Guest Article | Lee Stewart - Founder, ESG Strategy
A very close friend of mine introduced me to Lee this year. As ex-colleagues together at Fonterra they shared a passion on innovating sustainability strategies and supporting transparent changes to address the harmful effects of climate change. I have enjoyed getting to know Lee and understand more about the impact his strategic insight and knowledge can have in the retail sector. Often what we see and hear retailers doing are "the easy things," but Lee has an incredible track record in making substantial and significant changes and is currently working alongside big name brands in developing and leveraging sustainability as a key market differentiator and doing good for the world at large.
Retail and sustainability, though at times seemingly at odds, are converging in the global marketplace. A host of pressing sustainability concerns loom large on the horizon, each poised to reshape the retail landscape. From the shadows of fast fashion to the complexities of greenwashing, the journey towards sustainable retail is rife with challenges. However, the imperative to address these issues is undeniable. Regulators worldwide are awakening to the need for change, and consumers are casting an increasingly discerning eye on the ethics and environmental impact of their purchases. Here is my take on the six global sustainability issues that are already having an impact on the retail industry and underscore why proactive action is not only prudent but essential.
1. Scope 3 Carbon Emissions:
Scope 3 emissions also known as "value chain emissions," encompass the indirect emissions arising from a retailer's supply chain, which includes the production and transportation of goods. While many retailers have made significant progress in reducing their direct operational carbon footprint (Scope 1 and 2 emissions), addressing Scope 3 emissions presents an enormous and distinctive challenge. Why? Because it's an incredibly complex undertaking that demands an unprecedented level of collaboration and transparency throughout the entire supply chain. Additionally, it's likely that many of your suppliers may not have readily available answers.
To illustrate the magnitude of this challenge, let's take a practical example from my time as the regional head of sustainability at Fujitsu. The global team dedicated months of exhaustive effort to conduct a comprehensive lifecycle assessment on a laptop. This undertaking involved not only understanding the emissions associated with every component and process involved in manufacturing the laptop but also considering its emissions during use and at the end of its life cycle.
Consider, for a moment, the diverse materials in a laptop: aluminium, ceramic, plastic, glass, copper, silicon, lithium, rubber, nylon, and numerous rare earth metals. Do the suppliers of these materials possess precise carbon emissions data for their products? Now, ponder the emissions generated during the laptop's manufacturing, shipping, sales, support, and operation. Finally, contemplate its end-of-life emissions. Conducting a comprehensive carbon lifecycle assessment entails a cradle-to-grave approach, and deriving a Scope 3 emissions figure, as you can imagine, is both an intricate and daunting endeavour. It often necessitates expert assistance, access to an extensive database of default carbon figures, and sophisticated analytical tools.
With New Zealand's impending mandatory climate-related disclosures set to take effect next year for large organisations, and the requirement for Scope 3 emissions reporting becoming mandatory from 2025, the local retail sector is poised to confront unique challenges. Anticipate that these Scope 3 figures will likely overshadow what they may have previously reported in Scope 1 and 2 emissions, which account for their direct emissions.
In essence, as we advance toward a more environmentally conscious future, the intricacies of addressing Scope 3 emissions in the retail sector are poised to become increasingly critical and complex.
Consumers are increasingly eco-conscious, and they demand transparency and accountability. Retailers that fail to measure, report, and reduce Scope 3 emissions risk losing favour with these conscientious consumers and even worse may find themselves in the regulators spotlight.
2: Modern Slavery in Supply Chains: A Global Concern
The persistent shadow of modern slavery looms over global supply chains, and retailers find themselves squarely in its path. Illuminating this dark issue is not merely a moral obligation; it's increasingly becoming a stringent regulatory requirement. Worldwide, modern slavery legislation is undergoing tightening, compelling retailers to meticulously scrutinise their supply chains and unequivocally demonstrate their commitment to eradicating exploitative labour practices. Neglecting this imperative could result in severe legal repercussions, tarnished brand reputation, and consumer-led boycotts.
