical as they claim, then they should have nothing to hide.