Sustainability in retail & cg ie foundation and ernst & young by Fundación IE

PROBLEM DRIVEN RESEARCH

advanced series Foundation

CONSUMER GOODS & RETAIL 1

2013 No. 01

The retail sector: the driving force behind

the shift towards sustainable production and consumption

IE FOUNDATION ADVANCED SERIES ON PROBLEM DRIVEN-RESEARCH

foundation

SUSTAINABILITY

IE FOUNDATION ADVANCED SERIES ON PROBLEM-DRIVEN RESEARCH

advanced series

EDITORIAL BOARD Marco Trombetta Vice-Dean of Research IE Business School Manuel Fernández Nuñez Business Development Director Consumer Products & Retail Ernst & Young Margarita Velásquez General Director IE Foundation Fabrizio Salvador Senior Academic Advisor IE Foundation Alfonso Gadea Project Director IE Foundation

CONSUMER GOODS & RETAIL

Greetings Dear friends: One of IE Business School’s goals is to be an international center of excellence for research in all areas of management. We pursue this goal in close collaboration with the IE Foundation and the recently established IE University. I would like to present a new initiative of the IE Foundation and IE Business School. We hope it will provide an innovative way to share the results of the joint work of our scholars and partner organizations. The initiative, “IE Foundation Advanced Series on Problem Driven Research”, aims to provide support to organizations facing the new economic structure, featuring unique market rules. Recognizing the importance of retailing for assessing the current situation and the social expectations, we have chosen the “Consumer Goods & Retail” series as our maiden work. The IE Business School seeks to create an environment where we can develop the best talent, while at the IE Foundation we seek to close the loop between the school and businesses by fostering sustainable relationships through the organization. We are confident that this initiative will meet the challenge and offer a new perspective on the issues.

Marco Trombetta Vice-dean of Research at IE Business School Vice-dean of Coordination and Research, IE University

foundation

contents

IE FOUNDATION ADVANCED SERIES ON PROBLEM-DRIVEN RESEARCH

advanced series SUSTAINABILITY

CONSUMER GOODS & RETAIL 02

Research team Greetings IE Foundation Greetings Ernst & Young ExecutiveÂ summary 01 Introduction 02 Design and manufacturing 2.1 Banned substances 2.2 Life cycle and carbon footprint analysis 2.3 Supply chain transparency

03 Packaging 3.1 Involvement of producers and consumers 3.2 Direct reduction of packaging at retail establishments 3.3 Reduction of packaging for transportation

04 Transportation 4.1 Route optimization 4.2 Efficient transportation 4.3 Alternative fuels

05 Consumption 5.1 Influencing consumer choice 5.2 Information to foster sustainable use 5.3 Minimization of waste, reutilization, and recycling

06 Opportunities and challenges 07 References

IE FOUNDATION ADVANCED SERIES ON PROBLEM-DRIVEN RESEARCH

advanced series

SUSTAINABILITY

Research team Javier Carrillo-Hermosilla Associate fellow at IE Foundation

and Professor at Alcala University Professor Carillo-Hermosilla is currently the tenured head of the Business Science Faculty at Alcala University (Madrid). Before that, he was the Director of Economic Environment of Business department at IE Business School, a Fellow at the Jean Monnet Center for European Studies at IE University, a Visiting Fellow at Cambridge University and an Independent Expert assisting the European Commission in the evaluation of proposals for FP7 Theme 6 - Environment (including climate change). He has spent the last few years researching sustainable technological change, new management models, and the policies that provide an innovative response to tackling the environmental challenge. His achievements in this field are expounded in numerous papers and articles on environmental sustainability and technological change that have been published in international scientific journals and books. In addition, he contributes regularly to the leading media publications and gives frequent talks on the economy, business, and the environment. Professor Carrillo-Hermosilla holds a PhD in Economics from Alcala University (Madrid) and an MBA (with Honors) from IE Business School.

CONSUMER GOODS & RETAIL

Pablo del Río González

Totti Könnölä

and tenured scientist at CSIC).

at IE Business School (Operations Management)

Professor del Río is a tenured researcher at the Environmental

CEO of Impetu Solutions, Prof. Könnölä is a well-regarded

Economics Group of the CSIC’s Institute of Public Policy and

and renowned consultant specialized in strategic ma-

Goods. He holds a PhD in Economic and Business Sciences

nagement of innovation and sustainability. He has held

from Autonomous University of Madrid (2002). With 13 years’

several research and policy advisory positions at the Ins-

experience lecturing on environmental economics and eco-

titute for Prospective Technological Studies at the Euro-

nometrics, Pablo has served as professor at the University

pean Commission’s Joint Research Center, VTT Technical

of Castilla-La Mancha and vice-dean of foreign relations in

Research Center of Finland, Helsinki University of Techno-

this university’s legal and social sciences faculty in Toledo.

logy, IE Business School, and Gaia Group Ltd. He is also an

He is specialized in environmental economics, innovation

associate professor of industrial and technology policy at

economics, and energy economics, having been published on

ICAI, Pontificia Comillas University. Professor Könnölä holds

more than 70 occasions in first-class international journals.

a Doctor of Science and Licentiate of Science in Technology

Professor del Río has been participating in joint European

from Helsinki’s University of Technology (Aalto University

research initiatives for more than 15 years.

since 2010), as well as a Master’s degree in Environmental

Associate fellow at IE Foundation

CEO of Impetu Solutions and Associate Professor

Economics, from Helsinki University. All of this has made him an expert in technology forecasting and strategy, innovation management and policy, emerging technologies, manufacturing and industrial policy, environmental and energy management and policy and decision-making support systems. He is a frequent speaker at international conferences and symposiums and contributor to several scientific publishers.

IE FOUNDATION ADVANCED SERIES ON PROBLEM-DRIVEN RESEARCH

advanced series

SUSTAINABILITY

Rafael Puyol

Vice-president IE Foundation Margarita Velásquez General Director IE Foundation

foundation

Among its primary activities, IE Foundation supports the research and the knowledge sharing endeavors of IE Business School’s professors. Through its initiatives IE Foundation contributes to the positioning of IE Bvusiness School as a center of excellence for innovation, and for the creation of knowledge targeted at its productive environment. The IE Foundation aims to create strong ties and alliances with prestigious, public and private, institutions, particularly those in the business domain that can help propel our researchers’ initiatives. As an institution that pursues excellence, research activities are driven by academic rigor and the utilitarian nature seeking to create knowledge. We aim to push innovation and competitiveness to provide answers to the challenges and needs of society. This publication is part of the IE Foundation’s collection on Consumer Goods and Retail, developed in collaboration with Ernst & Young. We would like to extend our gratitude to them for their commitment and their vast experience on this matter. The collection has been designed with the purpose of analyzing the key aspects of the industry through a practicedriven, up to date perspective on key aspects of the industry such as Sustainability, Information Security, Pricing, and Profit Protection. We are in the midst of a major change in the retail industry. The challenge many Spanish organizations face, is being at the forefront of such change and benchmarking best practices in the global market. The IE Foundation looks forward to helping organizations in this process. We hope that this publication will be of interest to you, and we appreciate your support.

CONSUMER GOODS & RETAIL

José Luis Ruíz Expósito

Partner and Head of Consumer Goods & Retail Manuel Fernández

Business Development Director, Consumer Goods & Retail

Consumer Products and Retail companies are developing their business in a much more complex and volatile environment than they have in the past. In this environment, companies’ actions focus on transforming their business processes and protecting their operational margins. In its commitment to innovation and value creation, Ernst & Young has propelled research projects on the issues that will help companies deal with today’s industry challenges. Our research takes into account different actions regarding price dynamics from a brand differentiation perspective. Secondly, we take on the negative economic effect of shrinkage with an analytical approach, to identify its root causes and suggest corrective actions for its mitigation (profit protection). We also seek ways to preserve the information security of an industry that operates, with an increasing frequency, in mobile scenarios and technologies. Finally, we propose the adoption of a business commitment perspective, betting on sustainable initiatives from retailers that take into account manufacturers and consumers. These four areas are experiencing a large change in process. Ernst & Young and the IE Foundation are approaching these challenges from an innovative perspective with the intention of putting them into practice and creating value for the business environment.

IE FOUNDATION ADVANCED SERIES ON PROBLEM-DRIVEN RESEARCH

advanced series

SUSTAINABILITY

Executive summary THE RETAIL SECTOR: THE DRIVING FORCE BEHIND THE SHIFT TOWARDS SUSTAINABLE PRODUCTION AND CONSUMPTION

Design and manufacturing phase

Packaging phase

Challenges and opportunities

Burgeoning information demands by regulators, consumers, and investors about retailersâ&#x20AC;&#x2122; products and how they are made means that product design will increasingly factor in multiple environmental considerations as well as traditional utility, performance, and price-driven attributes. Relations between retailers and suppliers that are based on trust and a joint sustainability effort are paving the way for more open and unguarded exchange of information between the two parties, as well as with governments, nonprofit entities, and academic institutions. Transparency levels in consumer product supply chains are set to continue to increase swiftly, injecting visibility into the working conditions, human rights, and environmental ramifications of product manufacture and distribution.

What others are doing and what your company can do While numerous retailers use banned substance lists, some have gone further by engaging themselves in detailed analysis of the life cycles of their products and services and collaborating closely with all stakeholders to boost supply chain transparency and shrink their overall environmental footprints.

Pared-back packaging can translate into significant cost savings and a better environmental record by using fewer materials and streamlining logistics and transportation operations. Beyond reducing private label product packaging and the amount of packaging used in retail establishments, the real challenge lies with engaging other players in the value chain, most importantly suppliers and consumers.

What others are doing and what your company can do It is by no means uncommon for retailers to act directly to reduce their own productsâ&#x20AC;&#x2122; packaging, redesigning containers, how products fit and stack together and how the waste is compacted or concentrated. It is more complex, albeit possible, to lighten up this end of the supply chain when it comes to third-party products and/or when producers and consumers need to be involved in designing more efficient packaging solutions.

CONSUMER GOODS & RETAIL

This report pivots around the thesis that the retail sector

of proactively tackling the issue at each stage of the process.

can use its strategic positioning to have a real and effective

While these efforts do not always produce meaningful returns

influence on suppliers and consumers, making all phases of the

in the short turn, by championing improvements in their

product value chain â&#x20AC;&#x201C; design and manufacturing, packaging,

environment these retailers will unquestionably create value

transportation, and consumption â&#x20AC;&#x201C; more sustainable. The

and buy business sustainability medium and longer term,

closer the value chain gets to a closed-cycle, in which waste

while setting themselves apart from their competitors and

is transformed into inputs for new products, the more

positioning themselves to better handle the growing clamor

sustainable it will become. The purpose of this study is also

from regulators, consumers, and investors for more information

to provide a snapshot of the diverse nature of unfolding

and stronger environmental pledges.

sector practices, showcasing various retailersâ&#x20AC;&#x2122; unique ways

Transportation phase

Consumption phase

Challenges and opportunities

Consumer bias towards more environmentally-friendly products suggests that manufacturers and retailers that manage to adapt to emerging environmental challenges have much to gain. By stressing the environmentally-friendly attributes of their products, retailers can gain a competitive edge, particularly if they manage to translate these attributes into cost savings for the end consumer.

