As climate change continues to shape global discourse, retail companies, like those in various industries, face mounting pressure to comprehensively understand and actively reduce their carbon footprints. The climate reporting journey begins with understanding your emissions profile, which offer a panoramic view of greenhouse gas emissions, their sources, and their impact. Despite the apparent simplicity of the retail sector, delving into the intricacies of its emissions profile reveals a multifaceted landscape. In this blog post, we explore what a standard emissions profile looks like in retail, shedding light on the sector's vulnerability to climate risks and the changing tide of consumer demands.
What is an Emissions Profile?
An emissions profile provides a comprehensive view of all greenhouse gas emissions associated with a company or sector. It outlines the sources of emissions and their respective magnitudes.
It's worth noting that the retail landscape is incredibly diverse, encompassing a wide array of sub-categories, ranging from small brick-and-mortar convenience stores to sprawling online discretionary retailers. Subcategories within the retail industry include:
- Convenience Retail: These small stores primarily offer essential items. Emissions typically stem from store operations, waste management, and limited transportation.
- Grocery Stores: With larger footprints and significant refrigeration and transportation requirements, grocery stores often generate more emissions, mainly from direct operations.
- Discretionary Retail: Encompassing luxury items or non-essentials, emissions in this category heavily depend on the product type.
- Wholesale & Distribution: This segment is primarily associated with transportation, warehousing, and related operations.
Each subcategory possesses a unique emissions profile. However, scrutinizing the emissions trends within the broader retail industry, as well as the associated risks, can provide valuable insights.
Why is it Important?
The retail sector finds itself confronting both physical and transition risks. Physical risks arise from the direct impacts of climate change, such as floods or cyclones, which can affect store locations or disrupt supply chains. Transition risks, on the other hand, are an important component of moving towards a lower-carbon economy, including shifts in consumer behavior or regulatory mandates.
The retail industry warrants specific attention when it comes to emissions profiles because all forms of climate risk have equal and substantial implications for the sector. Persefoni acquired data from the CDP, revealing that the retail industry is susceptible to natural disasters, government regulations, shifting consumer trends, and more—underscoring the multifaceted nature of these challenges.
Key Trends in Retail Emissions Profiles
Additionally, a few key trends on the rise make understanding one’s emissions profile critical in the retail industry:
- Carbon Pricing: As an increasing number of jurisdictions introduce carbon taxes or cap-and-trade systems, a thorough understanding of one's emissions profile becomes indispensable for cost prediction. Carbon pricing trends vary regionally—not just nationally—making it critical for retailers to understand their emissions profile and potential carbon costs.
- Changing Consumer Behavior: Modern consumers increasingly demand low-carbon or sustainability-conscious products. Their purchasing decisions reflect this preference, thereby influencing the marketplace.
- Stakeholder Concern: Stakeholders, including investors and regulators, now often expect transparency about a company's environmental impact.
- Upstream Supply Chain Impacts: Climate change can disrupt sourcing processes, especially if a company relies on goods from regions susceptible to changing weather patterns.
What Do We Mean by ‘Material’?
In the context of emissions, 'material' refers to the significance of a particular source of emissions within a company's overall profile. For retailers, a material source of emissions not only contributes substantially to their total emissions but is also deemed relevant by industry stakeholders. For instance, a clothing retailer may exhibit significant emissions in the "Purchased Goods & Services" category (scope 3, as discussed later), with associated significant upstream impacts stemming from the manufacturing of materials for their products.
What Does a Standard Emissions Profile Look Like in Retail
The emissions profile of a retail company is systematically categorized into various segments, enabling a comprehensive understanding of both its direct and indirect environmental footprints. Established in 1998, the Greenhouse Gas Protocol (GHGP) serves as the industry benchmark, outlining how businesses, including those in retail, should quantify and categorize their carbon emissions into three primary scopes:
- Scope 1 (Direct Emissions): In a retail context, these emissions may originate from company-owned or controlled sources, such as HVAC systems in stores or fuel consumption in company-operated delivery vehicles.
- Scope 2 (Indirect Emissions from purchased energy): These encompass emissions generated from the consumption of purchased electricity, heating, and cooling, predominantly linked to store operations, warehouses, and administrative offices.
