A stormy summer of persisting disruptions has retailers weighed down. In such a scenario, it is understandable that the topic of sustainability seems too complex and too difficult to navigate. However, the urgency of acting on sustainability goals has never been higher. The recent heat waves in Europe and the Americas led to much conversation around the topic of human impact on the environment. Not only are consumers and potential employees more aware than ever of how business activities affect the environment, but activist investors are also more vocal while Paris Agreement deadlines are fast approaching.
While many retailers have made carbon-reduction and other sustainability-related commitments, the scale of what is needed can be paralyzing. This becomes particularly true in reducing Scope 3 carbon emissions, which are caused by activities from assets in an organization’s value chain that are not directly owned or controlled by it. With time running out, retailers need a clear strategy and implementation plan. To do this, the right resources and the right team will need to be put in place.
The size of such a team, whether it is a dedicated ESG resource, and what its roles, responsibilities, and reporting structure are will depend on the level of maturity of both the organization and its current ESG status. Organizations the size of Alphabet, exceeding 10 million tons of carbon-equivalent emissions annually, will often have large, dedicated teams.
On the other end of the spectrum are companies early in their sustainability journeys that may not have an established program or a tangible team in place, resulting in most of the work in this area getting handled by different compliance teams. For organizations in this stage, accelerating plans or delivering on goals or targets can be difficult. To embed sustainability in day-to-day business or to start new ways of working toward goals demands dedicated resources, even if their size is small.
Most retailers will fall somewhere in the middle.
While targets can be defined or further refined with the help of the Science Based Targets initiative or external advisors, internal resources will be necessary to implement processes and provide the latest and most transparent data and feedback. This necessitates setting up a standalone internal team that reports up to top management. The size of the team will depend on the number of suppliers, how fragmented the supply base is, and how advanced they are regarding their own targets and plans. The higher the number of suppliers or the less sophisticated their own sustainability teams, the more resources retailers will need to devote to this work. A more hands-on approach is suitable when the retailer has less time to achieve targets, has more resources available, is less willing to switch suppliers, or fewer levers are available to reduce emissions.
Because retailers are highly dependent on their supply base to deliver ESG targets, dedicated resources can help address the following key points:
- Setting goals and tracking progress: Are suppliers setting their own targets and are compliant without the retailer’s intervention? Or is the retailer expected to set goals for them and track/validate progress?
- Determining investment required: Are you expected to co-invest or collaborate with your suppliers and have dedicated resources to come up with solutions? Or are buyers and suppliers expected to manage the program with just a few resources from you?
- Plugging into core capabilities: To what extent do you have (or need to have) in-house sustainability specialists? Do you need to conduct analysis internally or get suppliers to align around a common goal with minimum project management or intervention?
- Knowledge-sharing for continuous improvement: Do your suppliers share best practices among each other or does your company need to create training programs and/or playbooks and share with suppliers?
- Assessing supplier fungibility: Do you prioritize environmental and social aspects in your RFPs and are willing to switch suppliers if needed? Or would you rather stay with incumbents, regardless of their ESG progress?
- Enforcing penalties or providing incentives: Do you expect to enforce penalties or replace suppliers or, conversely, provide incentives for compliant suppliers? Or are your suppliers’ goals aligned with yours and there is no need to enforce penalties or give incentives?
To make real impact, retailers need to embed sustainability topics in their operating models and in daily decisions. When it comes to day-to-day decision making, retailers must consider the implications of their sustainability goals not just on long-term strategic planning but also on the yearly budgeting process. Sustainability doesn’t need to come at a cost but may require a shift in priorities to allow companies to meet their carbon reduction goals.