In the long term, achieving carbon neutral shipping will likely be the goal of many retailers. Just as the automobile industry is catering to the demand for more fuel-efficient vehicles, the trucking industry will continue to do the same. By embracing smarter transportation, retailers can both reduce unnecessary costs and shrink their carbon footprint.

What others are doing and what your company can do Retailers can help expand the availability of these technologies by pilot testing low carbon transportation methods and expanding their pilots whenever financially feasible. In the meantime, however, retailers can optimize shipping by using efficient packing and distribution processes and currently available transportation technologies. Many retailers have already incorporated these approaches into their operations, which are rapidly becoming business as usual.

And by stressing the cost savings accruing to consumers throughout product life cycles, retailers stand to overcome the barrier implied by the higher price of these products, ultimately benefitting their profitability. Designing more environmentally-friendly products may require supplier engagement. Retailers can also influence how their products are disposed of after consumption or at the end of their useful lives.

What others are doing and what your company can do Retailers can shape consumer choice, nudging buyers towards more sustainable products directly, by modifying the products they sell and how they promote them, or indirectly, by providing information or financial incentives. Consumer information can also be used to reduce the environmental ramifications of everyday product-use as product use tends to be one of the phases with greater environmental consequences. Encouraging the reutilization of containers can result in significant cost savings for retailers in respect of products for which waste is mainly packagingderived.

IE FOUNDATION ADVANCED SERIES ON PROBLEM-DRIVEN RESEARCH

advanced series

SUSTAINABILITY

Introduction

1. Working between suppliers and consumers Environmental protection requires reducing the environmental

The variety of direct environmental impacts (deriving from

consequences of production and consumption throughout a pro-

everyday operations) and indirect impacts (deriving from the

duct or service’s entire life cycle, from selection of raw materials

production and consumption processes triggered, respectively,

to its end-of-life disposal or reutilization, having been packaged,

by their suppliers and consumers) suggests that the range of

transported, used and consumed in the meantime. In fact, pro-

measures available for reducing their overall environmental

ducts in the wide sense (tangible products, services, and packa-

impact is theoretically broad. That being said, the fundamental

ging) account for over half of households’ environmental impacts1.

role of the retail sector should, without a doubt, be to influence

It is therefore vital to refocus production and consumption activi-

other stakeholders (suppliers and consumers) rather than being

ties on more environmentally-friendly products. The retail sector

limited to reducing the direct environmental impacts of their store

can play a leading role to this end.

operations. This is a considerable challenge for the sector to the

As expounded throughout this report, the retail sector can be viewed as a ‘hinge’ sector, pivotal in reducing the environmental impacts of the production and consumption processes precisely because of its positioning at the intersecting point of these processes (Chart 1). The sector is therefore strategically positioned to influence suppliers (upstream) and consumers (downstream) throughout the product value chain. Moreover, as is well known, the sector can have a significant environmental impact as a result of its own warehouse operations and logistics (transportation) activities.

extent that it implies pursuing initiatives that may undermine the delivery of profit targets in the short term; however, this report showcases several examples of how a proactive environmental approach also guarantees value creation and sustainable profitability for retailers by enabling them to set themselves apart from their competitors and position themselves to better handle the growing clamor from regulators, consumers, and investors for more information and stronger environmental pledges.

CONSUMER GOODS & RETAIL

Production

Retail

Figure 1: the retail sector: the driving force behind the shift in production and consumption

Consumption

As highlighted by the case studies analyzed in this report,

The purpose of this report is also to provide a snapshot of

although the sectorâ&#x20AC;&#x2122;s ability to influence these other players

this diversity, showcasing various retailersâ&#x20AC;&#x2122; unique ways of

is undeniable, the strategies pursued need to factor in

proactively tackling the issue throughout every phase of the

certain considerations. And although companies in general

product-service value chain. The closer the value chain gets to

and retailers in particular are increasingly committed to

a closed-cycle, in which waste is transformed into inputs for

the environment, there is significant disparity in how these

new products, the more sustainable it will become (Chart 2).

businesses are adopting sustainable practices and products.

Figure 2: retail sector channels of influence over sustainability in the product-service value chain Lists of banned substances

Involvement of producers and consumers

Life cycle and carbon footprint analysis Supply chain transparency

Influencing consumer choice Information to foster sustainable use Minimization of waste, reutilization and recycling

Reduction of packaging at retail establishments

DESIGN AND MANUFACTURING PACKAGING

CONSUMPTION TRANSPORTATION

Reduction of packaging for transportation

Route optimization Efficient transportation Alternative fuels

IE FOUNDATION ADVANCED SERIES ON PROBLEM-DRIVEN RESEARCH

advanced series

SUSTAINABILITY

2. Design and manufacturing Design is probably the phase that most significantly shapes a productâ&#x20AC;&#x2122;s environmental impact throughout its entire life cycle. While the actions taken by retailers to purchase environmentally-friendly products and services for their own use2 can reduce their carbon footprints, the sectorâ&#x20AC;&#x2122;s contribution can be considerably amplified if it also chooses to try to reduce the environmental impact of the products stocked on their shelves. More specifically, retailers can include environmental criteria when selecting which products to sell to their customers among those offered by the various brand suppliers (choice-editing), even though their ability to influence how these products are designed may be slim compared to their influence over private label product design. Against this backdrop, several retailers are introducing sustainability criteria to private label product design, in response for customer demands for attributes such as organic or sustainable sources, high recycling content or energy efficiency. These initiatives have tended to focus on the ecodesign of private label packaging and containers (Section 3) whereas examples of action taken to foster the eco-design of

Supply chain transparency

Desig manufa

the products themselves are far fewer.

Regulation

A variety of guidelines specifically tackle the environmental aspects of product design. The ISO 14006:2011 standard, for example, provides guidelines to assist organizations in establishing, documenting, implementing, maintaining and continually improving their management of eco-design as part of an environmental management system (EMS)3.

CONSUMER GOODS & RETAIL

Lists of banned substances

CHART 3: RETAIL SECTOR CHANNELS OF INFLUENCE OVER THE DESIGN AND MANUFACTURING PHASE

Beyond private label products and their packaging, the real challenge facing retailers lies with their ability to have an impact upstream, to the point of influencing producers at the earliest stages of product design. However, the lengthening, complexity and globalization of today’s supplier chains is making it increasingly harder to trace and control the environmental commitments of all of participants. Nevertheless, as is shown later on in this report, we can find examples of retailers that are fostering greater transparency and responsibility on the part of their suppliers. To this end they are developing technology, processes and systems designed to promote continual supply chain improvement and innovation, particularly in relation to product design and manufacturing. While numerous retailers use banned substance lists (‘black lists’), some have gone further by engaging themselves in detailed analysis of the life cycles of their products and services and collaborating

gn and acturing

closely with all stakeholders to boost supply chain transparency and shrink their overall

Life cycle and carbon footprint analysis

environmental footprints (Chart 3).

Meanwhile, in 2005 the European Commission established

recommendations. The importance of life cycle thinking and

the European Platform on Life Cycle Assessment (LCA)4 to

the corresponding analysis has since been further boosted by

promote LCA data consistency, quality control and availability;

the Action Plan for Sustainable Consumption and Production

in 2010, it officially launched the International Reference Life

(SCP)5. In addition, the reference guide for life cycle analysis

Cycle Data System (ILCD), which, among other documents,

has been homogenized under the ISO 14040 standard series.

includes a handbook with life cycle assessment methodology

IE FOUNDATION ADVANCED SERIES ON PROBLEM-DRIVEN RESEARCH

advanced series

SUSTAINABILITY

2.1 Banned substances Lists of banned substances ensure that no hazardous chemical components are used in the production of goods6. Retailers can also make use of what are known as ‘black lists’ to ban the use of certain substances in their products (e.g., hazardous chemicals). Several retailers (C&A, H&M, IKEA, Kesko, METRO and Tesco) implement what could be called selective eco-design, where, for example, certain hazardous chemicals are black-listed and cannot be included in products’ components (Case Study 1). To cite a few examples of this ‘choice-editing’: Mercadona has banned the use of PVC in containers and packaging; Kesko has stopped selling bluefin tuna (an endangered species); Carrefour has reduced the sales of bluefin tuna in its French stores, and has completely stopped it in its Italian and Spanish stores; Carrefour has also stopped sales of non-certified tropical wood and since 1996, all retailer and own-brand products are labeled as not containing GMOs.

CONSUMER GOODS & RETAIL

Case study 1. H&M’s ‘black list’ Background H&M has been working to reduce the use and impact of hazardous chemicals using an approach based on the Precautionary Principle since 1995.

The initiative H&M ensures that its substance restrictions are understood and applied throughout its supply chain. H&M has established a list of more than 250 chemicals which its suppliers are forbidden to use, applying the most stringent criteria in force in any of its operating markets to all of the countries where its sells its clothing. The retailer has also banned voluntarily certain chemical substances that are not banned by law (e.g. triclosan, PVC, Kat ionicsurfactants, while phthalates are not only prohibited for children but also for adults).

Benefits H&M published its first Chemical Restriction list in 1995. Since then, the company has achieved several milestones (such as the phasing out of PVC from all its products in 2002 and the banning of the use of Nonylphenol ethoxylates in 2009), positioning the company as the pioneering apparel retailer in this field. H&M’s know-how and position in this area have ensured its regular presence at the main regulatory and business forums, giving it a say in how business practices unfold in the future (for example, it has been collaborating with the UN on the development of a global practice for spreading information on chemicals in products since 2008 and, since 2010, it has been participating in the Sustainable Apparel Coalition with the goal of developing a universal index to measure the environmental and social performance of apparel products). Source: H&M’s website: http://about.hm.com/content/hm/AboutSection/sv/About/Sustainability/Commitments/Use-Resources-Responsibly/Chemicals/ZeroDischarge.html

IE FOUNDATION ADVANCED SERIES ON PROBLEM-DRIVEN RESEARCH

advanced series

SUSTAINABILITY

2.2 Life cycle and carbon footprint analysis

Unquestionably, the life cycle analysis (LCA) concept transcends the scope of this section as it can be viewed as a tool that transects every phase of the value chain. However, it is addressed in this section based

on the understanding that its overriding utility is to gather information for the continual improvement and re-design of products and services. LCA enables assessment of a product’s environmental impacts from its design to use and disposal and identification of the key aspects or ‘hot spots’ that imply the greatest scope for improvement. Some retailers are looking beyond specific product lines, integrating sustainability into all areas of their business activities. IKEA, for example, has launched an environmental design initiative known as the ‘e-wheel’ in order to understand and monitor the impact of its products throughout their entire life cycles (Case Study 2). Some supermarkets such as Carrefour use LCA results to identify ‘hot spots’ for a given product category and integrate environmental considerations into product specifications. The eco-design of products such as textiles or wooden furniture is slightly different from the eco-design of other products. Their worldwide presence facilitates the transfer of knowledge from one country to another or the organization of schemes, decreasing investment costs for the retail chains committing to participate. Even if these retailers have to deal with complex international supply chains, a systematic product eco-design policy is less difficult to implement because of the reduced number of materials involved (textiles, wood) and the fact that product functionality is less diverse than for generalist retailers.

