Decarbonising for Retailers 101

Introduction

Growing pressure from consumers and regulatory bodies are pushing retailers to re-evaluate their carbon footprints and to decarbonize their operations. As the world grapples with the effects of climate change, retail businesses must (and some even have been the first to) step up and take greater accountability around the environment.  

Understanding Decarbonization: What It Means for Retailers

Decarbonization is the process of reducing carbon dioxide and other greenhouse gas (GHG) emissions within business operations and across value chains. In retail, these emissions can occur at multiple points across the value chain like manufacturing, shipping, and running energy-intensive brick-and-mortar stores.

Let’s dive deeper into understanding the possible emission hotspots in retail:

Supply Chain Operations: Raw material procurement, manufacturing, and distribution/logistics are major contributors to a retailer’s hotspots. For example, a fashion retailer will source its clothing from its factories in different countries. The manufacturing of clothes relies on machinery that is energy-intensive and usually runs on fossil fuels. Transporting the final product to warehouses or retail stores can also produce massive carbon emissions. In the fast fashion economy, quick inventory turnover usually means significant emissions due to how clothes are produced, shipped and sold at an accelerated pace.

Store Operations: Many retailers rely on getting their goods to the market through physical stores which consume a lot of energy for lighting, air conditioning, heating, or even refrigeration. For example, a countrywide supermarket chain has to keep their refrigerated sections cool at all times to prevent perishable products from rotting. Depending on the local grid mix, this power can be generated from non-renewable sources, contributing heavily to every store’s carbon footprint.

Product Life Cycles: Every phase of a product's lifecycle contributes to the retailer's carbon footprint. For example, an electronics retailer selling smartphones generates emissions from the initial extraction of raw materials to manufacturing, packaging, shipping, and disposal of the product. In case these products are not properly recycled, it may end up in a landfill and release harmful chemicals that will contribute to environmental degradation, furthering the retailer’s overall carbon footprint.

The Business Case for Decarbonization

Decarbonization is not just an environmental strategy; it's a smart business decision in the long run. There is a difference between table-stakes and long-term decarbonisation action -- organisations which inculcate long-term action will benefit in multiple ways:

• Financial Gains: Reducing energy consumption through efficiency measures can lower operational costs. Additionally, retailers who embrace renewable energy may qualify for government incentives.
• Avoiding Regulatory Risks: As governments worldwide implement stricter regulations, those who fail to act may face fines, penalties, or restrictions. This is avoidable if retailers take proactive steps to mould their processes to have a greener approach.
• Meeting Consumer Expectations: Consumers are increasingly seeking sustainable products and brands. Retailers who ignore this shift can risk losing their customer base to competitors who align with these values.
• Gaining Competitive Advantage: Early adopters can position themselves as industry leaders, gaining market share and loyalty from eco-conscious consumers.

Steps to Decarbonize

Any effort at decarbonizing can be structured by a Mitigation Hierarchy. This is a structured approach that helps businesses prioritize the steps needed to reduce their environmental impact. Through a mitigation hierarchy businesses can learn how to avoid, reduce, substitute or eliminate emissions before turning to offsetting as a last resort. Here’s how this framework can be applied:

• Avoid Emissions at the Outset: Retailers can prevent emissions from occurring in the first place through steps like choosing virtual meetings in place of physical ones that require travel by road or air. Similarly, retailers producing vehicles can switch to electric instead of traditional internal combustion engines.
• Reduce Intensity of Unavoidable Emissions: Sometimes emissions cannot be completely avoided, but their intensity can definitely be reduced. This can be done by opting for vehicles powered by electric engines or going for recyclable raw materials in product manufacturing.
• Substitute Energy Sources: Wherever possible, retailers can substitute fossil fuels with renewable alternatives, whether it’s through the grid or on-site installations like solar panels and wind turbines.
• Remove Residual Emissions: There will be emissions that cannot be cut out completely, minimised, or substituted, then retailers can focus on removing carbon from the atmosphere. This should ideally happen within the value chain through reforestation projects or other nature-based solutions.
• Purchase Credible Offsets: The last resort after reducing emissions by at least 90% retailers can turn to carbon offsets. This step should be taken once all other strategies have been implemented and taken effect to minimise as much reliance on offsets as possible.
  
  

Account Aggressively: Detailed tracking is a critical part of the decarbonization journey. Retailers should map their entire value chain to identify high-emission hotspots. A detailed value chain mapping can provide an understanding of the downstream journey of products and helps gather accurate data from suppliers. Then the retailers have adequate information to come up with the most impactful emission reduction strategies. Efforts should focus on areas with the highest materiality to ensure resources are used efficiently and judiciously.

Implementing Reduction Strategies: Ultimately, practical and scalable solutions are essential to driving any meaningful progress. Retailers should prioritise energy efficiency in business operations along with sustainable sourcing of raw materials to lower carbon footprints. Retailers should also set measurable, time-bound, and realistic decarbonisation goals. Collaborating with suppliers and stakeholders is also key to achieving these goals, as collective action always amplifies impact.

Conclusion

The path to decarbonization may seem daunting for both small and large-scale enterprises, but taking the first step is crucial. Even small changes can have a significant impact, helping retailers establish themselves as leaders in both environmental sustainability and business success.