Australia has already taken substantial steps in this direction, mandating that any entity with revenues exceeding $100 million must annually furnish a Modern Slavery Report. Simultaneously, the European Union is advancing with its proposed Corporate Sustainability Due Diligence Directive, poised to establish a compulsory due diligence framework for select large companies operating within its jurisdiction. It wouldn't be surprising if, within the next 24 months, New Zealand follows suit with similar legislation.
Drawing from my experiences in early workshops conducted during my tenure as a sustainability professional in Sydney, it's abundantly clear that the issue of modern slavery cannot be ignored, even when the individuals affected are not directly employed by your organisation. For those with an extensive network of global suppliers, the message was unequivocal: it's not a matter of if but when instances of modern slavery will surface within your supply chain.
In essence, the battle against modern slavery transcends borders and industries. It underscores the collective responsibility of businesses, regardless of their location or size, to act decisively in preventing and addressing human rights violation within their supply chains.
3: Climate Risk and Adaptation:
Climate change poses a dual threat to retailers. First, the physical risks of climate change, such as extreme weather events and supply chain disruptions, can wreak havoc on operations. Second, there's the transition risk as governments enact stricter regulations to combat climate change.
In New Zealand we have a stark reminder of the havoc and disruption caused by the Auckland floods and Cyclone Gabrielle. Sadly, at the time of writing this article we have a state of emergency declared in Queenstown due to flooding.
Retailers must assess their vulnerability to these risks and develop strategies for resilience. Sustainable practices and supply chain diversification can be essential tools in mitigating these threats along with your ability to adapt and absorb these kinds of challenges which sadly have become part of the everyday norm.
The good news is that large retailers that are listed have already been doing some serious thinking and planning under the mandated and legislated Climate Related Disclosures (CRD) set by the New Zealand government. Expect to see this kind of planning be disclosed next year along with their annual reporting cycle.
The other area is in the transitional risk where like mentioned above with the CRD we are starting to see around the world the foundations being laid by governments to enact stricter and harsher legislation to combat climate change.
A good example of this is in the European Union (EU) which has set a Carbon Border Adjustment Mechanism (CBAM). Coming into play in 2026 this aims to put a fair price on the carbon emitted during the production of carbon intensive goods that are entering the EU, and to encourage cleaner industrial production in non-EU countries.
This is already having a significant flow on effect with detailed carbon lifecycle information needed for all products going in the EU and the competitive advantage that low carbon may achieve. I would not be surprised if other countries follow suit and that even carbon becoming a future trade weapon used in negotiations.
4. Waste and Circular Economy:
Retail generates a staggering amount of waste, particularly through packaging. Consumers are increasingly intolerant of excessive packaging, and regulators are responding with stricter waste reduction measures. Retailers that fail to adopt sustainable packaging practices not only contribute to environmental degradation but also risk alienating customers and incurring higher disposal costs.
This is already impacting retailers with jumps in landfill costs going up significantly to the tune of around 50% as New Zealand simply starts to run out of space. Retailers need to start thinking more about the end of life of their goods sold and where it ends up. Just being recyclable is not going to be enough. The right to repair is another piece of legislation that the EU is pushing and that includes ensuring consumers have easier access and cheaper options to repair products when the legal guarantee has expired.
In New Zealand the Ministry of Environment has already thinking about Circular Economy which involves replacing the “take-make-dispose” model we have today to a more sustainable approach where products, materials and resources are managed in a way that keeps them in use for as long as possible. I good example is the work that I am doing in Tonga where they simply must move to this model as there is no recycling capability on the Island. For a key hotel we are looking at getting a glass crusher to turn the bottles into sand. This sand is picked up by a local manufacturer who makes them into bricks.
I think within the next five years every major retailer will need to be able to demonstrate their circular economy strategy and like emission will need to plan their pathway to a zero waste, circular economy.
