Despite increasing consumer pressure on retailers to take greater responsibility for their social and environmental impact, only a handful of retailers have demonstrated progress towards meeting the expectations laid out in The Ceres Roadmap. Despite positive progress demonstrated by companies such as Walmart, Best Buy and Staples, most in the sector have not advanced beyond Tiers 3 and 4 for most Roadmap expectations.
Leaders in the sector are leveraging cross-industry collaborations to address common sustainability challenges. For example, initiatives including the Sustainable Apparel Coalition and the Sustainability Consortium provide retailers an opportunity to partner with companies from the Technology Hardware, Footwear & Apparel, and Food & Beverage sectors, among many others, to identify strategies for bringing sustainability solutions to scale.
This analysis looks at 33 clothing, home improvement and furnishing, general merchandise, and food retailing companies. The analysis that follows includes a summary of the sector’s progress within each of the four chapters of The Ceres Roadmap: Governance, Stakeholder Engagement, Disclosure and Performance. Within the Performance section—which covers operations, supply chain, transportation and logistics, products and services and employees—those issues that are of greatest relevance to the sector have been highlighted.
GOVERNANCE FOR SUSTAINABILITY
Establishing management accountability and board oversight of sustainability issues is an indication that a company is committed to integrating sustainability into its core business practices and decision-making. In the retail sector just over 20 percent of companies (7 of 33) have board oversight of sustainability issues explicitly linked in a committee charter and nearly one-third reference some level of executive management oversight. However, only three companies have assigned formal sustainability responsibilities to both executive management and the board. For example, Sysco, a distributor and marketer of foodservice products, has an executive level sustainability committee that also includes four board members.
Moreover, of the 33 companies assessed, only one reported integrating sustainability criteria into its executive compensation policy, though it is narrowly focused: at Walmart compensation for some executives is tied to diversity goals and executives could stand to lose up to 15 percent in bonus compensation by failing to meet the goals established. Companies in this sector have an opportunity to learn from leaders in other sectors that are explicitly linking compensation to a broad range of sustainability performance targets, thus establishing accountability mechanisms that recognize the interconnectedness between social, environmental and financial business performance.
The establishment of company-wide sustainability policies is an important means to institutionalize sustainability into company culture, strategy and decision-making processes. While many retailers have established company-wide sustainability policies, there are often critical gaps between policy and implementation. For example, while 73 percent (24) of retail companies have a formal environmental policy in place, only 52 percent (18 companies) have established environmental management systems (EMS), and just six percent (two companies) have had their EMS externally certified.
Stakeholder engagement is crucial to a retailer’s understanding of the needs and concerns of consumers, employees, suppliers, NGOs and shareholders, among other key stakeholders. However, among the companies assessed, no retail companies are included in Tier 1, and only two companies, Best Buy and Staples, are included Tier 2 for overall efforts to engage stakeholders. Moreover, 88 percent of retailers (29 companies) show no evidence of substantive stakeholder engagement activities, such as ongoing dialogue to identify key risks and opportunities and integrating stakeholder feedback into the company’s sustainability strategy. The sector’s efforts to engage with investors is, however, more promising; 60 percent of companies (20) are providing some degree of communication on sustainability issues to their shareholders through annual meetings, annual and integrated reporting, financial filings and other mainstream investor communication mechanisms.
Of the retailers assessed, Best Buy displays the strongest stakeholder engagement program. The company publicly discloses a list of its stakeholders, its engagement process, stakeholder feedback, and its responses. For example, based on stakeholder requests for more details on the company’s public policy position on sustainability issues, Best Buy expanded its coverage on this topic in its annual sustainability report and published a separate report on its public policy activities.
