A sector united in pursuit of net zero  

At the end of October, during the Sustainable Retail Summit, EuroCommerce, representing five million retailers, committed to becoming an accelerator for the Race to Zero. Race to Zero seeks to motivate other retailers globally to adopt science-based goals for cutting greenhouse gas emissions in half by 2030 and reaching net-zero carbon emissions at the latest in 2050. The engagement gives retailers a chance to collaborate with other retailers and trade association partners at the national, regional, and international levels to speed up the transformation of the entire economy and create a healthier, more resilient, and carbon-neutral world.[i] EuroCommerce were joined by national retail groups ANGED (Spain), APED (Portugal), ESEE (Greece), FCD (France), and Vakcentrum (Netherlands) in their commitment to Race to Zero. Along with the British Retail Consortium and the Australian Retail Association, these powerful retail organisations will promote climate action and aid their members' establishment of strategies to help keep global warming to 1.5 degrees by 2030.[ii]

The Director General of EuroCommerce, Christel Delberghe, said:

“In joining the campaign, we hope to encourage retailers and wholesalers to set out their plans to achieve necessary carbon reduction targets by 2030 to help limit the global temperature rise to 1.5 degrees. A recent report by EuroCommerce in partnership with McKinsey shows that retail and wholesale value chains represent 40% of EU emissions, however only 5% of these are in direct control of retailers and wholesalers. Collaboration with supply chain partners and our stakeholders will be key to success in the Race to Zero.”[iii]

Source: Consumer Goods Forum

Delberghe’s comments about McKinsey’s report paint a rather urgent picture for the retail sector, but the report also provides some solace in the form of a pathway to emissions reduction for the retail sector. SMEs would need to invest between €10 billion and €25 billion, while major enterprises would need to invest between €125 billion and €310 billion to fulfil the EU aim of reducing GHG emissions by 55% by 2030 and reaching net zero by 2050. This equates to an additional yearly investment of between 0.3 and 0.9 per cent of sales. The sector, customers, suppliers that decide to act early on, and the EU as a whole may all benefit from the sustainability transition. The report suggests that direct support for this transition can be found within the following three areas:

• Regulation- Retailers and distributors claim that legal requirements may be standardised and made easier in nations both inside and outside the EU. This might contribute to levelling the playing field for both native and foreign goods. Streamlined, unified legislation may also make it easier for value chain participants to define and accomplish long-term sustainability goals on schedule.
• Financing- Access to specialised funding (such as subsidies, tax adjustments, and public-private partnerships to quicken investment in sustainability (capex)) may be made available to retailers and wholesalers.
• Standards- By drawing on already-existing standards and standards that are now under development, the methodology used and approved to quantify and trace sustainability impacts (such as GHG emissions, biodiversity impact, and health impact) might be synchronised and harmonised across areas.[iv]

In pursuit of McKinsey’s priorities

EuroCommerce & McKinsey released a report that looked at the European retail sector and, specifically, about how it is in the midst of a transformation due to shifting consumer demand and the need for decarbonisation. They arrived at three key areas that can support the sector in reducing its carbon impact, as discussed above.

Regulation

116 UK-based companies, including The Co-op, Southern Co-op, Coca-Cola Europacific Partners, Danone, Highland Springs Group, and Nestlé UK & Ireland, signed a letter to the British prime minister underlining the critical need for short- and long-term government delivery plans for net zero and nature restoration. The letter was sent two weeks after the then-Prime Minister announced plans to address the energy crisis, which included a new round of oil and gas licences and lifting the moratorium on fracking (the latter has now been overturned). It reaffirms business and the financial sector's commitment to supporting the UK's climate and environmental targets. The letter outlines the steps that must be taken to boost energy security, protect the UK from fluctuating fossil fuel prices, and allow the nation to fulfil its climate commitments. Stephen Moorhouse, general manager, Great Britain, Coca-Cola Europacific Partners, said:

“As businesses, we are committed to playing our part in tackling the climate crisis, and we welcome strong political leadership in this space as we believe this is critical in ensuring our economy transitions towards net zero.”[v]

Financing

Retailers must comprehend how the shift to a low-carbon economy will impact their bottom line given the speed of change and the increasing clarity of costs along the value chain. Retailers must assess the broader impact to comprehend trade-offs and interdependencies, even though each stakeholder group has the ability to bear a percentage of the expenses.

Governments worldwide have established net-zero goals and spending plans to decarbonise various sectors of the economy. Some of these monies can be used as a public stimulus, such as financial support for energy-efficient items, to encourage consumer adoption of green products. Other funds might be used to foster innovation through grants to tech businesses, university funding, or targeted government procurement.[vi]

With more than $1 trillion in assets under management, ESG-focused funds are receiving a sizable amount of capital reallocation. Many investors anticipate higher prices for high-sustainability enterprises and lower ones for low-sustainability assets since they feel this trend is only getting started. The oil and gas industry may already be exhibiting this trend.[vii]

Standards

Early in 2022, the Scottish government published a retail strategy, which included a just transition strategy. Retailers joined forces under the umbrella of the retail consortium's "Climate Action Roadmap" 18 months prior to the government publishing the policy with the goal of making the industry and its supply chains carbon neutral by 2040. Workshops were organised to provide hands-on support on sustainable sourcing, green data and technology, and decarbonising store estates. A task force was established to promote progress and benchmark performance against the highest standards. Detailed guidance was produced for retailers on attaining net-zero vehicle logistics and supporting customers to live low-carbon lifestyles. This demonstrates that sector-specific specialists guide standards that are led by policymakers.[viii]

Helping the sector achieve a zero carbon future

McKinsey’s insights into the potential levers for change within the retail sector show that in isolation, retail organisations may struggle to achieve their net zero goals. But with external support from the government and intra-sector collaboration, broader scale efforts can lead to narrower scale advancements.

References

[i] Race to Zero- The Race to Zero Breakthroughs: Retail Campaign

[ii] EuroCommerce- EuroCommerce plus seven national retail associations pledge to accelerate climate action for the Race to Zero

[iii] Ibid

[iv] McKinsey- Transforming the EU retail and wholesale sector

[v] Convenience Store- Retailers and suppliers call on Prime Minister to prioritise net zero

[vi] McKinsey- Climate sustainability in retail: Who will pay?

[vii] Harvard Business Review- The Investor Revolution

[viii] Scottish Government- Getting the Right Change – retail strategy for Scotland

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