5. Social Impact
Beyond environmental concerns, retailers are under increasing pressure to address social impact issues. Consumers are seeking products that are ethically produced, and they want assurance that their purchases contribute to positive social outcomes, such as fair wages and community development.
Retailers that can demonstrate their commitment to social impact will gain a competitive edge and build long-lasting customer loyalty. A good example of this is with Rebel Sport where they have a long-standing relationship with Pass it Forward. For every pass it forward ball bought in a Rebel store a ball is also donated to a school. So far over 10,000 balls have been donated equating to around $1.5m in fundraising. Being able to link your social impact to your core purpose as a retailer is also key as more kids playing sport the more likely they are to buy sporting equipment in the future.
I have recently finalised a Sustainability Strategy for a construction firm. Initially, their primary emphasis was on environmental sustainability, aiming to diminish emissions and waste. However, after delving deeper and conducting interviews with their executive teams, it became evident that while their initial assumption was accurate, they could also engage in activities that would create substantial value for them, particularly by facilitating the development of affordable housing.
Retailers need to think more about their role in society and look closer at opportunities of “shared value” which become mutually beneficial and in the long term can be a competitive advantage.
6. Legal and Governance:
The legal landscape for sustainability in retail is evolving rapidly. I have already touched upon several regulations which include, climate change, waste and modern slavery. Listed below in the table is my thoughts on the key policies and metrics you may need to consider with sustainability. They might not all apply to your organisation but its worth having a think about them in your own context of what you do.
As I have outlined earlier the regulations related to environmental and social sustainability are becoming more stringent, and compliance is no longer optional. Retailers must proactively monitor and adapt to these changes to avoid legal entanglements and protect their reputations.
Like all businesses retailers have the option to get ahead of legislation or fall into the crowd of reluctant compliers.
This is not going to go away and the sooner you lean into this the better your business will be.
In conclusion, the evolving intersection of retail and sustainability presents a complex landscape fraught with challenges and opportunities. As we've explored the six global sustainability issues that are reshaping the retail industry, it becomes evident that proactive action is not only prudent but absolutely essential.
From the complex web of addressing Scope 3 carbon emissions to the imperative of eradicating modern slavery from supply chains, retailers are faced with a host of ethical, environmental, and regulatory demands. Climate risks and the transition towards a more sustainable future add further dimensions to this conundrum, while waste reduction and the circular economy become paramount in a world both running out of space and tolerance for discarded goods.
Moreover, retailers must recognise the increasing significance of their social impact and the benefits of aligning their core purpose with positive societal contributions. Building long-lasting customer loyalty and gaining a competitive edge hinge on these endeavours.
The legal and governance landscape is evolving rapidly, with stringent regulations around environmental and social sustainability becoming the new norm. Compliance is no longer optional, and forward-thinking retailers will seize the opportunity to get ahead of legislation rather than being reluctant compliers.
In this intricate dance of challenges and opportunities, embracing sustainability isn't merely a way to mitigate risks; I see it as a blueprint for long-term success in a market increasingly driven by conscientious consumers and regulators. By taking proactive steps today, retailers can chart a course through this sustainability conundrum, creating more value whilst also ensuring a brighter and more responsible future for the industry, society and our planet.
Lee Stewart, a sustainability professional with 20 years’ experience working across Australia, UK, Japan and New Zealand in startups, consulting, and large multinationals. He is a qualified climate reality speaker and mentor trained by Al Gore and has worked for Global IT Company Fujitsu as the Regional Head of Sustainability where he developed several sustainability technology solutions. Most recently, Lee was Head of Sustainability at Fonterra where he led a team that was responsible for setting the sustainability strategy, ambition, communication, governance, and climate related disclosures.
Late last year Lee left Fonterra to set up his consultancy ESG Strategy and focuses on helping boards and senior executive teams to enhance and develop meaningful sustainability and ESG strategies. Notable clients include The Briscoe Group, Tongan Government and The Tanoa Hotel Group. Lee is also publishing his first book due out by the end of the year “Sustainability: The Missing Link to your Business Strategy”.