Top performing companies are increasingly finding ways in which to tell their sustainability story to a more interested and educated consumer-base. Leaders in this sector are using web-based reporting, social media and other online technologies to communicate and educate a wide range of stakeholders. Nearly 50 percent of retailers assessed (16 companies) publicly disclose sustainability and performance data through formal sustainability reports. Demonstrating a more concerted effort to communicate sustainability information to investors, 22 of the 29 retail companies approached by the Carbon Disclosure Project (CDP) responded to the survey and nearly 30 percent of the sector (10 companies) are disclosing material sustainability risks and opportunities within financial filings.
As consumer-facing companies, many retailers are seeking to communicate their sustainability efforts in ways that are digestible to the general public. Fewer are disclosing sustainability information through a more rigorous, data-focused approach. This is evident among those retail companies issuing sustainability reports, with only four companies (12 percent) reporting according to the Global Reporting Initiative (GRI) guidelines and no retailers externally verifying these reports. Best Buy is among those that are striking the balance effectively. On its website the company advertises energy efficient products and educates customers on its electronics recycling and trade-in programs; the company couples these consumer communications with a GRI-based sustainability report where interested readers can dig further into its sustainability programs and performance.
A large portion of a retailer’s carbon footprint comes from the energy required to operate its stores. Even though many store locations are leased instead of company-owned, 73 percent of retailers (24 companies) have introduced programs and targets to increase investment in sustainable buildings through energy efficiency initiatives and adopting Leadership in Energy and Environmental Design (LEED) principles. Approximately one-third of companies assessed (10) have implemented company-wide targets and deadlines for greenhouse gas (GHG) emission reductions.
Kohl’s Department Stores achieved net zero emissions in 2010 through its comprehensive GHG emissions reduction strategy. Over 500 of its stores are ENERGY STAR®-labeled indicating that these stores use, on average, 35 percent less energy than similar buildings and generate one-third the carbon emissions. Kohl’s also tops the U.S. Environmental Protection Agency’s (EPA) Green Power Partnership list of renewable power purchasers, for sourcing 100 percent green power for its U.S. operations.
Moreover, 58 percent of companies assessed (19) have established a program to increase renewable energy use, with five companies obtaining more than 10 percent of their primary energy from renewable sources. For example, Staples has 30 locations within the U.S. that have solar installations and the company is an early adopter of fuel cell technology. It installed a 385 kW fuel cell at a distribution center in California, which can supply approximately 80 percent of the building’s energy needs.
A retailer’s operational efficiency is also impacted by the quality of its labor relations. Retailers constitute one of the largest sources of private employment, and as such, should be investing considerable resources in improving company/ employee relations. Despite this, only 27 percent of the companies assessed (nine companies) disclose a policy on working conditions. Moreover, none of the retailers evaluated disclose a policy on freedom of association, a critical issue for the sector given the allegations of unfair labor practices against many of the large companies in this space. An example of leading practice is demonstrated by Nordstrom, which has a robust company-wide policy on working hours and minimum wage, which applies to direct employees and suppliers.
The vast majority of retail products sold—from food to clothing to electronics—are sourced through diverse and complex global supply chains. Understanding and managing the sustainability risks embedded in these supply chains requires strong policies, management systems and supplier engagement. To ensure consistent application of high labor standards, 70 percent of retailers assessed (23 companies) have implemented supply chain policies and codes and 60 percent (20 companies) disclose a supply chain monitoring system to assess supplier compliance.
A leader in this area is Kohl’s Department Store. Its supply chain standards address a wide range of social issues, including health and safety, minimum living wages, maximum working hours, freedom of association, child labor, acceptable living conditions, non-discrimination, corporate punishment/disciplinary practices, and forced labor. Additionally, results of audits, enforcement actions and remediation are transparently disclosed.
The equitable treatment of suppliers and employees throughout the supply chain is of paramount importance to retailers since a misstep can cause serious reputational damage. Companies including Walmart, Target and Sears have been implicated in considerable supply chain controversies, posing varying degrees of reputational and operational risk to the companies. Yet such incidents have also catalyzed considerable momentum across the industry towards enhanced supply chain management. In addition to reputational risks, retailers are now facing emerging regulatory risks as governments pressure companies to disclose their supply chain activities. For example, the California Transparency in Supply Chain Act, which went into full effect in January 2012, requires that retailers operating in California with global revenues over $100 million publicly report on their efforts to ensure their direct supply chains are free from slavery.