CONSUMER GOODS & RETAIL

Case 2. LCA in product design at IKEA Background Retailer product designers, developers and technicians face the challenge of factoring in the product’s environmental impacts throughout its life cycle as well as safety and quality considerations. IKEA has developed tools for systematically incorporating these criteria into its new product design and development processes. The initiatives

Rule 1: Establishment of objectives and compliance with sustainability

IKEA uses the ‘e-wheel’ method to learn about and assess the environmental impact of its products. This method analyzes various points of control: raw

requirements. Identification of sustainability objectives from the outset. Rule 2: Creation of more from less. Achievement of the same utility, quality and design using fewer raw materials. Rule 3: Use of environmentally-friendly materials. Use of renewable or

materials, manufacturing, product use and

recyclable materials whenever possible.

end of life. The company has specified the

Rule 4: Optimization of efficient production. Contribution to supply

implications of the e-wheel for its designers

chain sustainability.

by articulating eight rules to be followed

Rule 5: Smart packaging. Designer products can be packaged and dis-

when designing new products or updating existing products:

tributed efficiently. Rule 6: Creation of products with a long useful life. Helping customers to use products for longer without renouncing quality. Rule 7: Products that enable smart use. Helping customers to reduce their energy and water usage and their waste generation. Rule 8: Design for recycling. Design products that facilitate customer recycling. Benefits The e-wheel and the eight rules give IKEA’s design and development team a useful guide for creating more environmentally-friendly products, such as the EKTORP sofa which customers can now assemble at home. The self-assembly option allows IKEA cut merchandise handling time by 50%, emit 4,700 fewer tonnes of greenhouse gases, reduce required warehousing space by 370,000m2 and store display/storage space by half, while saving €8,300,000 a year in road transportation by needing 6,866 fewer trucks.

EKTORP

IE FOUNDATION ADVANCED SERIES ON PROBLEM-DRIVEN RESEARCH

advanced series

SUSTAINABILITY

Carbon footprint analysis can be viewed as an extension of the above approach, albeit focused specifically on greenhouse gas (GHG) emissions. The use of fossil fuels in business operations and the rest of the value chain gives rise to emissions. The ability to quantify and reduce these emissions can lead to numerous benefits. Determining the carbon footprint of its supply chain is one of the more effective steps a retailer can take in developing its environmental sustainability strategy. However, this is a complex process requiring an abundance of information and significant cross-departmental and supplier/partner communication and coordination skills. The effort is usually profitable for all parties as it tends to highlight numerous opportunities for making operations more efficient (Case Study 3).

CONSUMER GOODS & RETAIL

Case Study 3 Walmart’s strategy for reducing supply chain GHG emissions Background

Benefits

Walmart estimates that over 90% of its GHG emissions are ge-

In February 2010, Walmart announced its goal of eliminating

nerated indirectly, with the remainder attributable directly to its

20 million metric tonnes of GHG emissions from its global

own operations. The retailer is helping its suppliers reduce their

supply chain by 2015. This target was the result of a joint re-

energy use, costs and emissions through a partnership with the

search project with NGOs. The commitment was set at 150%

Environmental Defense Fund (EDF), ClearCarbon, the Carbon

of the company’s estimated global carbon footprint growth

Disclosure Project and the Applied Sustainability Center (ASC)

over the next five years, the ultimate target being to engage

at the University of Arkansas.

its suppliers and customers in a constructive dialogue about sustainability. Under the program, Walmart’s suppliers have reduced GHG emissions by 3,300 metric tonnes and saved $200,000 in energy costs.

The initiative Walmart’s Supplier Energy Efficiency Project (SEEP) is aimed at eliminating emissions from the company’s supply chain, where the retailer oversees energy audits and retrofits at its suppliers’ factories. Walmart’s program to reduce GHGs has three main components. Firstly, it has reviewed its main product categories by volume with a view to identifying the areas of its global supply chain that have the greatest opportunity for reductions, paving the way for more efficient resource usage, coupled with the highest possible impact. The actionable sustainability systems designed can be transferred to different kinds of suppliers in different countries. Secondly, Walmart is looking for innovative approaches in other organizations, such as NGOs and consultancies. The sustainability network built by Walmart has brought it leadership, expert know-how and other resources that it would not have been able to tap on its own. Lastly, and in parallel, the company is educating its procurement officers on its emissioncutting targets and strategies, so that they can, in turn, educate their suppliers.

Source:- -“http://www.rila.org/sustainability/sustreport/sustainability-report-landingpage/”http://www.rila.org/sustainability/sustreport/sustainability-report-landingpage/pages/default.aspx -http://www.greenbiz.œm/biog/20u/06/06/how-walmart-using-its-sustainabilitymetrics- drive-produc tivity?utm_source=E-News+from+GreenBiz&utm_ campaign=6d6a67bdb8-GreenBuzz-2012-06-07&utm_medium=email -“http://coepoeatp.walmaet .com/global- epsponsibility/pnvieonmpntsustainability/”http://corporate.walmart.com/global-responsibility/environmentsustainability/ global-responsibility-report -http://HYPERLINK “http://www.en”www.environmentalleader.com/2010/02/26/ walmart-pledges-to-cut-supplychain-emissions-20m-metric-tons-by-2015/ - “http://www.pCfoeg/npws/walmaet-announcps-goal-pliminatp-20-million-mpteic”http://www.edf.org/news/walmart-announces-goal-eliminate-20-million-metrictons-greenhouse-gas-emissions-global-supply-

IE FOUNDATION ADVANCED SERIES ON PROBLEM-DRIVEN RESEARCH

advanced series

SUSTAINABILITY

2.3 Supply chain transparency

The new relationship being forged between the retailer and its suppliers is marked by higher levels of collaboration and engagement

in terms of supplier practices, including eco-efficiency and working conditions designed to foster ongoing improvement and risk mitigation for both parties. Together, these stakeholders are evaluating, reporting on, verifying and tackling the social and environmental impacts of their supply chains. By way of example, Walmartâ&#x20AC;&#x2122;s Supplier Energy Efficiency Program (SEEP) encompasses energy audits and financing for suppliers investing to upgrade their facilities. Reporting on the impacts, objectives, and progress made in this field should be placed at the heart of any retailerâ&#x20AC;&#x2122;s sustainability strategy. Such a reporting effort informs stakeholders about retailersâ&#x20AC;&#x2122; sustainability drives and allows public scrutiny. Metric-based public targets shed light on long-term targets, demonstrating to stakeholders that a credible commitment has been made to supply chain sustainability. Because supply chain action involves numerous parties and various levels of control, collaboration is vital. Best Buy, Gap Inc., JC Penney, Safeway, Target, REI, VF Corporation, Walmart and many others have concluded that participation in collaborative taskforces is essential to developing comprehensive and consistent industry and product standards. These taskforces bring together companies, governments, non-profit organizations and academic institutions for the purpose of exchanging supply chain sustainability know-how and resources7. In order to improve the quality and transparency of the information compiled, some companies have turned to audit and certification firms that verify the data gathered (Case Study 4).

CONSUMER GOODS & RETAIL

Background Over the past two decades illycaffè has perfected a system of direct relationships with its suppliers, based on three main pillars: selecting the best growers in coffee-producing countries; transferring to these growers, through the company’s Università del Caffè and the daily field work of specialized agronomists, comprehensive knowledge to produce coffee meeting illy’s high quality standards; and purchasing the best production directly from growers, paying them

Case Study 4. Illycaffè: development of a carbon footprint analysis framework under the umbrella of its Responsible Supply Chain Process initiative

a premium over the going market price to reward quality achieved, and incentivize ongoing improvement.

The initiatives DNV, an international product and process certification company, in part modeled its new certification standard on the illycaffè supply chain model. The standard developed by DNV is innovative because it marks the passage from the certification of an organization’s supply chain to the certification of an organization’s ability to crea-

Benefits In March 2011 illycaffè became the world’s first company to receive a Det Norske Veritas (DNV) Responsible Supply Chain Process certification, attesting to the company’s long-running sustainable approach to production and its relations with stakeholders throughout the production chain, particularly with green coffee suppliers. The DNV Responsible Supply Chain Process standard is designed for application to any kind of supply of raw materials. Source: Press release, March 2011.

te value that benefits everyone involved. The illycaffè model is innovative in assigning critical roles to quality and value creation. During the year that the certification process lasted for illycaffè, DNV performed its audits and the company made efforts to perfect its internal processes in order to meet the requisites. All of illycaffè’s functions were involved, from the board of directors to management and operational personnel.

IE FOUNDATION ADVANCED SERIES ON PROBLEM-DRIVEN RESEARCH

advanced series

SUSTAINABILITY

3. Packaging Packaging is a crucial part of the product supply chain

Optimization efforts at this point of the supply chain

in logistics and sales terms but also in environmental

require assessment of existing packaging processes

terms. Environmentally unfriendly packaging increases

and designs, analysis of alternatives and introduction

transportation intensity, floor space usage (warehousing)

of the optimal solutions. Once again, this process

and end waste per unit of value. At the same time,

crucially requires the retailer to involve its producers

packaging is by its very nature the most visible aspect

and consumers9 in designing more efficient packaging

of a product: its environmental impacts are readily

solutions. In parallel, retailers can take direct action,

understood by consumers, the media and environmental

without having to extensively involve producers and

activists, which is why packaging is often the focus of

consumers, to reduce store packaging. A third alternative,

these groupsâ&#x20AC;&#x2122; demands for greater sustainability. As

dealt with in Section 4, relates to reducing transportation

a result, packaging and its management present a

packaging (Chart 4).

wonderful opportunity for adding environmental (and economic) value to a given product. The environmental impact of packaging waste is particularly important to consumers. A 2009 Eurobarometer survey showed that 30% of EU citizens consider that minimizing waste and recycling would be actions having the greatest impact on solving environmental problems. Indeed, 3% of all waste generated in the EU in 2008 was packaging waste, generated by companies and consumers8.

Regulation

In the European Union, all packaging must meet the Essential Requirements stipulated in Annex II of European Directive 94/62/CE on packaging and packaging waste (the PPWD)10, as amended subsequently by Directives 2004/12/EC, 2005/20/EC and Regulation No 219/2009 and transposed into Spanish law by Law 11/1997 of April 24, 1997, on packaging and packaging waste, and enacting Royal Decree 782/1998. The requirements laid down

CONSUMER GOODS & RETAIL

Involvement of producers and consumers

Chart 4: Retail sector channels of inf luence over packaging

Reduction of packaging at retail establishments s

Reduction of packaging for transportation

Packaging

in Directive 94/62/EC specify that packaging weight and

in such a way as to permit its reuse or recovery, including

volumes are to be limited to the strict minimum required to

recycling. Companies are responsible for demonstrating that

ensure the necessary level of safety, hygiene, and acceptance

their product packaging complies with these requirements,

for the packed product and for the consumer. This legislation

to which end they may use the standards published by the

further stipulates the minimization of noxious and other

European Committee for Standardization in 2005 (CEN

hazardous substances and materials as constituents of the

Standards for Packaging and Environment11) or equivalent

packaging material or any of its components. Moreover,

national standards12.

packaging must be designed, produced, and commercialized

SUSTAINABILITY

IE FOUNDATION ADVANCED SERIES ON PROBLEM-DRIVEN RESEARCH

advanced series

3.1 Involvement of producers and consumers

CONSUMER GOODS & RETAIL

Generally speaking, a certain level of

environmental terms when reducing the

collaboration among all the parties involved

amount of materials used for packaging

is essential to achieving more efficient

purposes17. Some retailers, such as Kesko,

packaging. Against this backdrop, there

have developed guidelines for their suppliers

are multiple voluntary initiatives aimed

for eco-designing products in order to

at channeling retailer-supplier-consumer

minimize the environmental impacts of their

collaboration, such as the Global Protocol on

packaging.

