Future Retail Challenge

Background
With growing recognition of the climate crisis over the last decade, many retailers have been working to address the emissions that are the direct result of their operations (Scopes 1 and 2). These efforts have ranged from reducing energy consumption to improving transportation efficiency to transitioning away from high global warming potential (GWP) refrigerants, and much more. In recent years, regulators, investors, customers, and non-governmental organizations have additionally applied pressure and mandates that require retailers to expand their focus beyond just the emissions from their immediate operations to their broader value chains (Scope 3), including the products produced upstream by vendors and consumed downstream by customers.
Unfortunately, however, there are numerous issues retailers face in trying to address these emissions, including accurate and consistent measurement systems, as well as effective reduction strategies that don’t lower sales or profits. Looking at each of these in turn:

• The primary issue with measurement is that it is often difficult to accurately quantify a retailer’s emissions, not only because of data set size and wide product assortment, but because of issues with the most common emissions measurement methods. Spend-based methods of carbon footprint analysis that use average emissions factors may not accurately account for changing economic environments, such as inflationary periods, and product-based models often assume suppliers manufacture products with the same emissions footprint even if they have different production methods and environmental standards. The more items a retailer carries and the more suppliers they use, the more complicated this quantification becomes.
• On the topic of reduction strategies, companies look for solutions that will provide the greatest reduction within their most significant Scope 3 categories, but these solutions often come with tradeoffs that impact current business operations or costs. For example, one of the most common strategies used to reduce product and service emissions (Category 1: Purchased Goods and Services) is to eliminate or limit products that are deemed to have higher carbon footprints. Unfortunately, however, this can result in customers not having access to the assortment they need/want and drive them to shop where those items are available. In addition, customers are often not aware of a retailer’s reasons for making those changes, so it does not help consumers to make lower emissions choices, but rather causes them to find the products they want elsewhere.

Upstream and Downstream Emissions
The sources and causes of Scope 3 emissions can vary significantly by retail sector. In the grocery sector, for example, most of these emissions result from value chain activities upstream of the retailer, specifically “purchased goods and services” (Category 1). This category consists of the emissions generated from manufacturing or producing the products a company sells to customers, as well as any products or services a company purchases to run its operations. By contrast, in the clothing sector, most Scope 3 emissions come from activities downstream of the retailer, such as the washing and drying of clothes (Category 11: Use of Sold Products) as well as disposal (Category 12: End of Life Treatment of Sold Products).

Against this background, we’ve partnered with consumer and retail specialist investment and advisory firm True to design the 2024 Future Retail Challenge. The brief will focus on the challenge of scope 3 emissions in the retail sector and seeks your ideas and creativity in how to address these.
The senior leadership team of a major retailer has asked you and your team to reinvent and transform their company’s ability to meaningfully reduce Scope 3 emissions. To guide students in their responses, True will offer practical insights into retail sustainability challenges, alongside expertise in leveraging start-up and scale-up innovations for collaborative solutions.
To begin your challenge, each team will select either a grocery or apparel retailer. If you select a grocery retailer, you will focus on its “upstream” challenges and if you select an apparel retailer, you will focus on its “downstream” challenges. Research and understand the retailer you have selected, and specifically its current policies and strategies to tackle sustainability. Then develop a disruptive and scalable solution to address one key area of that company’s value chain emissions challenges. Solutions must not reduce the retailer’s competitive edge and should enable the company to at least maintain, and ideally grow, its sales, margins, profits and market share.

Typical upstream challenges in grocery retail
The majority (>50%) of scope 3 emissions for a typical grocery retailer are generated by upstream activities in the supply chain before the finished product reaches the shelves. Some of the biggest challenges that need addressing include:
    Agriculture: improvements in agricultural efficiency and technologies that make lower impact alternatives to existing mainstream food scalable and affordable.
    Waste: development of circular systems through the food supply chain to enable major sources of food waste to be re-used as a resource in the production of alternative products or repurposed to address food insecurity challenges.
    Packaging: development and adoption of innovative and lower impact packaging alternatives.

Typical downstream challenges in apparel retail:

• Consumer education: how to inform consumers about the products, the raw materials and the garment care required that will make for better consumer choices. By improving this, the industry could help direct consumers towards more sustainable products.
• Extending life of products: development and promotion of tools to help consumers locate repair shops or local tailors.
• Transitioning to alternative models of consumption: educate and encourage consumers ultimately removing barriers that currently prevent mass adoption of resell and rental business models.
• Circularity of materials: how to develop technologies and systems that enable garments at the end of their use to be broken down into their different components in order that raw materials can be regenerated and reused to deliver true circularity back to the upstream manufacturing and production.

Key Considerations:
Below are some questions/thoughts you should consider as you develop your ideas/solutions. Note: You do not need to answer/address all of these, but rather use them to enhance and challenge your thinking.
Data Challenges:

• How can retailers better measure the emissions of the goods they carry and know whether they are making changes that have a meaningful impact? With changing assortments and fast timelines for reporting, how can retailers improve data integrity and reporting?
• What issues do you see in measuring Scope 3 emissions in the grocery or apparel retail industry and what are your ideas to solve them?
• What role could technology can play in helping to more accurately measure Scope 3 emissions?

Reduction Strategy Challenges:
    o What upstream innovations and technologies can enable the retail industry to reduce value chain emissions, while allowing stores to maintain broad offerings and not impeding the shopping experience?
    o How can retail best participate or drive and influence suppliers to reduce emissions?
    o What issues do you see in reducing Scope 3 emissions in the retail industry and what are your ideas to solve them?