As world leaders gather for COP26 in Glasgow against the backdrop of the recent declaration of ‘code red for humanity’ by the United Nations Intergovernmental Panel on Climate Change, businesses are doubling down on sustainability goals and initiatives. This has significant implications for the retail and consumer packaged goods (CPG) industry across the product value chain.
Mounting pressure from the ongoing effects of the pandemic, the rising frequency of natural disasters, changing consumer preferences for socially responsible brands and regulatory pressures for reducing carbon intensity of products have all contributed to sustainability becoming a major business imperative.
Business leaders are recognizing the need to take action on climate change. A recent IBM Institute for Business Value study polling retail and CPG executives revealed that by the end of 2021, nine in 10 will be working on sustainability initiatives across the enterprise.
Failure to act can significantly impact a company’s bottom line. The pandemic has fundamentally reshaped the relationship consumers have with sustainability, from shopping and investing to employer preferences. This holiday season, four in five consumers say they will consider sustainability to some extent when they’re shopping. These preferences are visible on store shelves — for example, check the meat section the next time you visit the grocery store and you’ll see more plant-based, sustainable products alongside traditional food products.
In response to the urgency of climate change and the sentiments of their customers, more companies than ever see sustainability as a viable path to improved business operations and growth. Seven in 10 retail and CPG executives surveyed believe their sustainable development goals (SDG) can now improve operational effectiveness and agility. Capturing, measuring, benchmarking and monitoring SDGs is essential for making progress.
Key Challenges in Measuring Sustainability
Fewer than one-third of retailers and CPG companies surveyed by IBM have defined ways to measure their sustainability goals. Depending on their product category, retail and CPG companies may encounter a wide variety of challenges when attempting to define sustainability metrics.
Retailers must not only measure the direct sustainability impacts of producing the product but also the indirect impacts from packaging and last mile delivery. Global emissions from transportation account for approximately 16%, and plastics 4%, of total greenhouse gas emissions. Keeping track of a retailer’s indirect carbon emissions can prove to be difficult.
CPG companies must consider the carbon byproducts of their manufacturing processes, down to packaging. The World Energy Council estimates that if plastic production increases as anticipated, emissions will increase to 49 million metric tons by the end of the decade. CPG brands need tools to measure how much their production line is contributing to emissions, and to use circularity in product design to develop solutions like reusable packaging that can decrease the carbon footprint.
These struggles to improve manufacturing processes are most visible in the textiles industry given the “fast fashion” trend — rapidly producing large volumes of inexpensive garments designed to capitalize on style trends. In the United States, the EPA estimates that the volume of clothes thrown away each year has doubled in the last 20 years, from 7 million to 14 million tons. Notably, textiles can take more than 200 years to decompose in landfills. Additionally, the indirect emissions generated by a value chain, also known as Scope 3 emissions, can be particularly difficult for the fashion industry to accurately measure.
What Leaders are Doing Differently in Sustainability
Many leading brands are using data and exponential technologies to drive their sustainability initiatives. For example, artificial intelligence, automation and blockchain can be used for responsible sourcing processes, driving traceability and transparency into supply chain and procurement processes so that organizations have better insights about products, source materials and their carbon footprints. Another area of great potential is responsible computing, which includes infrastructure and application modernization along with reducing the energy consumption footprint of digital technology with more sustainable code and coding practices.
One leader in using technology for sustainability is Bestseller India, which is working to make “fast fashion” more sustainable. They’ve developed a bespoke platform, Fabric.ai, with AI capabilities to support preseason digital design, planning, production and forecasting, to minimize waste from the start of the creative process to informing more sustainable material choices up front in the value chain. In August 2020, Bestseller signed agreements with 2,000 organic cotton farmers in India to source 1,500 tons of organic cotton grown without chemical pesticides and fertilizers. That’s enough cotton to produce 3 million T-shirts.
Another great example is KAYA&KATO, a textile company that manufactures uniforms and work wear, which developed a blockchain network alongside IBM to create transparency about the origin of garments — from the fiber used to the completion of the final product — and to provide consumers with the knowledge that their clothes are sustainably produced. Covalent, a fashion brand recently launched by Newlight Technologies, is using blockchain technology to allow consumers to track the carbon footprint and supply chain of its sustainable AirCarbon-based fashion accessories, from eyewear to handbags.
CPG companies are also responding by changing both the product and the production process to align with sustainability across the value chain. For example, Ängöl Brewery released Helt Spårat, a beer traceable on the blockchain. The company’s story is all about sustainability, from how it uses locally and sustainably produced ingredients that reduce transportation-related emissions, to how the farm where the grain is grown uses solar power, to how residual products become feed for dairy cows at a local farm that then produce milk for cheeses that are served at the brewery’s tastings.
As many retail and CPG companies leverage emerging technologies and implement sustainability initiatives to achieve net zero carbon emissions or other sustainability goals, the greatest opportunity for purpose-driven brands across retail and CPG will be using sustainability to drive greater business growth. Technologies like AI, blockchain and cloud will play a critical role in accelerating that journey.
Sanjay Tugnait is the Chief Market Maker and Global Managing Partner – Sustainability Practice for IBM Consulting. Previously, he was the CEO and Chairman of the Canada Country Board for Capgemini Canada and a member of Capgemini’s North America Executive Council and Global Financial Services Executive Committee. Prior to joining Capgemini, Tugnait was a Managing Partner in Accenture’s North America Financial Services practice and a member of Accenture’s CEO Global Advisory Council. Tugnait serves on the boards of multiple nonprofits including the Blockchain Research Institute Advisory Board, France Canada Chamber of Commerce (Ontario), Trillium Health Partners Foundation (Canada), Building Energy Innovation Council (North America) and Save the Children (India).