Packaging Sustainability13, the Sustainable Packaging Coalition14, the Global Packaging Project15 and the European Organization for Packaging and the Environment16.

At the consumer end of the spectrum, environmental protection arguments can prove effective but should be accompanied by adequate information. There are

Producers also have a direct economic

cases, however, that show that economic

incentive to reduce packaging as less

arguments can also be powerful in this

packaging means lower costs, mainly via

respect. Puma, for example, has replaced

savings in materials and transportation

its shoe boxes with bags that can be reused

costs. However, although reduced volumes

by consumers, providing shoppers with a

are a prerequisite for minimizing the

tangible saving. Consumers therefore need

environmental impact of packaging, it is

to be engaged and educated to (i) play a

important to remember that excessive

leading role by choosing products with less

packaging elimination can lead to

packaging, to the extent possible; (ii) use

product spoiling or even loss, with adverse

packaging appropriately; and (iii) to help

environmental consequences that may even

gather up used packaging for subsequent

wipe out the desired gains. It is therefore

recycling18.

necessary to strike an optimal balance in

SUSTAINABILITY

IE FOUNDATION ADVANCED SERIES ON PROBLEM-DRIVEN RESEARCH

advanced series

Case Study 5. EROSKI: application of the EE7+ end-to-end packaging eco-design methodology

3.2 Reduction of packaging at retail establishments

In parallel, retailers can take action, without having to extensively involve producers and consumers, to directly reduce the environmental footprint of its own packaging by paring back store packaging. Indeed, significant opportunities exist in the development of more efficient white label packaging particularly in relation to fresh products, for instance by reducing the weight of containers, by optimizing packaging dimensions relative to net product weight and by choosing recyclable materials (Case Study 5).

CONSUMER GOODS & RETAIL

Background The food industry operates in a highly competitive and increasingly global market and is being forced to seek new ways to reduce production costs while defending profit margins. At the same time, sustainability awareness and demands on the part of consumers, industry, and society in general are growing. The initiative

Benefits

The project for the enhanced design and

Eroski reduced carbon dioxide equivalent emissions by 950 tonnes and

control of private label product packaging was

achieved significant cost savings by using fewer raw materials.

designed to tackle the dual challenge of reducing production costs while mitigating environmental consequences by reducing the weight of packaging, eliminating raw materials and replacing certain materials with others. To this end Eroski developed a tailored software application, in cooperation with AZTI - Tecnalia Technological Centre, to compare the effect of different packaging formats in terms of costs (materials, productive processes, transportation, end management) and overall environmental impact throughout the entire product life cycle, ultimately generating solutions. Eroski analyzed the environmental impact of the packaging and containers for almost 100 white label SKUs.

Some examples: - EROSKI basic ground and decaf coffee: the box displaying this product was modified; by going from a double piece of cardboard to a single piece, the retailer achieved savings of 35% in terms of raw materials and of 290 grams of carbon dioxide equivalent per unit sold. - EROSKI puff pastry: the solid bleached board case was replaced by a flow pack wrapper, resulting in 56 fewer grams of carbon dioxide equivalent per unit. - EROSKI disposable gloves: the cardboard box was replaced by a plastic package, reducing the amount of raw material used by 87%, thereby saving 41.7 grams of carbon dioxide per unit. - EROSKI cleaning products: the original raw material was replaced by sustainable plastic, reducing its environmental impact - by 37.2 grams of carbon dioxide equivalent per unit -, as a result of the lower weight of the new packaging as well as the more energy-efficient processing of the new plastic. - EROSKI home-style tomato sauce: the amount of glass used in the jar was reduced, saving 35.8 grams of carbon dioxide equivalent per unit.

Sources: HYPERLINK â&#x20AC;&#x153;http://www.eroski.es/es/conoce-eroski/memoria-eroski-2010/implicados-con-nuestro-entorno/veteranos-en-responsabilidad-social-corporativa/â&#x20AC;?http://www. eroski.es/es/conoce-eroski/memoria-eroski-2010/implicados-con-nuestro-entorno/veteranos-en-responsabilidad-social-corporativa/ European Commission Retail Forum_packaging_issue_paper_p10 http://www.eroski.es/es/conoce-eroski/sala-prensa/notas-de-prensa/eroski-reduce-el-impacto-ambiental-de-envases-y-embalajes-con-apoyo-de-una-aplicacion-informatica-Memoria EROSKI 2011

IE FOUNDATION ADVANCED SERIES ON PROBLEM-DRIVEN RESEARCH

advanced series

SUSTAINABILITY

Dealt with again in Section 4, smart packing methods improve transportation efficiency by maximizing product loads per dispatch. Certain retailers appear particularly keen to streamline packaging volumes, as the resulting reduction in weight and dimensions often pays off in terms of material savings and

3.3 Reduction of packaging for transportation

logistics efficiency. For example, REI redesigned its bike boxes, thereby reducing packaging by 68% and increasing the number of bikes per load by 10%. Safeway also re-evaluated their packing methods to have more products per pallet and pallets per truck, reducing its 2010 carbon emissions by 9,667 tonnes. IKEA’s championing of its now well-known flat packaging and other practical packaging solutions, such ideas to make its products more stackable or making the packaging part of the product itself, are enabling the retailer to reduce the amount of space needed to ship its merchandise; this is translating into lower vehicle requirements and

GHG emissions, and saving the company money (Case Study 6).

Case Study 6. Packaging the lever for reducing the group’s environmental footprint.

Background In 2011, 665 million customers from 26 countries passed through IKEA’s 287 stores, stocked with a portfolio of 9,500 household products made by 1,026 suppliers in 53 countries. IKEA is trying to cut its transportationdriven carbon emissions by 20% by 2016. Product design for flat packing is viewed as a powerful lever for reducing material quantities, transportation-related emissions and waste.

CONSUMER GOODS & RETAIL

The initiatives

Benefits

Orientating the entire IKEA value chain towards flat packing

- IKEA’s EKTORP sofa is one of its best-selling but also one

or stackable product solutions, to which end the people

of its most voluminous products. The retailer’s product

responsible for product design and development have been

engineers have managed to develop smart packing criteria

anointed to play a key role.

despite the sofa’s rounded arm rests. Today, this sofa is

Product Sustainability Scorecard: 11 criteria that determine the sustainability profile of a product throughout its life cycle. IKEA aims to have 90% of its sales value come from products that are classified as ‘more sustainable’ according its scorecard criteria by 2015. At the start of 2011, 200 design and range development co-workers received training on how to use the web-based scorecard. As of 2011, products that account for 7% of IKEA sales value had been evaluated using these criteria and 2% had been classified as ‘more sustainable’. Regardless of the scorecard result, IKEA first requires that a product is produced by suppliers that meet the social and environmental requirements of its IWAY supplier code of conduct. Cardboard pallets: designed to optimize loads, minimize shipping requirements and reduce emissions. They are recyclable and use very few raw materials. These innovative pallets fit better than wood pallets in modern trucks and containers. The recyclable cardboard pallets, which are just 5cm high, allow IKEA to fit more products per load. New furniture items are only added to the product portfolio if they can be flat packed. For instance, IKEA using cardboard pallets till 2016 will translate into transportation savings of €16 million.

a flat-packed product that is self-assembled at home, requiring half the amount of space it used to need. The benefits of this initiative are outlined in Case Study 2. The savings have also been passed through to customer prices. - The KASSETT filing systems are now flat-packed. This means that five times as many KASSETT products now fit on a pallet as did before. Transportation GHG emissions have thereby been slashed by 75%. - By simply changing how its POEM cutlery is packaged, IKEA needs 188kg less cardboard per year. Moreover, shoppers can see the product better which is why package damage has fallen. - By changing how its KVARTAL curtain hanging systems are packaged, IKEA has saved 2,279kg of cardboard per year, boosting the number of units that fit on each pallet to 7,840. - An IKEA employee discovered that ALÄNG lamp packaging could be reduced by 30% by placing the various parts differently. The employee made the suggestion to IKEA’s packaging experts who in turn told the suppliers. Today

Waste reduction via packaging volume and composition

24 ALÄNG lamps fit on each pallet (compared to 18

analysis. Processes for the conversion of waste into new

previously).

resources (‘closing material loops’) with a focus on plastic packaging materials. The targets for 2015: (i) zero waste to landfill; and (ii) to enable and encourage all customers to reuse or recycle all IKEA products at end-of-life.

- In Switzerland IKEA co-workers bring old newspapers into the stores so that shoppers can use them to wrap glasses and other fragile items instead of wrapping them in paper.

Phasing out of expanded polystyrene (EPS) packaging. EPS is commonly used as a shock absorber for fragile products. IKEA plans to phase its use out by 2015. EPS is oil-based and difficult to recycle in many markets. Instead IKEA will use fibrous shock absorbers made from recycled paper and cardboard, folded or molded to suit the product it surrounds (basically the same solution commonly used for egg cartons). Product recovery: IKEA stores work consistently to repair goods with damaged packaging ‘as is’ in their bargain corners. Having invested €800,000 in 10 stores in Spain, IKEA recovered products with a sales value of €1.5 million.

Sources: IKEA Sustainability Report 2011. The IKEA Group approach to sustainability (2011). IKEA 2010 Sustainability Report for Spain and Portugal.

IE FOUNDATION ADVANCED SERIES ON PROBLEM-DRIVEN RESEARCH

advanced series

SUSTAINABILITY

4.Transportation Traditionally retailers have approached this juncture of the supply chain as a source of cost-cutting opportunities; naturally, it is also an area for paring back environmental impacts. Distance, capacity, technology, and route optimization contribute simultaneously to financial benefits and the sectorâ&#x20AC;&#x2122;s environmental sustainability. This section focuses on the role of the retail sector in developing and/or encouraging solutions for the sustainable transportation of consumer goods. By reaching out to others and introducing operational improvements, retailers are making their fleets more efficient, thereby further reducing their carbon footprints. In order to reduce their transport emissions, retailers are striving for efficiency in three ways (Chart 5): route optimization, technology innovation, and low-carbon transportation methods.

Chart 5: Retail sector channels of influence over transportation

Route optimization

Efficient transportation

Alternative fuels

CONSUMER GOODS & RETAIL

Regulation The mid-term review of the 2001 White paper â&#x20AC;&#x153;European transport policy in 2010: time to decideâ&#x20AC;?19 stresses the key role of freight transport logistics in ensuring sustainable and competitive mobility in Europe. In 2007 the European Commission adopted an Action Plan that recommends a series of priority initiatives, such as electronic information on freight, training and quality indicators, simplification of processes, vehicle sizes and loading units, urban transport, and long-distance corridors. Other standards have been passed with a view to making distribution processes more efficient, such as Directive 92/106/EC on intermodal transportation, and Directive 96/53/EC, which attempts to improve the efficient use of available capacity and facilitate the use of the European Modular System20. The Renewable Energy and Fuel Quality Directives, officially adopted in 2009, mark a milestone in the coherent promotion of fuels capable of reducing GHG emissions in the transport sector.

