9 out of 10 retailers have made less sustainability progress than expected

Even as sustainability has leaped to the top of the agenda for retailers, according to a Bain & Company report 9 out of 10 retailers have made less sustainability progress than expected.

Bain’s latest ESG maturity analysis across the US, Asia-Pacific and Europe indicated only 1 of the 27 grocers and apparel retailers assessed had a leading approach to ESG, with none emerging as truly distinctive. So, while retailers are laying the foundations for a systematic approach to go beyond quick wins and small pilots there is a long way to go.

Barriers facing the industry

Moving from sustainability commitments to action is hard with the sector facing a funding gap. Sustainable supply chains and food systems can be more costly than existing ones, which don’t acknowledge the full cost of carbon emissions and other previously ignored externalities. In most markets, tax incentives or funding mechanisms to support these investments aren’t yet available.

Shoppers are a conundrum, too. They say they want progress, but most aren’t changing their shopping behaviour; nor are they prepared to pay more for sustainable options, especially amid today’s cost-of-living squeeze due to inflationary pressures.

Retailers are also constrained by being at the end of their supply chains, which makes it harder to orchestrate change. And in too many retail businesses, sustainability targets aren’t sufficiently owned by the commercial and operational teams, without whom nothing can get done at scale.

C-suite retail leaders don’t feel fully in control of sustainability, particularly when macroeconomic turbulence is putting extra strain on stretched investment budgets.

Moving from “why” to “how”

Yet, it is possible to accelerate progress on sustainability that will not only satisfy the moral and social imperative to act but also unlock new sources of value in the long run.

To move fast, retailers need to choose key sustainability themes in their business, prioritising actions most likely to deliver both rapid and lasting impact. Some key areas include:

• Greenhouse gas emissions
• Waste & circularity
• Sustainable sourcing
• Diversity, equity, inclusion
• Human rights & good work
• Health & wellness

Once this is done, a careful look at the gap between where the retailer is now, where the competition is, where consumer and regulatory expectations are heading, and where the retailer want to reach are some areas to be evaluated.

Collaboration is key

Multiple examples of win-win collaborations already exist. For example, Walmart has signed up more than 4,500 suppliers to its Project Gigaton, which aims to eliminate or avoid 1 billion metric tons of supply chain emissions by 2030 (and had already achieved more than 574 million metric tons as of 2021). One of the ways Walmart helps suppliers make progress is by providing calculators (created in collaboration with the World Wildlife Fund and the Environmental Defense Fund) that show the impact of supplier actions in terms of metric tons of carbon dioxide equivalent.

Prada has partnered with Aquafil, an Italian textile yarn producer, to use the regenerated nylon Econyl for bags, clothing and footwear. This environmentally friendly nylon produced using recycled plastic and discarded fishing nets has 90% less global warming impact than virgin nylon sourced conventionally from petroleum.

More collaboration ought to be in the cards outside the supply chain, too. With innovation becoming ever more central to sustainability, leading retailers are turning to trailblazers in areas such as traceability, carbon offsetting and waste reduction to help them stay ahead. For instance, Carrefour, Kroger, Metro, and Australia’s Woolworths are among the retailers that have been working with Loop, a specialist in reusable packaging programs for branded consumer products.

There is a growing opportunity for retailers to work through industry alliances to engage with policymakers and activist groups and ensure that their frontline expertise is used fully.

From commitments to actions

Retailers are facing a long road ahead on sustainability, but opportunities will abound at every stage of that journey. Sustainability improvements have the potential to reduce costs and generate a positive return on investment. Then there’s the resilience dividend.

For instance, sustainable sourcing can make it easier to weather short-term crises such as the pandemic-led supply disruption. Likewise, companies that are proactive on sustainability are less likely to be hit by regulatory tightening.

The differentiation offered by sustainability isn’t limited to products, either. It can give retailers an edge over their competitors in attracting investors, tapping rising demand for ESG-focused investment and attract and retain the best talent.