Despite all the global rhetoric about the importance of sustainability, environmental, social and governance (ESG), only one out of 27 of the world’s top grocery and clothing retailers across the US, Europe and Asia-Pacific have globally leading approaches to sustainability and ESG issues, and none emerge as truly distinctive.
Bain & Company’s report, Sustainability in Retail: Practical Ways to Make Progress, says rising prices and the resulting squeeze on the cost of living are reinforcing consumers’ pre-existing resistance to paying more for sustainable products while testing the limits of already thin retail margins.
“Inflation is of course making consumers more sensitive to price – but at the same time it’s also encouraging them to revisit deeply engrained consumption habits,” said Luciana Batista, a partner in Bain’s retail, consumer products and sustainability practices.
She posits that this offers a rare opportunity for retailers to disrupt the status quo and encourage circular models that see consumers returning products or reusing packaging for a discount in the future.
“Combined with greater choice and clear communication at the point of sale, inflation can be a catalyst for more sustainable behaviour.” Luciana Batista
Scope for prioritised action on sustainability agenda
Rising costs amid higher inflation are also exacerbating the funding gaps that retailers face in investing in sustainability.
With 95% of retailers’ carbon emissions located further up or down the supply chain, sustainable systems more costly than existing ones, and thin margins a barrier to progress, Bain’s study notes that moving from sustainability commitments to action confronts retailers with a tough challenge.
But the report concludes that there is still extensive scope for retail groups to act by rigorously prioritising their most important sustainability goals and focusing on ‘hot spots’ within these to develop a sustainability strategy and playbook that balances ambition and ‘do-ability’.
Retailers seeking to claim leadership on sustainability should deepen their collaboration with their suppliers and innovators across the supply chain to help spread decarbonisation costs, trial new ideas and share the resulting benefits.
Batista posits that a high-risk environment may reduce investment into sustainability in the short term but retailers can do more to decarbonise without making significant financial investments.
“Energy and waste saving measures can help to reduce costs and exposure to risk in the short term, while more comprehensive commitments are developed,” Luciana added.
Don’t stop just because
Despite the challenges, the research shows that retail brands cannot afford to pause their sustainability efforts during the inflationary squeeze.
The findings predict that 40% of US consumers plan to spend more on sustainable brands over the coming three years. In Europe, millennials already account for half of the retail spending on sustainable insurgent brands. The retail sector must develop its sustainable offering for this consumer base to ensure longevity.
Sustainability improvements will also protect against volatility. For instance, the availability of materials with low embodied energy will be less vulnerable to the rising cost of electricity.
Brands with higher sustainability credentials are also more resilient to decarbonisation-driven regulatory tightening. Retailers know many supply chains need reinvention anyway – for reasons of resilience and cost, as well as to make them more sustainable.
“The commitments have been made and the quick wins already achieved. The sector now needs to show it can continue to deliver improvements in sustainability when the economic landscape is more challenging. Those who stay behind will lose the hearts and pockets of customers,” concluded Luciana.
