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Sustainability in Retail: Practical Ways to Make Progress

Moving from “why” to “how” is hard, but it can unlock long-term ESG value.
Sustainability in Retail: Practical Ways to Make Progress

Sustainability is now a top priority for retailers, but moving from commitments to  action is hard. First and foremost, the sector faces a funding gap: Sustainable supply chains and food systems can be more costly than existing ones, which don’t acknowledge the full cost of carbon emissions and other previously ignored externalities. Retailers’ thin margins make this extra cost a genuine barrier to progress.

Shoppers also pose a conundrum: They say they want progress, but most aren’t changing their behaviors, nor are they prepared to pay more for sustainable options, especially amid today’s inflation. Retailers are also constrained by being at the end of their supply chains, which makes it harder to orchestrate change. And in too many retail businesses, sustainability targets aren’t sufficiently owned by the commercial and operational teams, without whom nothing can get done at scale.

Make choices and identify hot spots

To make faster progress, retailers need to identify key sustainability themes and prioritize the actions most likely to deliver rapid and lasting impact. Executive teams must then clarify the ambition for each theme: Is it to minimize risk and comply with regulations, or is there room to build a reputation for excellence?

The next step is to take a careful look at the gap between where you are now, where the competition is, where consumer and regulatory expectations are heading, and where you want to be. Above all, that means finding the hot spots in each category—areas that are disproportionately responsible for sustainability challenges and therefore demand priority action.

Nudge consumers

As noted above, there is a sizable gap between consumers who say they’re willing to pay more for products with a positive environmental impact or health benefits, and the number who actually do. Price is a factor, but so are non-price-related issues, including inadequate product information, lack of variety, poor quality and low availability. Retailers can respond by removing some of these obstacles, through behavioral nudges and more direct means. In fact, one in five U.S. consumers look to retailers above all to help them shop more sustainably, through measures such as increasing the availability of sustainable products and awareness-building advertising.

In some cases, retailers will need to innovate to offer more sustainable options, or remove products and ingredients that no longer meet consumer expectations. Increasingly, retailers will also need to directly incentivize consumers to make sustainable choices that match the way they talk about ESG.

A new era of collaboration

Retailers can’t act on sustainability in a meaningful way without suppliers acting, too. The good news is that most large consumer products companies are also making strong sustainability commitments. Outside the supply chain, leading retailers are turning to trailblazers in areas such as traceability, carbon offsetting and waste reduction to help them stay ahead. And there’s a growing opportunity for retailers to work through industry alliances to engage with policymakers and activist groups to advance ESG progress.

Retailers face a long road, but opportunities will abound at every stage. There’s the prospect of stronger sales growth, as consumers embrace sustainable brands. Sustainability improvements have the potential to reduce costs and generate a positive return on investment, and to attract ESG-focused investors and employees.

On an environmental, social and economic level, the message for retailers is clear: Now is the time to move from commitments to action.

Sponsored by Bain & Co.

Written by:

Bain & Co. Authors