The Challenges and Benefits of a Decarbonisation Strategy for the Retail Sector
Decarbonisation. Net zero. Carbon neutral. These terms are synonymous with achievement of the goals, outlined by the Paris agreement at COP 21 by 196 countries, which require a global state of ‘net zero’ greenhouse gas (GHG) emissions by the middle of this century or sooner.
However, these terms not only apply to global or national emissions. Decarbonisation targets, including the attainment of net zero (and for the uber-ambitious, beyond zero), are being pursued at an increasing rate within industrial sectors and individual businesses.
This is certainly the case within the retail sector. The motivating factors driving our retail clients to pursue a decarbonisation strategy can be as unique as the organisation itself but are commonly the result of external pressure. This can be from customers who increasingly demand the organisations they purchase from, and are loyal to, are as attentive to their carbon footprint as they are to their bottom line. Pressure also comes from investors who want transparency around ESG metrics, and partners who want to be part of a low carbon supply chain ecosystem.
Convincing CEOs, executive leadership teams and boards to commit to decarbonisation goals is an exercise in business case development. Business leaders expect and demand economic growth and carbon emissions are decoupled; indeed they must be, if we are to have any chance of meeting global economic development goals, as well as those set out in the Paris agreement.
Fortunately, the global retail market is evolving quickly. Decarbonisation and sustainability are increasingly contributing to increased market share and revenues. Being purpose-driven is a competitive advantage. For example, Unilever’s ‘Sustainable Living’ brands are reported to outperform the average growth rate of the rest of their portfolio, and to have avoided over €1 billion in costs by improving efficiencies, using less material and producing less waste. Nike produced its Flyknit line in 2012, report to be producing 80 percent less waste than its conventional footwear lines, and generating more than USD $2 billion in revenue.
There is no doubt the business case for decarbonisation and pursuing net zero is demonstrable. But what of the challenges to achieving it in the retail space?
Here we take a closer look at these.
1. Making GHG metrics visible
The starting point for, and backbone of, decarbonisation target-setting and achievement lies in retailers having visibility into their GHG emissions. Retailers who are serious about pursuing decarbonisation must commit to ongoing measurement of their emissions, so that a baseline can be established (initially), and progress tracked (ongoing). Challenges associated with measurement vary, depending on the measurement boundary selected by the retailer. Broadly speaking, complexity increases once retailers choose to include their scope 3 emissions, which are indirect emissions produced within their value chain, such as by service partners or goods sold that are not under the direct control of the retailer. However, these challenges are surmountable. For example, it is possible to use spend-based data (such as the amount spent on logistics associated with delivery of raw materials) to calculate scope 3 emissions if direct emissions data is not available from business partners.
2. Minimising logistics-related emissions
Retailers must also consider the emissions produced by their supply chain; often the largest contributor to their carbon footprint. Supply chain emissions are a function of procurement decisions but by selecting inputs into the final goods they sell, or indeed sourcing those final goods, closer to the manufacturing location and/or distributed to customers, emissions can be significantly mitigated. For example, retailers who sell products made in Asia to customers in Europe will find the emissions created in delivering those goods can present a major challenge to their decarbonisation targets. Retailers faced with this dilemma can opt for ‘local sourcing’ strategies, or work with logistics providers who offer low carbon alternatives.
3. Doing more with less
Resource use can make or break a retailer’s decarbonisation strategy, and also their bottom line. Finding efficiencies in how resources are used to create products or deliver services can result in positive ‘triple bottom line’ outcomes; fewer emissions, preservation of resources and economic benefits (i.e. cost-savings). But ‘doing more with less’ has its challenges. Retailers who embrace this approach will be tasked with maintaining or enhancing product quality and prices, while reducing product inputs. This can be difficult, particularly in resource-intensive retail sub-sectors, such as the automotive industry. Key to overcoming this obstacle can be in finding ways to reuse and recycle product inputs (see point #5), or in product input substitution (think ocean liner biofuel instead of diesel). Done well, the approach can result in first mover advantage, and the benefits that can come with it, including the right to charge premium prices and maintain customer loyalty.
4. Embracing renewable energy
Many retailers will find their scope 2 emissions (those produced by purchased electricity, steam, heat and cooling) to be a large contributor to their carbon footprint. While the domestic price gap between fossil fuel and renewable energy is shrinking, driven by increased investment in renewable energy technology that has resulted in the cost of new build renewable energy being cheaper than new build fossil fuel energy, some clients still feel accessing 100 percent renewable energy is cost prohibitive. However, the good news is that there are several affordable solutions for the retailer who wishes to achieve net zero energy emissions:
While the cost of purchasing 100 percent greenpower remains around 5-8 cents per KWh more than a retailer’s current average electricity rate, these prices can be reduced through a combination of greenpower and feed-in-tariffs available to retailers who invest in renewable energy infrastructure through onsite purchase power agreements (PPA’s). Warehouses, office buildings and retail stores provide opportunities for housing the infrastructure required to produce this small-scale renewable energy.
5. Reducing waste
3.2 percent of global emissions come from waste. Retailers are challenged by the task of growing sales while reducing waste produced in the manufacturing, transport and disposal of products. How can this be achieved? Increasingly, retailers are considering this problem when designing their products and services by adopting circular economy principles. These principles of “reduce, reuse, recycle” focus upon eliminating waste in the design phase of the product lifecycle, and if achieved, can have a triple bottom line impact. Circular design can also provide a point of differentiation for retailers, creating a unique take on familiar products, as well as uncover previously unrecognised revenue streams. For example, Renault have created Europe’s first circular economy factory for vehicles; remanufacturing vehicle components such as gear boxes, increasing recycled plastic content and creating a second life for electric batteries. These remanufacturing activities generated revenues of nearly €120 million in 2019, while producing 70 percent less waste.
There is no doubt that decarbonisation strategy provides unique challenges for retailers. However, these can be solved, often through uncovering efficiencies in the supply chain, product design and resource use. If done well, the results can be cost savings, new revenue streams, first mover advantage and brand loyalty, in addition to ecological and social benefits.