December 6, 2023

Opportunities on retail’s route to net-zero emissions

One opportunity is the potential for the retail sector to access new sources of capital. The Glasgow Financial Alliance for Net Zero (GFANZ), representing 40% of the world’s financial assets, have agreed to finance the transition to net-zero emissions over the next 30 years. GFANZ announced that access to capital will require companies to use science-based guidelines to reach a 50% emissions reduction by 2030 and net-zero emissions by 2050. It means adjusting business models, developing credible plans for the transition, and then implementing them. Retail companies that fail to consider these new opportunities may face reduced access to and a higher cost of capital and/or insurance.

IBM and the National Retail Federation report that mobile technology and social media have led to a fundamental shift in shopping, creating new opportunities for the retail sector; reporting that today’s ‘always-on consumers’ come highly informed with specific demands pertaining to price, ingredients, delivery options, and production methods. They report that 71% of consumers now shop whenever and wherever the mood strikes them, in ‘micro-moments’, often while doing other tasks. Technology allows them quick access to product information. For example, Farmer Connect is a blockchain platform that connects coffee growers, traders, roasters, and consumers, enabling them to share data, growing the coffee market, and incentivizing sustainability practices; the platform tracks each step of the coffee’s journey from co-op to cup, allowing consumers to see their coffee’s production journey. Technologies can help provide transparency of production methods and traceability of source materials, and demonstrate retailers’ commitments to sustainability.

IBM and the National Retail Federation advise that since consumers are willing to pay a premium or change behaviour to reduce environmental impact, it is important to offer options that provide trade-offs between supply chain cost, service, and environmental impact. For example, in the last-mile delivery from fulfillment center to home, trade-offs can reduce variable logistics cost while enabling the consumer to participate in initiatives that reduce emissions or otherwise help maintain a healthy planet. In the food and beverage industry, discarded food can be given a second life by partnering with farms and kitchens to turn work-in-process and semi-finished goods that would normally be discarded into nutrient-rich by-products such as animal feed, protein flour, or beverages. They recommend that retailers explore how to use automation to handle repeatable tasks, such as counting inventory on store shelves, to free up time for store associates, improve the in-store experience, and provide services that help simplify consumers’ lives.

At the November 2021 COP26 meeting, major retail companies announced that a key way to reduce retailers’ environmental impact is to provide resale and refurbishment services. The examples in Part III illustrate how retailers are taking advantage of these opportunities.

Another opportunity is through mitigation of insurance costs. The UN-convened Net-Zero Insurance Alliance includes insurers and reinsurers committed to accelerating the transition to net-zero emissions economies by transitioning their underwriting portfolios to net-zero GHG emissions by 2050. The commitment includes engaging with clients on their decarbonization strategies and net-zero transition pathways, and offering insurance and reinsurance products that support low-emission and zero-emission technologies and nature-based solutions that are key to the net-zero transition.

There are also opportunities for retail companies through resource efficiency in distribution and transportation processes, circular economy strategies, adoption of low-emission energy sources, development of new products and services, access to new markets, and building resilience along the supply chain. According to the International Energy Agency (IEA), in order to meet global emissions-reduction goals, countries will need to transition a major percentage of their energy generation to low-emission alternatives such as wind, solar, wave, tidal, hydro, and geothermal. As part of this transition, the IEA recommends that no new oil and gas fields and no new coal mines or mine extensions be approved for development.

Retailers that innovate and develop new low-emissions products, services, and production processes may improve their competitive position and capitalize on shifting consumer preferences. One example is consumer goods and services that place greater emphasis on a product’s carbon footprint in its marketing and labelling. Climate resilience means that retail companies are developing adaptive capacity to respond to climate change to better manage the associated risks and seize opportunities. Opportunities related to resilience may be especially relevant for retailers with long-lived fixed assets or extensive supply or distribution networks; retail companies that depend critically on utility and infrastructure networks or natural resources in their value chain; and retailers that may require longer-term financing and investment.

There are also opportunities in sustainable procurement. By collaborating with its supply chain, a retailer can improve access to raw materials and work to proactively engage suppliers to identify and address supply side issues caused by climate change.

The Sustainable Apparel Coalition has developed the Higg Index, a suite of tools for the standardized measurement of value chain sustainability. It is comprised of a core set of five tools that together assess the social and environmental performance of the value chain and the environmental impacts of products, including water use, carbon emissions, and labour conditions. Retailers, manufacturers, governments, and consumers can use the Higg Index to inform sustainability strategies and drive collective industry transformation.

For example, REI Co-Op, a US gear and cycle retailer, has used the Higg Index to support its financial goals and competitive advantage; it has made sustainability a central part of its ethos and value proposition to consumers, directly linking sustainability investments with monetization. REI Co-op’s climate governance reinforces its strategic position and reputation. The Higg Index provides REI Co-op’s brands and manufacturers with a standardized platform, each ‘module’ assesses aspects of the product lifecycle, to provide a tool to set targets and monitor the sustainability actions of its brand partners, linking brand performance, financial returns, and impacts on the planet. Each year, more than 70% of REI Co-op’s annual profits are invested back into the outdoor community through dividends to REI members, employee profit-sharing, and investments in non-profits dedicated to the outdoors, garnering the company 20 million lifetime members.

Over 110 countries representing 85% of the planet’s forests signed the COP26 Glasgow Leaders’ Declaration on Forests and Land Use, committing to halt and reverse deforestation by 2030. Financial institutions covering over US$8.7 trillion of global assets under management have committed to move away from portfolios that invest in high deforestation-risk agricultural commodity supply chains and towards sustainable production, accelerate actions that incentivize greater transparency and sustainability in the supply chain, support smallholder farmers to participate in markets, and drive new technology and innovation. Retailers need to stay current in these developments and assess how they may present new opportunities for managing climate-related financial risks in their supply chains.

There are opportunities for retail companies to demonstrate their commitments to climate and other ESG concerns, but integrity in advertising is important. In an ad campaign, Nike showcased Colin Kaepernick as one of the NFL players who kneeled during the national anthem before NFL games to protest police brutality resulting in the deaths of unarmed black Americans; its ads sparked a boycott of Nike, but also increased Nike’s value by US$6 billion within weeks. At the same time, the ad drew attention to Nike’s long history of using sweatshops to produce its sneakers and the fact that Nike resiled from its agreement with international labour organizations to remedy myriad labour rights violations in its supply chain. A recent video juxtaposing Nike’s support of Kaepernick against Nike’s sweatshop labour received over 2.7 million views. Retailers need to ensure that their messaging to customers is consistent and really does advance the goal of a just transition.