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Retail Outlook 2021: Net Zero

Time to change: Why consumer-facing businesses need to act on their net zero targets

Even in a year where COVID-19 took centre stage, the pressing challenge of climate change still loomed large. With a growing global movement, governments are committing billions to stimulate economies and strengthen climate commitments ahead of COP26. And we expect to see many retail and consumer goods businesses accelerate their own net zero initiatives this year.

What have we learned in 2020? 

1. Net zero is a financial imperative

Climate change is no longer just a financial risk to organisations - it’s also an opportunity. Those businesses that get it right stand to benefit for many years to come, not just through improved more efficient operations, but also through first-mover advantage, new sources of funding and even brand perception. However, those that get it wrong may face sanctions, struggle with investment and are likely to see significantly damaged reputation.

For premium-listed businesses, there’s an added challenge this year, in the form of climate-related disclosures in line with TCFD recommendations. While many have been working on compliance in 2020, it will be interesting to see how businesses navigate disclosures in 2021, and what the repercussions are for non-compliance.

2. A shift in mindset for organisations and consumers

Organisations are looking to be ambitious and are embracing science-based targets to reduce emissions. Many are looking to tackle emissions throughout their value chain, including suppliers, products, services and investments. They are reshaping corporate strategy and operating models for best impact and are freeing up funding for necessary new skills, technologies and business models.

The BRC’s Climate Action Roadmap, for example, will see more than 60 retailers work together to set a world-leading industry ambition to reach net zero emissions. Focusing on supply chains as well as retail, its target is for the decarbonisation of stores by 2030, deliveries by 2035 and products by 2040. 

As a new generation of consumers looks for more environmental products, processes and procedures, they’re increasingly likely to gravitate to those retailers and consumer businesses that can prove green credentials throughout their organisation.

3. Organisations still need help with Net Zero

To deliver on net zero commitments, consumer packaged goods companies and downstream retailers will need to undertake end-to-end change and in some cases business transformation. This includes understanding the implications of net zero for a company’s growth strategy and operating model, and embedding net zero across all business functions from governance, to supply chains, to finance and innovation. The challenge is knowing where to start. Though corporate challenges are now in the organisation, those tasked with the solutions are unsure how to put the plans in action and, more importantly, how to finance them.

Actions to take in 2021

Take small steps for big sustainability (and financial) gains

For most organisations, net zero targets are daunting, particularly if there’s no clear idea on how to achieve them or what the disruption and cost will be. However, those that push towards their decarbonisation targets will also find that they benefit from improved operations and more innovative business models. 

Driving foundational improvements across individual areas - whether supply chain, back-office or property portfolio - will incrementally push the business in the right direction. A lot of small positive actions can soon start to make big strides towards net zero targets. 

Take SKU rationalisation, for example. A large product portfolio means more cost, inventory, increased changeovers in facilities, packaging, waste and logistical inefficiencies. Reducing that portfolio not only reduces these issues, but also the strain on manufacturing (also responsible for significant emissions). But this type of change needs the whole organisation behind it for success.

Introducing better, more efficient operational practices throughout the organisation will positively affect the net zero agenda and free up cost. This can then be reinvested into other initiatives, such as better planning and forecasting, reducing waste, improving inventory management, removing unnecessary packing, and more efficient transport management.

Have an active plan

A net zero agenda must be ambitious. Ultimately, it’s about finding a new lens for value creation. 

Any plan must be specific to the business but may cover how to reduce carbon emissions from manufacturing facilities, stores and distribution centres, move towards net zero logistics operations, improve the sustainability of product sourcing and ‘nudge’ customers and employees towards low-carbon lifestyles.

With the rising popularity of online, organisations will need to balance the effect of e-commerce. If handled incorrectly, e-commerce has the potential to damage net zero targets, so thought needs to be given to items such as packaging, sourcing and delivery to ensure it meets any overall plan. It should be considered alongside any plan for a return to trading as lockdowns are lifted, and may look at initiatives such as first-time delivery, reducing returns or even collecting protective packaging and cardboard from customers. 

Make ecosystem-level changes

Changes to ecosystems - the network of organisations involved in the delivery of a product or service - are likely to be a significant driver of the net zero agenda, particularly supply chains and operations. This year, the organisations that make changes in this area are likely to see the most success. 

Making end-to-end supply chains more efficient requires thinking about issues such as use of green energy, equipping factories with modern technology and energy control sensors, lowering emissions from manufacturing and logistics partners, better packaging, reduced waste and electrified transportation.

But organisations will see success if they look at their net zero agenda in parallel with individual ecosystems. Take packaging for instance. It has long been a sustainability issue for retail and consumer goods, and we’re now seeing the product owners pushing packaging companies to improve their offerings. There is also a need to work collaboratively with the waste management industry to find end-to-end solutions that work in practice. While any packaging rationalisation should be led by that industry, these are still promising early signs.

Contact us

Tom Beagent

Tom Beagent

Director, PwC United Kingdom

Tel: +44 (0)7973 565380

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