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Retail

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.
Retail Companies

Advance Auto Parts Inc.
AutoNation Inc.
AutoZone Inc.
Bed Bath & Beyond Inc.
Best Buy Co. Inc.
CarMax Inc.
Costco Wholesale Corporation
CVS Caremark Corporation
Dick's Sporting Goods Inc.
Dollar General Corporation
Dollar Tree, Inc.
Family Dollar Stores Inc.
Gamestop Corp.
Genuine Parts Company
Kohl's Corp.
Liberty Interactive Corporation
LKQ Corp.
Lowe's Companies Inc.
Macy's, Inc.
Nordstrom Inc.
O'Reilly Automotive Inc.
PetSmart, Inc.
Safeway Inc.
Sears Holdings Corporation
Staples, Inc.
Sysco Corp.
Target Corp.
The Home Depot, Inc.
The Kroger Co.
Tiffany & Co.
Tractor Supply Company
Ulta Salon, Cosmetics & Fragrance, Inc.
Walgreen Co.
Wal-Mart Stores Inc.
Whole Foods Market, Inc.

 

Key Findings

  • The Retail sector’s results on Governance for Sustainability either stagnated or declined in 2014 compared with 2012.
  • While some sectors, such as Food and Beverage, have dramatically improved their stakeholder engagement efforts from 2012 to 2014, the Retail sector continues to underperform.   There remains a significant gap between the five companies who are performing in the top two tiers on stakeholder engagement and the rest of the sector, which is in Tier 4 and just starting out.
  • Improvement was seen in disclosure of sustainability risks in financial filings with 40 percent (14 out of 35 companies) ranking in Tier 1 or 2 on this expectation. This is up from 15 percent in 2012.
  • Thirty-one percent of Retail sector companies (11 of 35 companies) have time-bound targets to reduce GHG emissions, though half (17 companies) claim to have renewable energy programs.
  • Though retailers have a substantial real estate footprint offering multiple opportunities to improve sustainability performance, the sector is moving in the wrong direction in meeting green building standards, improving energy efficiency and raising the environmental performance of owned and leased space.
  • Retailers perform poorly in terms of sustainable product offerings—only a quarter show evidence that they are taking social and environmental considerations into account in their product offerings.
  • Engaging and training employees on sustainability priorities is a lost opportunity for most retailers, as 74 percent (26 of 35 companies) are not implementing any program.


Introduction

The nation’s vast Retail sector reaches into every American community and home, and it faces sustainability challenges on a scale commensurate with its reach. Every major retailer has a supply chain that spans the globe, which means that a wide range of local and global environmental and social issues, especially human and worker rights, must be part of an effective sustainability commitment. Retailers, even in this era of e-commerce, have an enormous real estate and energy footprint; every retail space in the country has to be heated, cooled and lighted. Retailers also have substantial transportation, distribution and logistics needs, all which demand energy. As purveyors of a vast array of products with sustainability impacts of their own -- from the manufacturing process through product life to end-of-product-life disposal – retailers can influence sustainability behavior at both ends of the consumer economy. Companies in this sector can leverage their buying power to encourage sustainability in product design, manufacture, and operation on the one hand, and help consumers make sustainable product purchasing decisions on the other. In short, retailers function as the interface between manufacturer and the end user. In addition to improving their own sustainability performance, retailers can help elevate the sustainability performance of other major economic players.

The Retail sector is also responding to major shifts and reinventing itself to compete in a new on-demand economy.  E-commerce is, of course, reshaping the Retail sector, with brick and mortar operations under increasing pressure from online retailers. Additionally, whether virtual or traditional, retailers are facing new challenges from alternative and more sustainable concepts of consumerism such as collaborative consumption, which emphasizes access over ownership. Car and bike share programs are excellent examples of the collaborative consumption economy in which you have ready access to a product without owning it.

Despite the wide ranging sustainability challenges facing the Retail sector, overall performance on the Ceres Roadmap expectations by the 35 retailers evaluated for this report is moving in the wrong direction.1 Two years ago, the Retail sector was the best performing sector for two Roadmap expectations - (i) measurement and disclosure of suppliers’ sustainability performance and (ii) the greening of owned and/or leased facilities and buildings. This year, the sector not only fails to lead on any of the Roadmap expectations, it is now lagging behind other sectors on the two expectations where it led just two years ago.

In a sector beset by generally poor performance across the Roadmap’s twenty expectations, four companies stand out for generally strong performance among all 613 companies evaluated. These companies—Best Buy, Staples, Target, and Wal-Mart—have made considerable commitments to implementing and disclosing robust sustainability related policies and programs.