IE FOUNDATION ADVANCED SERIES ON PROBLEM-DRIVEN RESEARCH

advanced series

SUSTAINABILITY

that growing restrictions on freight transport in urban areas can be expected. Indeed, a recent European Commission study23 reviews the various member states’ practices and policies with a view to integrating and encouraging best practice in this

4.1

field. The 2011 European Transport White Paper24 establishes the ambitious target of achieving “essentially CO2-free city

Route optimization

logistics in major urban centers by 2030” by promoting initiatives such as: minimization of the number of deliveries and distances; the use of low-emission urban trucks and vans;

Route optimization involves assessing product transportation patterns and combining routes where possible. By re-evaluating its routes, optimizing truck load space and increasing fuel efficiency, CVS21 eliminated 11,000 routes, saving 1.9 million liters of fuel. Choosing the appropriate mode of transportation can also significantly cut down on fuel consumption, costs, and carbon emissions. Air is the most expensive and carbonintensive transportation method, followed by trucking, and then rail. However, other considerations like speed of delivery must also be taken in account when determining the appropriate method of transportation. Retailers are adopting intermodal transport systems, i.e., they are combining the use of road, rail, waterways, and air travel (Case Study 7). However, the full deployment of intermodal transport is being stymied by a series of obstacles related to the lack of standardization across the various countries and operators. The so-called ‘last-mile’ continues to be the prerogative of road transport and, given its local dimension, transport operators need to respect local legislation regulating access to cities. In Europe, urban traffic is responsible for around 40% of GHG emissions and 70% of other noxious emissions from

the use of intelligent transport systems; and the reduction of noise in freight transport in urban areas in order to facilitate night shifts. The PIEK25 project in the Netherlands is a good example of a best practice in the latter arena; this scheme allows deliveries at night time so long as peak noise limits are respected. In practice, greater flexibility on delivery hours could prove one of the more promising solutions to traffic congestion and operating efficiency in last-mile distribution. The other option is to focus on locally-sourced products. GHG emissons can be reduced by simply cutting the number of miles travelled. For example, Safeway26, which has begun stocking the food produced by hundreds of local farmers all across the US on its supermarket shelves, views local sourcing as an opportunity for reducing GHG emissions and supporting regional farming livelihoods. Whole Foods Market provides small-scale lowinterest loans to local food producers under its Local Producer Loan Program. In exchange, the loan recipients undertake to produce high-quality products that meet the company’s stringent sustainability standards. By means of this micro credit model, Whole Foods hopes to support local agriculture while

road transport22. This issue therefore constitutes an area of

supplying products with a lower environmental impact, thanks

particular sensitivity for European legislators at all levels, so

to the attendant reduction in transport needs.27

200,000 tonnes and 416 train journeys per year

Supplier warehouse (Seville)

ACOTRAL

Train station

Transportat RENF

CONSUMER GOODS & RETAIL

Case Study 7 Mercadona: Renfe/Acotral intermodal logistics platform l Background Mercadona, Acotral, and Renfe-Freight have an agreement covering the transportation of non-fresh food and non-food goods between Seville and Tarragona/Valencia. Under the agreement, Renfe is responsible for delivering Mercadona’s goods on time and carrier Acotral is responsible for logistics management and transport coordination. The agreement has given Mercadona’s sustainability strategy a boost. Acotral schedules the trucks to pick up the goods at either end at certain times, while Renfe commits to on-time deliveries. In this manner, Mercadona has engaged one of its logistics providers in improving its efficiency and sustainability record

Solution Mercadona’s goods are transported by truck from suppliers in Seville to the train station where the trucks are unloaded and the train is loaded with the goods. Loading and unloading queues are common but Renfe gives priority to Mercadona’s operations. Once loaded, the train transports the goods to a train station in Tarragona/Valencia where the truck company (Acotral) picks up the goods once again and takes them to Mercadona’s distribution center. Renfe has developed a communications platform to track the goods transported in its trains and Mercadona has integrated Renfe’s system into its own communication system to ensure visibility through the entire supply chain.

Benefits Train journeys take place twice a week, in two trains that Renfe has assigned exclusively to Mercadona. A total of 220,000 tonnes of goods are transported per year. In this way, Mercadona manages to deliver its goods on time, at a lower cost and in a more sustainable manner. This solution has enabled Mercadona to eliminate 9,152 truck journeys and to reduce its GHG emissions by 12,000 tonnes.

Source: The bestlog project (HYPERLINK “http://www.bestlog.org”www.bestlog.org) initiated by the European Commission. Project Secretariat: Berlin Institute of Technology. GUEROLA PÉREZ, Sonia: ITENE (acronym in Spanish for the Packaging, Transport, and Logistics Research Center).

tion via FE

Train station

10,000 fewer truck journeys a year

ACOTRAL

Distribution center (Valencia)

IE FOUNDATION ADVANCED SERIES ON PROBLEM-DRIVEN RESEARCH

advanced series

SUSTAINABILITY

4.2 Efficient transportation

Current practices aimed at reducing supply

Retailers can move goods more efficiently by

chain costs and ensuring availability at all

implementing new technology and processes

times (i.e. low inventory, smaller and more

(Case Study 8). Speed limits and no-idling po-

frequent deliveries, cross-docking, different

licies minimize unnecessary fuel consumption;

pallet heights) have an impact on truck fill,

both practices can be enforced by on-board

on the number of journeys and, ultimately, on

computers. By adopting these methods, Sta-

emissions.

ples28 has boosted its fleet fuel economy by

Setting transportation efficiency goals, similar to store energy and landfill waste reduction goals, can drive innovation and align company departments. Some retailers own their truc-

20% since 2007; this company is saving close to 3.8 million liters of diesel fuel annually. In addition, a number of technological improvements can be integrated into trucking fleets.

king fleets, giving them substantial influence

Lastly, as detailed in Section 3, smart packing

over their road transport operations. Other re-

methods can make transportation more effi-

tailers outsource this process, which implies

cient by maximizing the amount of product

limited influence over transport operations

each shipping load can carry.

beyond operator selection considerations.

CONSUMER GOODS & RETAIL

Case Study 8 How Lowe’s ensures efficient transportation of goods Background Lowe’s Home Improvement Warehouse is a US retailer that sells household products and construction materials. Lowe’s does not own a truck fleet and is therefore forced to collaborate with its carriers to develop more sustainable practices. The initiative

Benefits

Lowe’s only hires carriers that engage in the US Environmental

Since 2005, the SmartWay program has reduced the highway

Protection Agency’s SmartWay Transport Partnership, a vo-

travel of the company’s carriers by 560 million miles (901 mi-

luntary program that promotes more efficient transportation

llion kilometers) and resulted in diesel fuel savings of more

technologies and practices and certifies carriers with more

than 100 million gallons (378 million liters). That is a carbon sa-

sustainable operations. Lowe’s encourages the use of auxiliary

ving of more than one million tonnes. The EPA honored Lowe’s

power units to reduce idling fuel consumption and trailer fai-

efforts in 2011 with a SmartWay Champions award, the fourth

rings to improve aerodynamics.

consecutive honor Lowe’s has received from its EPA partners.

Lowe’s is also an active member of the Coalition for Responsible Transportation (CRT) and is heavily involved in the CRT, Environmental Defense Fund and EPA SmartWay Clean Trucks Initiative, which provides a framework for reducing truck-related GHG emissions at ports.

Source: HYPERLINK “http://www.rila.org/sustainability/sustreport/sustainabilityreport-landing-page/”http://www.rila.org/sustainability/sustreport/sustainabilityreport-landing-page/pages/default.aspx

SUSTAINABILITY

IE FOUNDATION ADVANCED SERIES ON PROBLEM-DRIVEN RESEARCH

advanced series

Alternative fuels, such as natural gas, biodiesel, and electricity are less carbon intensive than traditional fuels. In 2010, Staples tested and ordered 40 allelectric powered trucks29. As noted in Case Study 8, the EPAâ&#x20AC;&#x2122;s SmartWay Transport Partnership30 helps retailers reduce their transport-related carbon footprint. The SmartWay program provides resources for transportation companies to quantify fuel use and emissions, develop reduction goals, and create strategic plans of action. The recent volatility in fuel prices has given companies strong incentives to transform transportation fleets. Looking forward, these drivers will continue to increase in importance as fuel prices rise and international consensus develops around carbon action.

4.3 Alternative fuels

CONSUMER GOODS & RETAIL

Case Study 9 UPS’s green fleet Background UPS operates over 100,000 delivery and transport vehicles as well as the world’s 10th largest airline. The search for enhanced fuel efficiency is part of the group’s core business..

The initiative

Benefits

UPS takes long-term business decisions regarding vehicles

UPS expanded its green fleet by 35% in 2011 to 2,500 vehicles.

employing alternative fuels and advanced technology under

Alternative fuel and advanced technology vehicles include

a strategic approach that includes:

propane, compressed and liquefied natural gas, hybrid electric,

- Continuing to expand the green fleet slowly and increasing the knowledge gained from the rolling laboratory strategy.

hybrid hydraulic, and all-electric vehicles. UPS has placed an order for 100 all-electric vehicles for delivery in 2012; these vehicles will displace approximately 126,000 gallons of fuel

- Continuing to work with manufacturers of alternative

annually. The company has also purchased 48 new liquefied

fuel and advanced technology vehicles to let them know

natural gas (LNG) trucks and 41 new hybrid hydraulic vehicles.

the company’s requirements and what UPS learns when it operates their vehicles. - Participating in public-private projects aimed at achieving critical mass for promising low-emission vehicles and infrastructure, such as the Interstate Clean Transportation Corridor in the United States.

The UPS green fleet logged 200 million miles between 2000 and 2010 and is expected to log another 200 million by 2017. Two-thirds of these alternative fuel/advanced technology vehicles operate in the United States; the rest are on the roads in Brazil, Canada, Chile, Germany, Hong Kong, Mexico, Netherlands, South Korea, Thailand, and the UK. UPS has reduced its fuel consumption from 0.127 gallons per ground package in 2008 to 0.116 in 2012.

Source: UPS Corporate Sustainability Report 2011

IE FOUNDATION ADVANCED SERIES ON PROBLEM-DRIVEN RESEARCH

advanced series

SUSTAINABILITY

5. Consumption It is important to stress upfront that sustainability does not

case at the other stages of the supply chain already analyzed,

just mean getting consumers to choose the odd green product;

it is hard for retailers to influence what happens to their

the true challenge lies with fostering customer loyalty to the

products when shoppers walk out their doors. Nevertheless,

more environmentally-friendly products and getting them to

there are innovative strategies emerging in the sector aimed

change how they use and dispose of their products.

at educating consumers and shaping their behavior during

A productâ&#x20AC;&#x2122;s ecological footprint is not just the result of its design, manufacturing, and transport, but is also shaped by how it is used and disposed of at the end of its life. As is the

CHART 6: RETAIL SECTOR CHANNELS OF INFLUENCE OVER CONSUMPTION

product usage. In parallel, several reverse logistics initiatives attempt to recover the product after usage for the purpose of reintroducing it into the value creation chain, thereby closing a traditionally open loop (Chart 6).