In recent years retailers have begun integrating environmental criteria into supply chain policies and programs, although the majority of companies in the sector still remain focused on social issues. Of the companies assessed, 45 percent of retailers (14 companies) have a green procurement policy or program in place compared to 70 percent (23 companies) with social supply chain standards. Top performing companies in the sector, however, are collaborating with peers inside and outside the sector to raise social and environmental sustainability standards across supply chains, as well as to streamline the collection of sustainability data.
Companies often share suppliers within their respective supply chains, and creating common supplier standards simplifies the reporting process. For example, Target, Walmart and Kohl’s are part of a coalition of companies that formed the Sustainable Apparel Coalition (SAC), an industry-wide, open-sourced supply chain index that measures key environmental and social impacts of suppliers. Efforts such as the SAC can help to drive sustainability performance across sectors by providing underperforming companies with the tools needed to improve overall sustainability within supply chains.
TRANSPORTATION AND LOGISTICS
Retail companies have broad distribution networks. Though most retailers outsource a portion, if not all, of their transportation and logistics needs, these companies still have the opportunity to influence providers to reduce their impact. Two-thirds of companies assessed are disclosing efforts to reduce the impact of either their own or outsourced logistics and transportation systems, through activities such as reducing GHGs by shifting to intermodal transport, which can be used to implement the lowest impact mode(s) of transport possible.
Many companies, such as Sears Holdings, are partners in the U.S. Environmental Protection Agency’s SmartWay transport program, which commits partners to reduce transportation-related emissions through fuel efficiency initiatives. Grocery chain Kroger aims to achieve a 25 percent increase in fleet efficiency and a 15 percent increase in “cube efficiency,” a measurement of how efficient the company is at loading trucks to capacity. Furthermore Kroger is working to reduce miles driven with empty trailers by 10 percent.
PRODUCTS & SERVICES
In response to growing consumer demand, retailers are offering consumers an increasing number of products with sustainability attributes. As the first point of contact for most consumers, retailers are also in a position to influence, educate and help consumers make more sustainable choices. Of the companies assessed, nearly 60 percent (18 companies) offer sustainable products and services, which vary according to market segment. For example, food retailers are increasingly offering fair trade, organic and local produce, whereas electronics retailers offer e-waste recycling programs.
Whole Foods, for example, was the first U.S. retailer to offer Marine Stewardship Certified seafood and has a Local Producer Loan Program, which provides low-interest financing to small, local farmers. Following Whole Food’s lead, Kroger and Safeway, are strengthening their product commitments with targets for increased sourcing of sustainable seafood certified by the Marine Stewardship Council (MSC) and other similar certifications. Electronics retailer Best Buy offers free in-store electronics recycling no matter the brand or place of purchase. The company has also instituted a Buy Back Program, which provides financial incentives to encourage consumers to return their old electronics to be refurbished or recycled responsibly.
The retail workforce is largely employed on a part-time, temporary basis and has a high turnover rate. As such, incorporating sustainability criteria into recruitment and training programs is a key strategy to maintain a motivated, healthy, and stable workforce. Among the retail companies evaluated, 30 percent (10 companies) have implemented some type of employee engagement on sustainability.
Retailers that engage with employees on a regular basis to educate and train them on sustainability issues can solicit their support in furthering the company’s sustainability efforts. Well-trained retail employees can be leveraged as ambassadors to help educate consumers make more sustainable choices. For example, Safeway is implementing specialized training for retail employees to help customers identify more sustainable food options. Walmart leads the sector in this expectation for its comprehensive program that includes employee orientation and professional development opportunities and mechanisms to solicit employee input on the company's sustainability initiatives.