Governance Section Icon

 

Governance for Sustainability

 

  • The Retail sector’s results on Governance for Sustainability either stagnated or declined in 2014 compared with 2012.

 

As in 2012, the same handful of Retail companies scored well on the Governance expectations of the Roadmap, but most retailers continue to perform poorly. For example, with respect to board oversight of corporate sustainability strategy and performance, only six companies – Best Buy, Kroger, Safeway, Sysco, Tiffany & Co., and Wal-Mart – performed in Tier 1. This means these companies have a board committee with formal oversight of both environmental and social issues. Twenty-six companies (out of 35 companies reviewed) were in Tier 4 because there is no evidence of board oversight of sustainability, as was the case in 2012.

With regard to management accountability for sustainability expectations and linking executive compensation to sustainability performance, the picture is similarly discouraging. Seventy percent (25 companies) are in Tier 4 on management accountability, virtually unchanged from 2012. And 94 percent (33 companies) make no link between executive compensation and sustainability performance, also virtually unchanged since 2012.

Stakeholder Engagement Section Icon

 

Stakeholder Engagement

 

  • While some sectors, such as Food and Beverage, have dramatically improved their stakeholder engagement efforts from 2012 to 2014, the Retail sector continues to underperform.   There remains a significant gap between the five companies who are performing in the top two tiers on stakeholder engagement and the rest of the sector, which is in Tier 4 and just starting out.


As consumer facing companies, it continues to be surprising that the majority of the Retail sector does not systematically identify a diverse group of stakeholders and regularly engage with them on sustainability risks and opportunities. In 2014, Target is the only company in Tier 1; no companies made this tier in 2012. The company engages its key stakeholders in the materiality assessment process and is transparent with respect to the ESG issues it will prioritize as a result. Four companies -- Best Buy, CVS Caremark, Wal-Mart and Whole Foods Market -- ranked in Tier 2 in 2014, a modest increase from 2012. These companies have identified their stakeholders and disclose how they are engaging them and how often, but do not describe the outcomes of those engagement activities. However, 74 percent of Retail companies (26 out of 35 companies) ranked in the bottom tier in 2014, as in 2012.

It is this same group of five companies who also performed fairly well in terms of the expectation on substantive stakeholder dialogue.  These companies - Best Buy, CVS Caremark, Target, Wal-Mart and Whole Foods Market – are in Tier 2 because they demonstrated some engagement of key stakeholders on an annual basis across a variety of platforms (such as panels, social media, surveys).  The differentiation with lagging companies in the sector is stark with 74 percent (26 of 35 companies) still ranking in Tier 4, though it is an improvement from 2012 when 88 percent ranked in Tier 4.

Disclosure Section Icon

 

Disclosure

 

  • Improvement was seen in disclosure of sustainability risks in financial filings with 40 percent (14 out of 35 companies) ranking in Tier 1 or 2 on this expectation. This is up from 15 percent in 2012.

 

Since 2012, there has been some improvement in the number of Retail companies using the Global Reporting Initiative (GRI) Guidelines as the framework for sustainability disclosure. In 2014, nine retailers used the GRI in their disclosure, compared with four in 2012. But half (18 companies) do not issue any kind of sustainability or corporate social responsibility (CSR) report at all. This roughly parallels the results for the entire universe of 613 companies evaluated for this report.

Tiffany & Co.’s CSR report references the GRI guidelines and the report is verified by an independent public accounting firm, using selected metrics in accordance with the standards of the American Institute of Certified Public Accountants. Although the review has received limited assurance, by undertaking this step the company’s disclosure stands out compared to the others in the Retail sector.

A more significant improvement was seen in the disclosure of material sustainability issues in financial filings, such as 10-K reports. This year, 40 percent (14 companies) ranked in Tier 1 or Tier 2 by including discussions of material sustainability issues that go beyond mere compliance with rules and regulations, and examining in some detail how those issues may impact business risks and opportunities in their financial filings. Only 15 percent (5 companies) were in the top two Tiers in 2012. Tier 1 performers for this expectation were Best Buy, Costco, Lowe's Companies, Wal-Mart and Whole Foods Market. Each company discussed in detail ESG compliance issues in their financial filings and referenced two or more material ESG issues (not necessarily related to compliance) and how each issue impacted the company’s material business risks and opportunities.

Best Buy’s 10-K is an example of substantive disclosure relating to sustainability issues. The company discussed risks related to management of its workforce, customer privacy and ESG risks within supply chains. Wal-Mart, too, demonstrated best practice in this regard. Its 10-K discussed a host of risks posed by climate change and suppliers’ non-compliance with legislation or its supplier code of conduct.