Influencing consumer choice

Consumption Minimization of waste, reutilization, and recycling

Information to foster sustainable use

CONSUMER GOODS & RETAIL

Influencing consumer choice

A recent Eurobarometer survey on Europeansâ&#x20AC;&#x2122; attitudes

introduced

towards the issue of sustainable consumption and

specific pro -

production revealed that eight out of every 10 EU citizens

duct ranges for

felt that a productâ&#x20AC;&#x2122;s impact on the environment was

environmentally-

an important element when deciding which products

co n s c i o u s co n s u m e r s

to buy. A large majority of respondents claimed to be

(Case Study 10). On the other hand, as detailed in Section

keen to buy more environmentally-friendly products.

2, retailers can also influence consumer choice by refusing

The survey also revealed that retailers are faced with a

to supply certain environmentally unfriendly products

unique opportunity to reach a large number of people on

(choice-editing).

a daily basis. However, prior Eurobarometer surveys had already highlighted a significant gap between consumer perception and consumer behavior. Fifty-five per cent of EU citizens claimed to be fully aware or know about the most significant impacts on the environment of the products they buy or use. This suggests that manufacturers and retailers that manage to respond to the new environmental challenges have much to gain. By stressing the environmentally-friendly attributes of their products, retailers can gain a competitive edge, particularly if they manage to translate these attributes into cost savings for the end consumer32.

Staying with the supply side of the equation but moving away from the sustainability of specific products, matching supply to demand provides another opportunity for fostering more sustainable consumption. Intense management of this information by certain US supermarket chains, coupled with initiatives to simply reduce the variety of products on supermarket shelves, is slashing some of the billions of dollars in food waste every year, along with the attendant environmental ramifications34 . In taking the indirect route, information can influence consumer choice by means of several mechanisms: the

Retailers can shape consumer choice, nudging buyers towards more sustainable products directly, by modifying the products they sell and how they promote them, or indirectly, by providing information or financial incentives.

use of official and retailer-specific eco-labels (see the box on Regulations), placing green products prominently in appropriately advertised store sections (shelf placement is key to this end), mixing green products with conventional products (highlighting their more environmentally-

In terms of direct influence, retailers can help consumers

friendly attributes), brochure/leaflet campaigns (green

to choose green products by expanding their range of en-

product campaign, etc.), and information on the website,

vironmentally-friendly products. Green products can even

etc. It is probable that given the prevailing economic crisis

be produced directly by the retailer for their private label

these campaigns will be more successful if in addition to

ranges, although this is less common. What is a widespread

highlighting the environmental benefits, they also flag

practice among retailers is the offering of green products,

the cost savings implied throughout the productâ&#x20AC;&#x2122;s entire

albeit often with limited availability . Some retailers have

useful life (e.g. energy-efficient bulbs).

IE FOUNDATION ADVANCED SERIES ON PROBLEM-DRIVEN RESEARCH

advanced series

SUSTAINABILITY

Case Study 10 Leroy Merlin: “Eco-options” program Background In 2009 Leroy Merlin Spain launched its Eco-Options project to offer shoppers more environmentally-friendly household products.

The initiative The chain’s Eco-Options encompass almost 5,000 environmentally-friendly product references grouped into five categories: - Water savings: products designed to reduce water consumption in homes and gardens. - Healthy Home: products that meet environmental protection standards and reduce the release of emissions that are harmful to health or toxic for the environment to their minimum expression; products that facilitate waste recycling and reutilization; and products that filter water/air.

Regulation Eco-labeling: There are various eco-labels to distinguish eco-friendly products in the marketplace. Some of the more widely-used labels include: the EU eco-label, the FSC (Forest Stewardship Council), PEFC (Programme for the Endorsement of Forest Certification) and MSC (Marine Stewardship Council) labels, the fair trade label and the EU organic products label. In general terms, these labels can be classified as either obligatory or voluntary. The first category includes the EU Energy Labeling Directive (Directive 2010/30/EU of May 19, 2010), which seeks to raise consumer awareness of their household appliances’ energy performance by means of an energy consumption label at the point of sale. The organic product eco-label is also worth mentioning here (Council Regulation (EC) N° 834/2007 of June 28, 2007). Among the

- Energy-efficiency: products designed to save energy and reduce carbon dioxide emissions. - Renewable energy: products that give off alternative energy from clean sources such as the sun and the wind and products that use renewable energy sources. - Sustainable forestry: wood and derivative products sourced from forests that are managed sustainably. These products are certified under two international standards (FSC and PEFC) that guarantee their legal origin, sustainable felling and control throughout the entire chain, from transformation to retail distribution.

voluntary labeling schemes, those created by retailers such as Coop, Carrefour, Migros, Staples, M&S, REWE Group and Tesco stand out. The International Standardization Organization (ISO) has developed standards for voluntary eco-label schemes. Integrated product policy (IPP): With its integrated product policy, the European Commission proposes a strategy to promote the development of a market for greener products. This strategy requires the engagement of all stakeholders in all areas of possible intervention and throughout products’ entire life cycles: manufacturers, retailers, consumers, and NGOs. IPP focuses on those decision points which strongly influence the life cycle environmental impacts of products and which offer potential for improvement, notably eco-design of products, informed consumer choice and the polluter pays principle in product prices. Among other measures, IPP proposes differentiated taxation according to the environmental performance of products, the provision of understandable, relevant, and credible information through

CONSUMER GOODS & RETAIL

Benefits In 2010 Leroy Merlin sold more than 13 million units from its Eco-Options range, which encompasses almost 5,000 environmentally-friendly product references. This strategy is reinforcing the chain’s market positioning by giving it a more eco-friendly image. Source: Press release, March 2009.

labeling on the product, extension of the scope of the European

making resource usage more efficient (generating more value

eco-label to new products and the use of public procurement

with fewer resources), championing environmental innovation

to foster the manufacture of more green products.

and reinforcing industry’s environmental potential with its review of the European Eco-Management and Audit Scheme

Action Plan for Sustainable Consumption and Production:

(EMAS), drawing up industrial policies that favor environmental

The European Commission proposes application of a series

industries and helping small and medium sized enterprises

of measures designed to enhance products’ energy and

(SMEs) to tap business opportunities in the environmental

environmental performance throughout their entire useful

and energy fields.

lives and to stimulate demand for and consumption of better products, thereby creating a ‘virtuous circle’. The Action Plan combines the IPP instruments into a coherent package of policies aimed at fostering better products and smarter consumption patterns. It therefore constitutes a significant milestone in implementing the IPP instruments at the Community level. Delivery of these targets can be facilitated particularly by measures to encourage the reduction of the carbon footprint of the retail sector and its supply chain, promote the manufacture of more sustainable products and better inform consumers. The Commission plans to act by

Source: -European Commission (2001). Green Paper of February 7, 2001, on integrated product policy (COM (2001) 68 final). -European Commission (2008). Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions, of June 25, 2008, on the Sustainable Consumption and Production and Sustainable Industrial Policy Action Plan(COM(2008) 397 final). -European Commission (2009). Report from the Commission to the Council, the European Parliament, the European Economic and Social Committee and the Committee of the regions on the State of Implementation of Integrated Product Policy. SEC(2009)1707, COM(2009)693 final. -European Commission (2012). Integrated product policy. Europa, Summaries of EU legislation. http://europa.eu/legislation_summaries/consumers/consumer_safety/l28011_en.htm.

IE FOUNDATION ADVANCED SERIES ON PROBLEM-DRIVEN RESEARCH

advanced series

SUSTAINABILITY

Off-shelf placement of green products (in green corners) is particularly appealing to green consumers, while it is better to target regular shoppers by mixing green items by product category, as these shoppers might go for the more environmentally-friendly option if it is presented as an alternative when browsing for a given product35. The chance to talk with store staff can also be a useful source of information36, although the evidence in the studies performed is inconclusive in this respect. It is also important to create opportunities for testing new products (particularly food products) in-store. In addition to providing information, retailers can be proactive in trying to influence consumer decision-making by means of financial incentives in the form of price discounts or 2-for-1 or 3-for-2 offers or the provision of information on matters that directly affect shoppers’ wallets (green product cost-benefit analysis). For example, REWE Group offers price reductions for green products during specific campaigns i.e. during its ‘Save the Polar Bears’ campaign. Auchan France offers a 5% discount all year round on its white label green products. Walmart highlights the financial benefits of buying energy-efficient light bulbs. Media-Saturn (Case Study 11) conducted a campaign in 2007 to inform consumers of the financial and environmental benefits of energy-efficient electric devices.

CONSUMER GOODS & RETAIL

Case Study 11 Metro Group - Media Markt and Saturn: “energy-saving weeks” Background German retailing giant Metro Group focuses its sustainability management on ensuring the company’s economic future in a responsible manner. This means building social and environmental demands into all of its activities throughout the entire supply chain. The initiative

Benefits

In 2007, Metro Group launched a large-scale consumer

Data compiled by market researcher GfKGroup

awareness campaign in conjunction with the German

demonstrated the campaign’s success: today 50% of

Energy Agency for its specialist electronics chains, Media

fridges sold in Germany carry the A+ or A++ eco-label.

Markt, and Saturn. The kernel of the campaign was to make consumers aware of the dual benefit of energyefficient devices, i.e., cost savings coupled with a reduced climate impact. The Agency trained the staff at the Group’s German stores so that they were equipped to inform their customers about how to use the European eco-label to identify environmentally-friendly fridges and washing machines. To overcome the price barrier, the stores ran ‘energy-saving weeks’, offering store vouchers to shoppers purchasing the more efficient models. For example, customers that purchased an A+ rated fridge were given a €100 store gift card.

Source: -European Commission (2010). Eurobarometer survey on Europeans’ attitudes towards the issue of SCP. Retail Forum Issue paper on marketing and effective communication. Issue Paper No 3.

- http://www.metrogroup.de/servlet/PB/menu/1183120_l2_ePRJ-METRODEMAINPAGE/index.html

IE FOUNDATION ADVANCED SERIES ON PROBLEM-DRIVEN RESEARCH

advanced series

SUSTAINABILITY

Along with production, product use is the phase

5.2 Information to foster sustainable use

read this information. A more direct alternative is to provide the information on

that produces the most

a sign placed beside the product

environmental impacts 37. Some

price display. Green products often cost

products have lower environmental impacts throughout their use while others require

more upfront but are less expensive throughout

consumers to shift their usage habits. For example,

the overall product life cycle. Against this backdrop,

compact washing soap requires the use of smaller

retailers can try to overcome the price barrier by

quantities of soap per load and enables washing

providing adequate information on the long-run

at lower temperatures, driving energy savings .

benefits, for example by providing information on

Retailers can give consumers information to enable them to reduce the environmental impacts of their everyday use of a given product. The information provided can be general (information highlighting the benefits of more sustainable

the reduced electricity costs associated with green electric/electronic products throughout their entire life cycles40. Note that use and choice are supply chain phases that are linked by consumer information.

product consumption, such as information on

Walmart has pursued an interesting initiative

ways to save water or energy, as Coop does, among

by working with suppliers to try to increase the

other retailers), or product-specific. For example,

percentage of clothing that can be washed cold

H&M, and C&A (Case Study 12) provide information

in order to lower consumers’ electricity bills and

about how to wash their garments in the most

energy consumption. Walmart’s influence over its

environmentally-friendly manner. Mercadona

suppliers (producers) is also evident in the case of

includes labels on its washing machine soaps that

sustainable agriculture. Walmart’s goal is to sell $1

provide information on how to wash clothing in

billion worth of food produced using sustainable

the most sustainable manner39.

farming practices, to which end it plans to provide

This information can be provided on the website or on the product label. Hoever, shoppers often don’t

training to one million farmers.