- Scope 3 (Other Indirect Emissions): This is where the most intricate and potentially impactful category for retail businesses lies - It encompasses all indirect emissions from both upstream and downstream activities in the value chain. It includes manufacturing of products, transportation, end-of-life disposal, and even human activities like employee commuting and business travel.
While there’s variation in the retail industry, this visual represents what a typical emissions profile looks like for the average retail company.
As you can see, the dominant material emissions anticipated are often:
- Scope 1: Stationary Combustion, like a storefront heating their space with natural gas combustion
- Scope 2: Purchased Electricity, like that used to power physical stores or warehouses
- Scope 3: Transportation & Distribution, meaning emissions from bringing products from tier-one suppliers (i.e. those whom you’re buying from directly) to you.
Additionally, according to our research from CDP, for most retailers, the predominant source of emissions is purchased goods and services, which encompasses all upstream emissions, including manufacturing. The use of sold products (category 11) can also be significant. For example, selling a toy might result in negligible emissions, whereas a washing machine or car, used by end consumers, could generate substantial emissions.
Let's illustrate this with a concrete business example: "GreenStore," a sustainable clothing retailer with both online and brick-and-mortar storefronts. In GreenStore's emissions profile, you might find:
- Purchased Goods and Services: 65% (from cotton cultivation to clothing manufacturing)
- Scope 1 (Direct Emissions): 20% (from their store operations and company vehicles)
- Scope 2 (Indirect Emissions from Energy Purchases): 10% (from store electricity and heating)
- Transportation of Products: 4% (shipping to customers and between stores)
- End-of-Life Emissions: 1% (emissions from disposed or recycled clothing)
Where to start now, and what’s next?
When it comes to creating your company’s unique emissions profile, consider the following initial steps:
- Understand Consumer Demand: Acknowledge the shift towards sustainable products and incorporate them into your product portfolio. Being attuned to your customers' preferences and staying informed about competitors' actions will guide your efforts to remain relevant in the marketplace.
- Calculate your GHG Emissions: Use tools or collaborate with experts to get an accurate picture of your emissions profile. At this point, you’re trying to get a baseline calculation of your emissions and carbon footprint. Technology is a great way to do this, as the manual effort can be error-prone and tedious.
Here’s an example of what it may look like to outline your initial emissions:
Once you have a foundational understanding of your industry and your company’s emissions, it’s time for the next step:
- Supply Chain Analysis. This step involves a more detailed examination of all your scope 3 emissions, specifically Category 1 for retailers, which pertains to upstream emissions. These emissions are indirect, and accurate data can only be procured by direct engagement with your suppliers. Getting transparent and accurate data from your supply chain is critical, yet challenging.
Here’s a recommended approach:
Step 1: Prioritize suppliers. Identify high-impact suppliers who are critical to your scope 3 emissions. Crucially, it’s best to prioritize suppliers who contribute most to your carbon footprint. Develop a straightforward communication strategy to outline what you expect from your suppliers and how they stand to benefit from participating.
Step 2: Gather data. Harness technology to facilitate the gathering, monitoring, and verification of greenhouse gas emissions data within your supply chain. This promotes transparency and lays the foundation for more precise reporting. For example, Persefoni’s Scope 3 Data Exchange streamlines the collection of granular emissions data from suppliers, enabling organizations to improve the accuracy of their scope 3 emissions calculations, enhance efficiency, lower operating costs, and work toward achieving climate goals by moving away from spend-based data towards actual supplier data. Once data is collected, verify its accuracy. Employ analytics tools to identify emissions hotspots and areas that need improvement.
Step 3: Reporting and Continuous Engagement. Assimilate the verified data into your scope 3 emissions profile, adhering to the Greenhouse Gas Protocol or analogous frameworks. Share your findings and insights with suppliers, fostering a collaborative relationship. Ensure that this becomes an ongoing and recurrent activity aimed at continuous improvement in emissions reduction.
Understanding a retail company's emissions profile transcends mere compliance with corporate social responsibility. It represents a fundamental aspect of mitigating financial risk. By recognizing and proactively addressing their emissions, retailers contribute not only to global sustainability endeavors but also ensure their own resilience and longevity in an ever-evolving marketplace.