Performance Section Icon

 

Performance: Operations

 

  • Thirty-one percent of Retail sector companies (11 of 35 companies) have time-bound targets to reduce GHG emissions which is just below the average of 35 percent for all of the companies assessed, though half (17 companies) claim to have renewable energy programs.
  • Though retailers have a substantial real estate footprint offering multiple opportunities to improve sustainability performance, the sector is moving in the wrong direction in meeting green building standards, improving energy efficiency and raising the environmental performance of owned and leased space.

 

Facilities & Buildings

The Ceres Roadmap calls for companies to meet rigorous green building standards in their owned or leased facilities. Despite the emergence of so-called “green leases” in which landlord and tenant work together to achieve energy efficiency and minimize environmental impact, and other opportunities to make facilities more sustainable, the performance of the Retail sector is dropping on this expectation. Analysis found only 7 companies in Tiers 1 and 2, whereas there were 14 companies in these tiers in 2012. Not surprisingly there was an increase in Tier 3 and 4 companies to 28 from 19 in 2012 and it is hard to understand why this has occurred.

Target and Staples were the only Tier 1 performers in 2014 (same as in 2012). Both demonstrated increased investments in sustainable buildings and provided performance data and/or targets.

Human Rights

Comprehensive human rights protections meet international standards and address issues such as freedom of association, freedom from discrimination and safe and healthy working conditions.  Despite having large workforces, which are the face of their businesses, it is disappointing to see that all of the companies in the Retail sector fall into the bottom two tiers, with 89 percent (31 out of 35 companies) falling in Tier 4 for having limited or no policies on human rights.  Best Buy, Sysco and Nordstrom have stronger policies in that they address a broader range of issues, such as a commitment to monitoring human rights and human rights expectations of business partners, and reference relevant international standards. For example, Nordstrom’s policy also commits the company to implement third party programs that help identify related risks, provide remedial measures in cases of misconduct, and monitor human rights impacts.

On freedom of association, the Retail sector is a particularly poor performer, despite being one of the largest employers in the United States.  A strong policy should apply company-wide or to at least 50 percent of total activity, in order to be relevant and should refer to the core International Labor Organization (ILO) conventions. In 2014, only one company, CVS Caremark, made a general statement on the issue, stating that it recognizes the right of employees to organize and participate in unions.

Performance Section Icon

 

Performance: Supply Chain

 

  • A number of Retail companies are implementing formal programs to prevent labor and human rights violations and improve the environmental performance of suppliers; a smaller subset, 23 percent (8 of 35 companies), offers training programs for suppliers on labor rights issues.

 

Many retailers have learned the hard way that there are substantial reputational and other risks lurking in their supply chains and are starting to take basic steps to address them. Forty percent of retailers (14 companies) performed in Tiers 1 and 2 for having supply chain policies and codes that align with overall social and environmental standards, virtually unchanged since 2012. Sixty-nine percent (24 companies) have demonstrated that social supply chain standards are in place – though they are of varying scope. Of those 24, however, only 13 make explicit reference to relevant ILO conventions and/or provide some detail about their expectations regarding compliance with recognized standards and laws. Clearly more retailers need to expand the breadth and disclosure of their policies and codes for suppliers as well as programs to support improved sustainability performance across their supply chain.

Beyond setting policies and supplier codes, companies must also engage with their suppliers to ensure that these standards are being met. The Ceres Roadmap expectation explicitly calls for companies to ensure that 75 percent of its Tier 1 suppliers, and 50% of its Tier 2 and 3 suppliers, meet established standards.  Results for this assessment were interesting as they demonstrated a greater focus on social issues over environmental issues.  Of the 35 Retail companies assessed, 43 percent (15 companies) have implemented some type of formal programs to prevent labor and human rights violations within their supplier operations – in varying degrees. Meanwhile, only 26 percent (9 companies) have established a formal program to improve the environmental performance of suppliers.  There are also four companies – Costco, Kohl’s, Walgreen and Wal-Mart – that extend their management system for suppliers beyond tier one suppliers to tier two. Yet we know that in order to see on-the-ground impacts, proactive monitoring and engagement of suppliers is a critical piece of implementation.

While there is much room for improvement on this expectation, there are some encouraging signs. Twenty-three percent (8 companies) offer training programs for suppliers on labor rights issues, and the same number of companies are engaging with NGOs, labor groups or industry peers on social supply chain issues.  For example, Wal-Mart, Target and Kohl’s participate in the Sustainable Apparel Coalition (SAC). This is an industry-wide, open-sourced supply chain index that measures key environmental and social impacts of suppliers. The efforts of SAC and similar groups can help to drive sustainability performance across sectors by providing underperforming companies with the tools needed to effectively engage suppliers in improving environmental and social impacts.

