The Net-zero equation
Eoghan Kelly explains how the net-zero transition will leave behind phoenixes and dodos
In January, Larry Fink, CEO of Blackrock, the world’s largest asset manager sent his famous annual letter to clients. In it, he draws a sharp distinction between companies that are preparing for and participating in the net-zero transition – phoenixes, and those who are not, which “will go the way of the dodo”.
The UK retail sector, which the BRC estimates to contribute 215 million tonnes of carbon dioxide equivalent emissions annually across its value chain, giving it a higher carbon footprint than all UK households and road transport, is subject to Fink’s polarisation as much as any other. Those who have not already set a net-zero commitment that includes emissions across the entire value chain risk being left behind by peers and abandoned by increasingly ethically minded customers and ESG-focussed investors.
Committing doesn’t necessarily mean you know precisely how it will be achieved. Most organisations are working it out as they go. The starting point is developing an accurate carbon footprint which must cover both direct and indirect emissions.
This can be daunting, with patchy data, myriads of sources and constantly evolving reporting frameworks. Technology choices are important here – retailers should consider the full value chain, not just their operations when selecting tools, and ensure that the insights driven from tools are embedded into decision-making processes throughout and beyond the organisation. A new line of products made from virgin polyester may not be so attractive once a significant negative carbon impact is included in the business case.
Each business is unique but most retailers’ footprints (circa 90%) will be related to the products they sell, particularly upstream: raw material extraction and processing, product manufacturing and packaging. Net-zero, therefore, requires the ability to maintain visibility of emissions across multi-tier, agile, global supply chains which in turn requires traceability and reporting capabilities to be driven far deeper into the supply base than ever before. Collaboration is a key enabler – not just a dialogue with direct and indirect suppliers, but at the sector level, such as the BRC’s various pathway working groups taking place within its Climate Action Roadmap.
Finding a pathway to a net-zero value chain will take time and achieving it will take years. It’s essential to also have a “fast lane” in which more obvious, direct emissions are reduced, for example improving energy efficiency in stores, reducing waste and driving down emissions related to transport. Technology innovation will again play an important part – from on-site renewable energy generation and battery storage to wirelessly charged EVs and HGVs fuelled with biomethane produced on the farms they collect produce from. Waste is fuel in the circular economy.
Circularity is perhaps the most significant mindset shift of all for retailers, and one of the greatest opportunities for competitive differentiation. Innovators such as Little Loop and Rent the Runway are creating technology platform-enabled propositions that migrate customers away from the traditional product ownership model of the linear economy towards an access / subscription-based model. This transition is mature in other sectors: when was the last time you bought an album or a DVD? Moving to a circular model “will reap huge rewards for businesses, individuals, and our planet” and “could generate $4.5 trillion of additional economic output by 2030”.
It's an exciting time to be a retailer, as the sector faces its most seismic transition in history (again). Choices made by retailers today (or not made, as the case may be) will separate the phoenixes from the dodos. Choose wisely.
Get the latest Validify report 'Technology-led Sustainability in Retail' here