Top 5 Sustainability Trends That Will Transform The Retail Industry

The retail sector is experiencing the unprecedented ripple effects of consumer expectations—especially regarding sustainability and environmental stewardship.

More and more consumers point to the industry’s tremendously negative impact on the environment as well as other environmental, social and governance (ESG) concerns, such as child labour, product traceability, slavery, hazardous materials in products, animal welfare, etc.

The National Retail Federation (NRF) and the IBM Institute for Business Value (IBV) recently conducted a worldwide survey of 19,000 respondents across 28 countries. The responses point to a significant change in consumers' spending habits. Sixty-two percent of respondents said they were willing to change their purchasing habits to reduce their environmental footprint. Fifty percent said they were willing to pay a premium for sustainable products.

Generational shifts are likely to accelerate retailers’ drive towards more sustainable practices. Millennials, who are more aware of the devastating issues around climate change, expect the private sector to come up with concrete solutions. Generation Z is following in line with their predecessors. Both generations are edging towards influencing, if not directly controlling, more business decisions—with sustainability being top of mind.

As S&P Global indicated in its ESG Industry Report Card for the retail sector, this means that “customers’ preferences, perception of brands and demographics are risks because most products in the retail industry are discretionary.”

Indeed, retailers are facing a big decision to strike the delicate balance between operational and cost efficiency, healthy bottom lines, and catering to the needs of a new generation of customers—all without the greenwashing. Inevitably retail businesses cannot change overnight and become 100% sustainable. There is a web of complexities to navigate to establish, monitor and achieve ESG targets. The sustainability headaches are compounded by complicated supply chains and unprecedented supply chain challenges in a post-pandemic world.

Retailers’ ESG targets cannot be based on lofty, unattainable goals or crowd-pleasing marketing tactics. They must be based on several trends currently steering consumer markets and retail businesses to a more sustainable future.

Here are the top sustainability trends in the retail industry that will completely change how businesses operate—and how consumers shop.

1. Circularity driving product design and second lives

Also known as the circular economy, circularity in retail means reducing waste, recycling and revalorizing/reusing raw materials and products.

According to the Ellen MacArthur Foundation, there are four pillars:

  1. Eco-design: How can retail products be designed with minimal environmental impact throughout their life cycles?
  2. Reverse logistics: How can retailers start new supply chains after a product is disposed of or recycled to convert it into raw material or resell it?
  3. Circular business models: Can used products be loaned or leased out?
  4. Organizational boundaries: How can retail businesses modify their cultures and legal conditions to foster more sustainable and circular economies?

There are many different examples of retail brands embarking on the circularity bandwagon. H&M developed a proprietary technology called Green Machine that separates and recycles clothing with polyester and cotton. Reselling is also proving to be a goldmine. ThredUp’s 2020 Resale report showed that the second-hand market will hit $64B within five years and that resale grew 25 times faster than the broader retail sector in 2019 alone.

2. Greater transparency and disclosure

Whether through the rapid-fire transmission of information through social media or national and international regulations calling for traceability audits, retail companies are being called upon to provide greater transparency regarding their sustainability actions.

Voluntary and forced transparency is becoming critical for retail businesses to provide detailed information as to who makes the products they sell, where they are made, what materials are used, how they are transported throughout the supply chain, and what happens when the products are no longer needed.

This has given rise to end-to-end digital traceability platforms that enable retail companies to track the entire value chain of their products from the cradle to the grave and beyond. Armed with data, retailers can not only make better decisions from strategic and operational standpoints but also provide the accurate, real-time information consumers, auditors, and regulators are looking for to prove compliance and their ESG state-of-health.

3. Self-regulation

This is voluntary transparency on steroids.

New certification bodies, like B Corp, Climate Neutral, rePurpose, 1% for the Planet, Fair Trade Certified, Mossy Earth, and Eden Reforestation Projects provide sustainability frameworks and non-legally-binding means to hold retail businesses accountable for the ESG efforts. Consumers become dialled into brands that win and maintain credible sustainability accreditations.

There appears to be an uptick in the number of retail companies that are transforming into “benefit corporations.” Benefit corporations are described as having a for-profit structure, all while being public-purpose companies.

Some retailers may still be sitting on the fence regarding third-party, non-regulatory ESG certification; however, they may be missing out on many advantages, including a competitive edge with consumers, potential sales growth, and investor appeal.

To boost ESG resiliency, retail businesses are embedding their ESG visions through HR by hiring ESG experts and C-Suite representatives and even creating dedicated ESG departments. Even boards of directors are being refreshed and evaluated for their commitments to companies’ ESG policies.

4. Ethical sourcing and partnerships

Just because a retailer embraces more sustainable business practices does not mean it has covered its full ESG potential, especially when it comes to its partners.

As the adage: “birds of a feather flock together.” A retail business can implement as many ESG policies as possible, but targets or compliance may be harder to achieve if its suppliers and other partners do not follow suit.

For example, the Greenhouse Protocol outlines three scopes companies must adhere to curb greenhouse gas emissions. Scope 1 covers direct emissions from a company’s owned or controlled sources. Scope 2 covers indirect emissions generated from the reporting company's purchase of electricity, steam, and heating and cooling sources. Scope 3 includes all indirect emissions from stakeholders across the entire supply chain—aka third-party suppliers and partners. Carbon emissions from Scope 3 account for as much as 98% of a retailer’s footprint.

Other players in the retail industry are re-examining the ESG accountability of partners. As a case in point, electronics and clothing manufacturers are being urged by both consumers and non-profits alike to find more ethical suppliers and partners than those that traditionally encouraged human rights violations or had lacklustre environmental protection records.

5. Sustainable product packaging alternatives

Packaging design, minimal packaging and recyclable packaging are essential for environmentally conscious consumers. Many manufacturers and retailers are finding creative ways to package with the least environmental footprint possible. 

Some innovative solutions include:

  • Purpose-built packaging, or packaging that has a second function
  • Compostable or biodegradable packaging
  • Truly recyclable package (the packaging must be separable, appropriately labelled and clean)
  • Switching from plastic to other materials, including paper, bamboo paper, organic cotton, etc.
  • Flexible packaging, or packaging that uses non-rigid materials; this type of packaging requires less energy and water
  • Antimicrobial packaging, which kills or thwarts hazardous microorganisms in food products
  • Eco-friendly inks, such as water, soy, vegetable or UV inks, which contain none of the dangerous heavy metals (lead, cadmium or mercury) found in petroleum-based inks

While the retail industry continues to face hurdles when it comes to its ESG performance, many options are available to help businesses take continuous steps in the right direction.

Looking for more ways to activate impactful sustainability within your retail organization? Check out this compelling article about how some retailers are carrying out their sustainable transformations. Consultez cet article passionnant sur la façon dont certains détaillants réalisent leurs transformations durables.