Performance Section Icon

 

Performance: Transportation and Logistics

 

  • Performance on this Roadmap expectation is on a par with other sectors.  There are three companies in Tier 1 that are setting the bar for others in the sector on programs to increase efficiency and reduce GHG emissions associated with logistics operations and vehicle fleets.

 

With regard to increasing efficiency and reducing GHG emissions coming from logistics operations and vehicle fleets – Best Buy, Target, and Wal-Mart - performed in Tier 1 because they have programs or initiatives to reduce GHG emissions from outsourced logistics and set quantitative targets and deadline. Consistent with the performance of all of the 613 companies evaluated, however, 54 percent of retailers (19 of 35 companies) are in Tier 4. Overall performance by retailers on this expectation is the same as in 2012.

Wal-Mart is committed to doubling its truck fleet efficiency in the U.S. by 2015. To achieve this goal, the company will increase route and delivery efficiencies and replace nearly two-thirds of its fleet with more fuel-efficient trucks, including hybrids. The company is collaborating with truck and component manufacturers to build energy-efficient prototype tractors. To date, Wal-Mart has achieved an 80 percent improvement in U.S. fleet efficiency over the company's 2005 baseline, a commitment the company should now extend to its global operations.

Performance Section Icon

 

Performance: Products & Services

 

  • Retailers perform poorly in terms of sustainable product offerings—only a quarter show evidence that they are taking social and environmental considerations into account in their product offerings.

 

As retailers, the companies in this sector are responsible for providing customers with sustainable product options, and can play a significant role in their adoption by promoting and creating access to such environmentally- and socially-preferred products.  It is therefore important that sustainability considerations factor into marketing and procurement decision-making throughout the company. In addition, many of the companies in this sector also produce and sell their own brands.  In these cases, companies must consider sustainability impacts throughout the design, sourcing, and manufacture of their products as well.

Unfortunately, 71 percent of companies (25 of 35 companies) show no evidence of any process to take social and environmental considerations into account in their product offerings, placing them in Tier 4.  This is a marked increase from the 45 percent that fell into Tier 4 in 2012. Only two companies – Staples and Target – systematically take such considerations into account and perform in Tier 1 for this expectation.  For example, Staples, looking to develop innovative solutions, established the Staples Sustainable Innovation Laboratory (SSIL) at the Rochester Institute of Technology, which conducts research and development in the areas of raw materials, design, and manufacturing, among others.

While consumers’ buying decisions are dominated by price and quality, a growing number are taking sustainability considerations into account. This represents an opportunity for retailers to place greater emphasis on sustainable product offerings.  Other trends in consumerism, such as a focus on access over ownership, are also impacting the Retail sector. As consumer participation in the “shared” or “collaborative” economy takes hold, companies that have begun to embrace service-oriented models to supplement their traditional retail model will be well positioned.  For example, Home Depot offers customers the option of renting rather than purchasing equipment. By leveraging assets not constantly in use, companies and individuals are able to increase revenue, create a sense of community and decrease the environmental impacts of over-consumption.

Performance Section Icon

 

Performance: Employees

 

  • Engaging and training employees on sustainability priorities is a lost opportunity for most retailers, as 74 percent (26 of 35 companies) are not implementing any program.  

 

A majority of the Retail sector is failing to engage employees on sustainability through communication and training on priority environmental issues and by linking training to their specific jobs within the organization. With 74 percent (26 companies) in Tier 4 the sector has clearly not grasped the opportunity presented by having their employees play a role in helping consumers navigate product choices that have strong sustainability attributes.  

The assessment did find that there was an increase to six Tier 2 companies from only two Tier 2 companies in 2012.  Tier 2 companies have at least some ad hoc systems and activities for engaging employees in environmental or social issues, however there is no evidence that executive leadership is present to add weight and importance to these initiatives.

Staples reports a company-wide employee engagement system that is driven by the leadership team. The Chief Culture Officer is responsible for employee engagement activities, raising awareness of the company's sustainability commitments and fostering corporate culture. Regular employee engagement sessions to solicit feedback on the company's sustainability strategy are also held.

The results for employee engagement highlights the overall trend for the Retail sector, which is a significant gap between the small number of companies who are taking action on sustainability performance with the majority of the sector waiting on the sideline.

 

Explore the interactive data to see how the Retail sector performed across all Ceres Roadmap expectations in the 2014 Gaining Ground report.



 

1. The retail sector for the purposes of this report includes clothing, home improvement and furnishing, general merchandise, and food retailing companies.