Sector insight: Retail

Current challenges and barriers to progress

There are few sectors more acutely aware of the impact of the UK’s cost-of-living crisis than retail. Delivering the best value to customers, and keeping a keen eye on costs, remains a cornerstone for every successful business in this industry, regardless of the vertical. But as the panel of retailers discussed during the roundtable event, finding the budget to pursue sustainability when competing with other commercial priorities, remains a challenge. Disruptions to supply chains – caused by everything from extreme weather events to the outbreak of war in Europe – “often trumps sustainability and ethical sourcing has become an afterthought,” as one participant said.

55% of retailer respondents cited either armed conflict, the cost-of-living crisis or the energy price crisis as the biggest challenge facing corporate sustainability right now. Making sustainability a priority in the decision-making process in times of disruption and crisis, remains out of reach for many retailers, it seems.

Longer-term planning would help to address this challenge. The group agreed with the notion that, “if your long-term plan is three years, you can’t actually act sustainably. We need to be looking at the future of the business ten, 20 years away”. Retailers are so caught up in the day-to-day commercials that they struggle to make investments in energy efficiency measures that have a longer payback period, for example.

This is also one of the reasons the sector is yet to effectively tackle Scope 3 emissions within supply chains. While addressing greenhouse gas emissions within Scopes 1 and 2 is relatively straightforward for retailers – mainly because there are direct money-saving opportunities – investing in projects that help suppliers to do the same is a tougher ask. “Everyone focuses on retail, but retailers are just buyers. The people who will really deliver net zero are in the supply base and their story should be coming through much more than retailers,” said one participant.

“We source from thousands of suppliers from more than 70 countries,” said another. “How do we engage them in net zero, especially when they are so squeezed? How do we get them to invest in this?”

For at least one retailer participant, customers are not interested in stories about aiming for net zero. Unlike tackling waste, packaging or animal welfare, people just don’t get excited about carbon reduction, making it harder for brands to invest in climate action programmes. Enhanced scrutiny of greenwashing is also creating further barriers as retailers become more cautious, especially when it comes to making carbon neutrality claims on products. “We need to communicate to customers without fear of reprisals.”

Getting good data is out of reach

Getting robust data remains a challenge for retailers chasing ESG performance goals and increasingly stringent reporting requirements. With suppliers using competing lifecycle assessment methodologies and reporting frameworks, building an accurate footprint remains a complicated undertaking. “Our data is based on too many assumptions and until we get more confident, it’s hard to communicate the progress we are making – which is the only way to engage our stakeholders,” said one participant.

Others said that they were trying to find the right balance between waiting to have the most accurate data and information available, and taking action – and communicating that with customers.

Overall, the group agreed that current external reporting demands is draining resources available to small sustainability teams. “We’re paying more for reporting assurance than innovation and pushing sustainability forward. The intention behind reporting is right, but there needs to be a discussion about the value reporting is bringing.”

Actions that lead to transformation and commitment

The discussion turned towards examples of transformative actions being taken by retailers to kickstart their net-zero journey.

Setting clear, science-based GHG reduction targets appears to be helping to foster executive support and help sustainability teams find funding for projects. “Giving really simple metrics to the Board about our impacts – and explaining that if we do this, it will have this impact – works,” revealed one participant.

While the group acknowledges supplier engagement to be incredibly difficult, they also recognise it as being crucial to any climate action plan. “We have used our Scope 1 and 2 GHG reduction performance as a lever for this. If our business is not doing that, it’s tough to ask suppliers to do the same for our net zero target. It’s about walking the walk to engage suppliers to get them on board.”

Collaboration is crucial, but beware of doing too much

Collaborative initiatives and forums continue to be proving valuable to retailers in driving action on everything from alternative packaging and food waste to supporting ESG reporting and sharing best practice through case studies and participating in events.

Half of all retailer respondents claim industry collaboration to be either ‘business critical’ or ‘high priority’ to their business. A number of participants pointed to the value of industry platforms in promoting and showcasing supplier stories.

However, there was agreement that being a part of such groups can be time consuming for already stretched sustainability teams. “Cross-industry bodies can be overwhelming. We’ve taken a step back, to use spaces that we’re already in, rather than joining new groups.”

Priorities for the future

Looking ahead, retailers have a clear set of priorities as pinpointed by the survey results. More than 50% of retailer respondents said that developing a climate transition plan is currently either ‘business critical’ or ‘high priority’. Accessing good data, engaging with the supply chain, and building out business cases to invest in projects such as renewable energy procurement, will be crucial in developing such plans. When asked to note the one sustainability opportunity they are most hopeful of achieving in the next 12 months, a notable number of retailers mentioned ‘setting decarbonisation targets’, ‘establishing a firm net zero target and timescale’ and ‘developing a net zero strategy and plan’.

Alongside climate action, retailers are also keen to focus on human rights, particularly in the supply chain given the sensitivities associated with sourcing key product ingredients in food – and consumer interest in human rights abuse. “A key priority for us is to embed holistic approaches, and to have a strategy that allows us to not have a negative impact on human rights in order to advance on net zero targets and progress.”