Special Report: Go for the Green

For some retailers, environmental sustainability has been built into their company's core values from the beginning; for others, it's been embraced more recently. Regardless of its origin, environmental sustainability is becoming a core consideration for the retail industry, one that affects strategy, operations, workforce engagement, and connection to consumers and communities.

In March, the Retail Industry Leaders Association (RILA) released its 2013 Retail Sustainability Report. The report provides a snapshot of activities and trends across the retail sector, portraying a detailed view of the industry's adoption of sustainability programs. The data compiled for the report was drawn from responses to a survey completed by RILA member companies. The survey's respondents collectively represent more than 65,000 locations and $1 trillion in global revenue.

Overall Program Development
A key takeaway from the report is that retail companies' sustainability programs are following a continuous development curve. They begin with a simple project, often waste or energy reduction, and then refine the program by developing and implementing strategies, tracking the progress over time. These activities uncover a range of benefits, from improved customer loyalty to decreased costs to more resilient supply chains. The measured business benefits fuel further investment and, in turn, create continuous strategies to strengthen environmental sustainability programs over time.

Managing Sustainability
As companies start to focus on sustainability, initiatives must be implemented and managed just like any other business program. Most of the survey respondents have full-time sustainability teams, which have been increasing in size to keep pace with the growing breadth of responsibilities. This growth can, in part, be attributed to the primary benefits that respondents perceive as derived from their sustainability programs, namely cost reduction, brand enhancement and risk management. However, despite the gain in staff, sustainability budgets remain the same for most retailers.

The need for larger team sizes is justified when a strong business case exists for sustainability programs. Retailers most commonly seek a return on investment for sustainability projects that's similar to any of the company's other investments. Across the industry, the average minimum payback period for a sustainability project is two years to three years. Top performers, however, plan over a longer time period and often pursue projects with paybacks as far out as three years to five years.

Retailers report five primary benefits of sustainability programs: reduced costs, enhanced reputation, risk management, improved employee enthusiasm and proactive regulatory strategies. On average, top-performing companies find that this wealth of benefits extends to increased revenues and profits.

To grow and improve business sustainability programs, companies must track and report key metrics. Three commonly tracked sustainability-related metrics are facility energy consumption, transportation fuel usage for private and/or third-party fleets, and waste volumes. In addition, water usage, supplier audits, renewable energy generation and chemicals of concern will see a significant uptick in measurement over the next five years.

Implementation Activities
When it comes to improving the sustainability performance of retailers' facilities (e.g., brick-and-mortar stores, corporate headquarters, warehouses), waste and energy reduction are the most common pursuits, though managing greenhouse gas emissions and water use as well as building with green techniques will grow significantly over the next two years. Supply chain improvements have focused on transportation fuel efficiency and materials, including chemicals of concern and packaging design. Transparency remains a key trend. Disclosing the social and environmental impacts of product supply chains is a growing practice among retail brands.

The RILA report also highlights a number of sustainability priorities that will grow significantly over the next two years. Within two years, 20 percent more companies will be prioritizing the following impact areas: water usage; environmental and human rights impacts from product manuafcturing; business model innovation; product design, use, take-back and lifecycle impact measurement; government affairs; customer education; and investor relations. In short, managing all aspects of the product life cycle, from design through use and disposal, will become increasingly prevalent practices over the next two years.

Although many retailers have strong waste and energy management programs already in place, there are still challenges to overcome. One significant challenge is collaboration.

When it comes to a facility's performance improvements, for example, waste and energy reduction requires partnerships with landlords, utility companies, waste haulers, and other business partners who manage the retailer's buildings and infrastructure. Similarly, more efficient and sustainable product manufacturing is only possible through partnering with suppliers.

Like all business activities, sustainability programs are fueled by the systems that promote the expansion of resources, activities, expertise and benefits of that particular initiative over time. Once an organization overcomes static friction and forms an environmental sustainability program, its success further solidifies the business case for sustainability, forcing C-level execs to take note and warm to a broader range of potential activities. Increased confidence and commitment expands the program's resources and allows the scope of sustainability efforts to broaden, building momentum for a company's sustainability activities.

Adam Siegel is the vice president of sustainability and retail operations for the Retail Industry Leaders Association (RILA), a trade association of the world's largest and most innovative retail companies. Adam can be reached at adam.siegel@rila.org.