CONSUMER GOODS & RETAIL

Case Study 12. C&A labeling Background C&A believes that sustainability can only be achieved by following a strategy that goes beyond financial reports, engaging employees, customers, and all supply chain stakeholders in matters relating to environmental concerns, product safety criteria and working conditions. The initiative

Benefits

C&A tries to raise customer awareness

By washing at 30°C instead of 40°C, energy savings of up to 40% are

about ways to save energy. To this

possible. Moreover, if customers choose to dry clothes naturally

end, the washing instructions sewn

instead of using dryers, electricity consumption drops

into the garments it sells include

further. The measures taken help to reinforce the

not only the related instructions but

perception that sustainability lies at the heart of

also environmentally-friendly advice,

C&A’s business model.

encouraging users to wash at lower temperatures. Source: HYPERLINK “http://www.c-and-a.com”www.c-and-a.com

SUSTAINABILITY

IE FOUNDATION ADVANCED SERIES ON PROBLEM-DRIVEN RESEARCH

advanced series

5.3 Minimization of waste, reutilization, and recycling

Once a produce has been consumed and/or reached the end of its useful life, retailers can influence how it is ultimately disposed of. Two classes of consumer products can be distinguished for this purpose: (i) disposable products (including perishables) or high-turnover products which consumers typically buy daily (food, health & beauty, and cleaning products); and (ii) more durable products (textiles, electric products). It goes without saying that retailersâ&#x20AC;&#x2122; influence over consumers varies in each instance.

For disposable products, the end-of-life waste relates to the packaging, i.e., not with the product itself, which has been consumed. As outlined in Section 3, the packaging can be reused or recycled. Under the 4Rs approach41, which establishes a waste management hierarchy, reuse is the most environmentally-friendly option. Coopâ&#x20AC;&#x2122;s Italian operations provide a practical example of how retailers can encourage the reuse option (Case Study 13).

CONSUMER GOODS & RETAIL

Case Study13. Reuse at Coop Italy. Background Colored high-density polyethylenes (HDPE) are commonly used to make plastic detergent bottles. Coop Italy, a system of Italian consumer cooperatives that make up the biggest retail chain in the country, has established an initiative for reducing waste and streamlining bottle usage. The initiative

Benefits

In 2006, Unicoop Firenze and Unicoop Tirreno (Coop

The use of this system allows the repeated use of a plastic

subsidiaries) introduced an innovative detergent

bottle weighing approximately 60 grams, in turn driving

distribution system: they provided consumers with reusable

savings of 1.5 KWh of electricity, 240 liters of water and 14

bottles for refilling with various liquid detergent types by

grams of carbon dioxide. As a result, this new detergent

means of automatic dispensers. In 2008 this innovative

refilling system is generating significant savings in energy

refilling system was extended to the stores in Parma,

and water as well as carbon emissions. In parallel, it is

Mantova, and Piacenza.

also likely that the refilling distribution system is driving customer loyalty, providing an additional source of value creation for the entity.

Source: BIO Intelligence Service (2009). Towards a Greener Retail Sector, European Commission: 233. Chkanikova, O. & Mont, O.2011. Overview of sustainability initiatives in European food retail sector. IIIEE WORKING PAPER 2011:1

SUSTAINABILITY

IE FOUNDATION ADVANCED SERIES ON PROBLEM-DRIVEN RESEARCH

advanced series

In the case of durable products, the material may have become impaired during continued use and may also be eligible for reuse or recycling. Some retailers are developing infrastructure for recovering value from these products. For example, Target offers recycling stations for glass, plastics, aluminum, paper, plastic bottles, and some electronic waste; Staples provides pick-up points for used printer ink cartridges; Best Buy provides product buyback alternatives (Case Study 14). In 2010, Gap Inc. launched a jeans recycling program called Recycle Your Blues, under which consumers were given the option of recycling their jeans and getting a discount on a new pair. Gap Inc. collected 360,000 pairs of jeans under the program; the retailing giant used them to create fiber insulation for over 700 homes. Clearly initiatives of this nature help consumers to reduce their environmental impacts42.

CONSUMER GOODS & RETAIL

Case Study 14. Best Buy promotes responsible endof-life product management Background Electronic products are one of the fastest-growing sources of waste on the planet. As a retailer of electronics goods, Best Buy tries to make it easier for consumers to choose greener products, use energy to power their electronic devices and household appliances more efficiently and provide appropriate end-of-life solutions for the products its sells.

The initiative

Benefits

Best Buy offers shoppers three recycling choices before and

Best Buy aims to recycle one billion pounds of consumer pro-

after product purchase, regardless of whether the product

ducts by the end of 2014. It endeavors to make sure that the

was bought at a Best Buy establishment:

recycling operators it works with adhere to the most stringent

- Buy Back Program: when consumers no longer want the product acquired under this program, they can exchange it (provided it still works) for a gift token.

standards so that the products traded in or brought to their establishments for recycling do not end up in landfills or abroad and that all hazardous waste is handled properly.

- E-commerce Program under which consumers receive a gift token in exchange for used electronic products, musical instruments, video games, CDs and DVDs. - Free recycling options designed to help consumers get rid of their used electronic products, again regardless of whether they were originally purchased at a Best Buy establishment. Best Buy has agreements with companies that specialize in responsible recycling. Best Buy currently offers the following recycling programs in addition to its own in-store recycling program: - Recycling kiosks where consumers can hand in used ink cartridges, rechargeable batteries, and old cords. - TV & Appliances Haul-away service: Best Buy will pick up and take away a household appliance or television from a customer’s home for free when they buy a product under the Best Buy Home Delivery program. - TV & Appliances Pick-up service: For $100, Best Buy will give consumers an appointment for picking up as many as two household appliances or televisions for recycling.

Source: -RILA Report, HYPERLINK “http://www.rila.org/sustainability/sustreport/ sustainability- report-landing-page/Pages/defauft.aspx” http://www. rila.org/sustainability/sustreport/sustainability- report-landing-page/ Pages/defauft.aspx -Best Buy website, HYPERLINK “http://www.bestbuy.com/site/GlobalPromotions/”http://www.bestbuy.com/site/Global-Promotions/ Recycling-Electronics/pcmcat149900050025.c?id=pcmcat149900050025 ; HYPERLINK “http://www.bestbuy.com/site/Global-Promotions/RecydeFAQs/pcmcat”http://www.bestbuy.com/site/Global-Promotions/RecydeFAQs/pcmcat 174700050009.c?id=pcmcat174700050009

IE FOUNDATION ADVANCED SERIES ON PROBLEM-DRIVEN RESEARCH

advanced series

SUSTAINABILITY

6. Opportunities and challenges The thesis at the heart of this report is that the retail sector can be viewed as a ‘hinge’ sector, pivotal in reducing the environmental impacts of the production and consumption processes. The report has shown, putting forward a series of arguments and showcasing a number of best practices, that the retail sector can use its strategic positioning to have a real and effective influence on suppliers and consumers, making all phases of the product value chain – from design and manufacturing, through packaging and transportation to product choice, use, and disposal – more sustainable. Here are the main conclusions reached, synthesized in the form of opportunities and challenges for the sector: In the design and manufacturing phase, as regulatory and consumer pressure grows, product design is bound to gradually incorporate a myriad of environmental considerations, duly weighing energy, carbon, material, chemical, recyclability, water waste, and other needs against functionality, performance and price considerations. ‘Green chemistry’43, ‘cradle to cradle analysis’44, and ‘design for the environment’45 techniques will become increasingly commonplace in the product design process for private and brand label products alike. Transparency levels in consumer product supply chains are set to continue to increase swiftly, injecting visibility into the working conditions, human rights and environmental impacts of product manufacture. A series of factors will accelerate this trend, notably among which growing disclosure and commitment demands from regulators, consumers, and investors regarding products, how they are made and how they are distributed.

CONSUMER GOODS & RETAIL

Relations between retailers and suppliers based on trust and a joint sustainability effort will pave the way for more open and unguarded exchange of information, particularly if the retailer is committed to working with its suppliers for the long-run. Both parties will join forces on taskforces with other companies, governments, non-profit organizations and academic institutions for the purpose of exchanging know-how and resources. Similarly, both parties will set and share supply chain targets in order to align their priorities and continue to track their progress. Ultimately, retailers and their suppliers will continually improve how they make products in order to reduce the environmental and social impact of the whole process.

Pared-back packaging volumes can translate into significant cost savings and a better environmental record by using fewer materials and streamlining logistics and transport operations. The significant reductions in energy consumption, GHG emissions and volumes of materials used spell reduced environmental impacts. Although some of these measures can be taken by the retailer without having to collaborate with other players (e.g., reducing private label product packaging and containers), the real challenge lies with engaging other players in the value chain and, most importantly, engaging suppliers and consumers in the task of reducing packaging materials.

SUSTAINABILITY

IE FOUNDATION ADVANCED SERIES ON PROBLEM-DRIVEN RESEARCH

advanced series

One of the greatest obstacles to maximizing transportation efficiency is the lack of commercially available, low carbon technology. However, natural gas and electric-powered trucks are already becoming popular and will become even more so as their prices fall. Retailers can help expand the availability of these technologies by pilot testing low carbon transportation methods and expanding their pilots whenever financially feasible. In the meantime, however, retailers can optimize shipping by using efficient packing and distribution processes and currently available transportation technologies. Many retailers have already incorporated these approaches into their operations, which are rapidly becoming business as usual. In the long term, achieving carbon neutral shipping will likely be the goal of many retailers. Just as the automobile industry is catering to the demand for more fuel-efficient vehicles, the trucking industry will continue to do the same. By embracing smarter transportation, retailers can both reduce unnecessary costs and shrink their carbon footprint. Lastly, mounting consumer preferences for more environmentally-friendly products suggest that manufacturers and retailers that manage to adapt to emerging environmental challenges have much to gain. By stressing the environmentally-friendly attributes of their products, retailers can gain a competitive edge, particularly if they manage to translate these attributes into cost savings for the end consumer. Retailers can shape consumer choice, nudging buyers towards more sustainable products directly, by modifying the products they sell and how they promote them, or indirectly, by providing information or financial incentives.

CONSUMER GOODS & RETAIL

Consumer information can also be put to use to reduce the environmental ramifications of everyday product use considering that product use tends to be one of the phases with greater environmental consequences. And by stressing the cost savings accruing to consumers throughout product life cycles, retailers stand to overcome the barrier implied by the higher price of these products, ultimately benefitting retailersâ&#x20AC;&#x2122; profitability. Making products more environmentally-friendly to use may require supplier engagement. Lastly, retailers can also influence how their products are disposed of after consumption or at the end of their useful lives. Specifically, encouraging the reutilization of containers can result in significant cost savings for retailers in respect of products for which waste is mainly packaging-derived. Broadly speaking, although these efforts do not always produce meaningful returns in the short turn, by championing improvements in their environment these retailers will unquestionably create value and buy business sustainability medium and longer term, while setting themselves apart from their competitors and positioning themselves to better handle the growing clamor from regulators, consumers, and investors for more information and stronger environmental pledges.

IE FOUNDATION ADVANCED SERIES ON PROBLEM-DRIVEN RESEARCH

advanced series

SUSTAINABILITY

7. References 1 European Commission (2009). Towards a greener retail sector.

Chain: www.globalreporting.org/CurrentPriorities/ SupplyChain/GlobalActionNetwork/GAN.htm

European Commission (DG ENV). 070307/2008/500355/G4.

Global Social Compliance Program: www.gscpnet.com

2 Various retailers purchase environmentally-friendly products for their own use. Examples of these green procurement policies include: Marks & Spencer, Kesko (for store purchases), H&M (for centralized purchases), Tesco, Inditex, IKEA, Carrefour (for catalogue paper), etc. These policies mainly target the following product categories for which environmental labels exist: paper (recycled, reduction of the weight, FSC or PEFC labeling, etc.), IT equipment (Energy Star labeling), cleaning products, and green electricity. These policies often mainly concern centralized procurement of the groups or of the administrative offices, and not of the stores, which often have autonomy in their purchases (European Commission DG ENV 070307/2008/500355/G4, towards a greener retail sector, February 2009).

International Textile, Garment and Leather Workers Federation: www.itglwf.org

Social Accountability International: www.sa-intl.org Sustainability Consortium: www.sustainabilityconsortium. org

Sustainable Apparel Coalition: www.apparelcoalition.org

3 http://www.iso.org/iso/catalogue_detail?csnumber=43241 4 http://ec.europa.eu/environment/ipp/lca.htm 5 European Commission (2008). Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions, of June 25, 2008, on the Sustainable Consumption and Production and Sustainable Industrial Policy Action Plan (COM(2008) 397 final). 6 In Europe, the minimum requirements are governed by Regulation 1907/2006/EC, known as REACH (Registration, Evaluation, Authorization and Restriction of Chemical Substances): http://ec.europa.eu/environment/chemicals/ reach/ reach_intro.htm 7 Leading collaborative initiatives formed to foster supply chain transparency and social and environmental sustainability:

Business Social Compliance Initiative: www.bsci-intl.org

Ethical Trading Initiative: www.ethicaltrade.org

Fair Factories Clearinghouse: www.fairfactories.org

Fair Labor Association: www.fairlabor.org

Global Action Network for Transparency in the Supply

8 European Commission (2011). Packaging optimization. Retail Forum issue paper N째8. http://ec.europa.eu/environment/ industry/retail/pdf/packaging_%20issue_paper.pdf 9 Public institutions can also make a contribution to this effort, for example by raising consumer awareness of the environmental impacts of product packaging. 10 European Parliament and Council Directive 94/62/EC of 20 December 1994 on Packaging and Packaging Waste, 31/12/1994, http://eur-lex.europa.eu/LexUriServ/LexUriServ. do?uri=OJ:L:1994:365:0010:0023:EN:PDF 11 http://www.europen.be/?action=onderdeel&onderdeel=6 &titel=Publications&categorie=0&item=29 12 In the case of Spain, the reader is referred to the Spanish National Standardization Committee, CTN for its acronym in Spanish, specifically No 49 on Packaging and Containers (http://www.aenor.es/aenor/normas/ctn/fichactn. asp?codigonorm=AEN/CTN%2049&pagina=1). In the international arena, standard ISO/PRF 18602 Packaging and the environment -- Optimization of the packaging system (http://www.iso.org/iso/home/store/ catalogue_tc/ catalogue_detail.htm?csnumber=55870) applies. 13 The Global Protocol on Packaging Sustainability: globalpackaging.mycgforum.com 14 The Sustainable Packaging Coalition: www.sustainablepackaging.org 15 The Global Packaging Project: globalpackaging.mycgfo-rum. com 16 The European Organization for Packaging and the Environment: www.europen.be

CONSUMER GOODS & RETAIL

17 For further details, see the Innventia AB model for optimal packaging: ‘Environmental Impact of Packaging: Performance in the Household’ report by Dr Jan Kooij- man, Food Technology Consulting 18 European Commission (2011). Packaging optimization. Retail Forum issue paper N°8. http://ec.europa.eu/environment/ industry/retail/pdf/packaging_%20issue_paper.pdf 19 http://ec.europa.eu/transport/strategies/doc/2001_white_paper/lb_com_2001_0370_en.pdf 20 http://www.modularsystem.eu/en/european_modular_ system.htm

21 CVS Caremark. Corporate Responsibility - Using Resources Wisely: http://info.cvscaremark.com/our-company/corporate-responsibility/environment/using-resources-wisely. 22 http://ec.europa.eu/transport/themes/urban/urban_ mobility/ 23 http://ec.europa.eu/transport/themes/urban/studies/ doc/2012-04-urban-freight-transport.pdf 24 http://ec.europa.eu/transport/themes/strategies/2011_ white_paper_en.htm 25 http://www.piek.org/engels/home_eng.htm 26 Safeway. 2010 Corporate Social Responsibility ummary Report.http://safewaycsr.com/wp-content/themes/ SafewayCSR/PDF_Report_CVR-1.pdf. 27 Green Rankings 2012: Greenest Retail Companies in the U.S., http://www.thedailybeast.com/newsweek/ galleries/2012 /10/22 /newsweek-green-rankings2012-greenest-retail-companies-in-the-u-s-photos. html#6e24d7b2- a754-4425-9d3a-ac67c892e7b1 28 Staples. Environmental Solutions - Our Green Initiatives. [Online] http://www.staplesadvantage.com/solutions/ ourcommitment/green-initiatives.html.

freight companies join and commit to benchmark operations, track fuel consumption and improve performance annually: www.epa.gov/smartway/ 31 European Commission (2010). Eurobarometer survey on Europeans’ attitudes towards the issue of SCP. Retail Forum Issue paper on marketing and effective communication. Issue Paper No 3. 32 European Commission (2010). 33 European Commission (2009). Towards a greener retail sector. European Commission (DG ENV). 34 “Supermarkets Finding That Less Stuff Means More Money (And Less Waste)”: http://www.fastcoexist. com/1680727/ supermarkets-finding-that-less-stuff- means-more-moneyand-less-waste 35 European Commission (2010). Eurobarometer survey on Europeans’ attitudes towards the issue of SCP. Retail Forum Issue paper on marketing and effective communication. Issue Paper No 3. 36 European Commission (2010). 37 European Commission (2009). Towards a greener retail sector. European Commission (DG ENV). 38 European Commission (2010). Eurobarometer survey on Europeans’ attitudes towards the issue of SCP. Retail Forum Issue paper on marketing and effective communication. Issue Paper No 3. 49 European Commission (2009). Page 38. 40 European Commission (2010). 41 http://www.iisd.org/business/tools/bt_4r.aspx 42 Retail Industry Leaders Association (RILA) (2012). 2012 Retail Sustainability Report: Successes, Challenges, and a Vision for the Future. http://www.rila.org/sustainability/ sustreport/sustainability-report-landing-page/Documents/ RetailSustainabilityReport.pdf

29 Staples. Environmental Solutions - Our Green Initiatives: www.staplesadvantage.com/solutions/our-commitment/ green-initiatives.html.

43 Green chemistry: www.epa.gov/greenchemistry/

30 Smartway Transport Partnership, a partnership in which

45 Design for the Environment: www.epa.gov/dfe/

44 Cradle to cradle: mbdc.com/detail.aspx?linkid=1&sublink=6

IE FOUNDATION ADVANCED SERIES ON PROBLEM-DRIVEN RESEARCH

advanced series

SUSTAINABILITY

Viewpoint Sustainability Ernst & Young

CONSUMER GOODS & RETAIL

Many companies have approached the sustainability challenge solely from the cost-cutting angle, driven by the prevailing business climate. Increasingly, particularly among market leaders, businesses are taking their sustainability strategies and pledges a step further, opting for initiatives that generate value for their stakeholders and minimize their business risks. As a result, these companies are worth more. n our survey, “Six growing trends in corporate sustainability” (2012, Ernst & Young in cooperation with GreenBiz Group), 76% of the executives and thought leaders polled anticipate their company’s core business objectives will be affected by natural resource shortages in the next three years. This requires strategic planning to reduce exposure to this risk factor, including contingency plans. This is just one example of why a company should approach sustainability looking beyond short-term demands. The retail sector has a crucial role to play in this necessary and inevitable trend. It is crucial due to its positioning between producers and consumers, receiving pressure from both sides. But also because of its ability to influence both sets of stakeholders. Transparency is on the rise. As well as financial reporting requirements, companies now have to report on a far broader number of business aspects: initiative outcomes, carbon emissions and footprint, resource consumption, product composition, etc. They are doing so using several platforms, including their websites, the social media, corporate reports and product labels. The pressure borne by companies in this respect is what can trigger demands for change on the part of its suppliers, for example. Once information starts to become available, reporting requirements tend to grow. And companies won’t just be asked to provide transparency on quality but also on their social, and ultimately, environmental impacts. The other key lies with the sector’s reach. The ability to reach millions of users on a daily basis makes the retail sector an ideal platform for shaping consumer behavior. It can use this influence to positively impact a product’s end-to-end life cycle effects and the environmental impacts of its use and consumption. It is vital for consumers to better understand the full consequences of their purchases to enable them to make better choices that are not just price-driven. As a result, they will use products better and reduce their ecological footprints. The thesis put forward throughout this report is totally in sync with the approaches being designed and implemented by numerous leading companies and many of our clients. This value-creating driving force is an engine of change and the retail sector is key to forging the path towards a more sustainable model.

Tomás Pastor García Executive Director Climate Change and Sustainability Services Ernst & Young

advanced series

SUSTAINABILITY

foundation The IE Foundation is an instrument of IE that enables students, teachers and staff to further their educational, research and management activities. Priority is given to the training and cultural outreach of all people and institutions that have ties with IE. Resources go to funding scholarships for students, grants for training and research for professors, and funds for updating and improving IEâ&#x20AC;&#x2122;s educational structure. The Foundation operates throughout Spain, but also has an international presence throughout North and South America, Southeast Asia, the Middle East, Northern Africa and Europe. www.ie.edu fundacion.ie@ie.edu

Ernst & Young is a global leader in assurance, tax, transaction and advisory services. Worldwide, our 167.000 people are united by our shared values and an unwavering commitment to quality. we make a difference by helping our people, our clients and our wider communities achieve their potential. Ernst & Young refers to the global organization of member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst &Young Global Limited, a UK company Limited by guarantee, does not provide services to clients. For more information about our organization, please visit www.ey.com