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    2013 Retail Sustainability ReportF U E L I N G C O N T I N U O U S D E V E L O P M E N T

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    Special thanks to our sponsor:

    (www.ey.com/climatechange)

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    AT A GLANCE

    Retail companies sustainability programs are

    following a continuous development curve. They

    begin by developing programs and practices,

    implementing strategies and technologies, andcollaborating internally and externally. These

    activities uncover significant business benefits

    that fuel further investment in turn. As the retail

    sustainability field evolves, a class of top

    performers has emergedthose companies that

    have defined the development curve for the

    industry by embracing the full breadth of

    sustainability activities, thereby achieving an

    equally wide breadth of benefits.

    The respondents to the survey that forms the

    basis of this report are retail companies

    representing more than 65,000 locations and

    $1 trillion in global revenue.

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    Letter from the Retail Industry Leaders

    Association

    On behalf of the Retail Industry Leaders Association (RILA) and our member companies, we are proud to present

    RILAs second Retail Sustainability Report. For the past six years, RILA has provided resources to empower,

    enhance, and accelerate sustainability activities in the retail industry; research like this report is a cornerstone of

    our efforts, and is intended to help companies understand how they compare to others in the industry and where

    there are opportunities for improvement.

    The objective of this report is only to act as a snapshot of the industrys sustainability programs. Between the

    publication of our first Retail Sustainability Reportin January, 2012 and the publication of this report, we havefound that the industry is continuing to drive progress and increase accountability on the most critical issues. Also,

    through this report, we want to bring to your attention the significant business benefits retailers have achieved

    from their sustainability endeavors, ranging from improved employee loyalty to decreased costs to more resilient

    supply chains. As you will see illustrated in the subsequent chapters, these benefits are fueling the continued

    development of sustainability programs over time. However, program development does not come without

    challenge.

    Please use this report to understand the core components of a sustainability program, as well as the innovative

    strategies retailers are pursuing. We will continue to publish this report in future years to show how the industry is

    progressing on key sustainability indicators.

    Sandy KennedyPresident

    Deborah WhiteExecutive Vice President and

    General Counsel

    Adam SiegelVice President,

    Sustainability andRetail Operations

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    Report Contents

    6 About the Retail Industry Leaders Association

    7 About This Report

    8 Executive Summary: Fueling Continuous Development

    11 Managing Sustainability

    12 Team and Organizational Structures

    16 Investing and Benefiting

    19 Prioritizing and Planning

    23 Measuring and Reporting

    26 Implementing Sustainability

    27 Building Operations

    31 Supply Chain Operations

    35 Stakeholder Engagement

    40 Conclusion

    41 Appendix: Member Survey

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    About the Retail Industry Leaders Association

    The Retail Industry Leaders Association (RILA) is the trade association for the worlds largest and most innovative

    retail companies. RILA members include more than 200 retailers, product manufacturers, and service suppliers,

    which together account for more than $1.5 trillion in annual sales, millions of American jobs, and more than

    100,000 stores, manufacturing facilities, and distribution centers domestically and abroad.

    The retail industry is proud of its accomplishments and excited to continue to evolve sustainability programs that

    drive business value, consumer and employee loyalty, and support a healthier planet. And RILA is excited to

    continue to convene the industrys leaders and advance the practices and breadth of business benefits of retail

    sustainability programs.

    RILAs Retail Sustainability Initiative (RSI) focuses on five topics key to successful retail programs:

    1. Energy and greenhouse gas emissions

    2. Waste and recycling

    3. Products and supply chains

    4. Environmental compliance

    5. Communicating, reporting, and engaging

    RSI engages retail sustainability executives to share best practices, develop new processes, and communicate

    their efforts to the industrys most crucial stakeholders. RILA uses its annual conference, benchmark studies,

    collaborative partnerships, and research on behalf of retail sustainability interests to achieve the objectives set bythe five sustainability topics listed above.

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    About this Report

    RILAs first sustainability report, the 2012 Retail Sustainability Report, highlighted the major trends and best

    practices within the industry in a case-study format. The report educated the industrys stakeholders about its

    sustainability achievements, goals, and challenges by highlighting the specific sustainability activities retailers are

    pursuing. The report found that environmental and social considerations are beginning to supplement traditional

    measures of competition, including price, service, and quality. We encourage you to reread the 2012 report to

    learn more about how these trends are influencing the industrys direction.

    As we reflected on the 2012 report and brainstormed about opportunities for improvement, we determined that it

    was important to update this years report format to provide a RILA-wide snapshot. The current report effectively

    portrays a detailed view of the industrys adoption of sustainability programs. Specifically, we asked the largest

    retail companies about the indicators they use to assess the depth and breadth of their sustainability programs.

    Equally important to establishing this baseline, we will update this view over time to see how the industry

    progresses in the coming years. Will the industrys efforts continue to accelerate? Will sustainability become

    integrated into functions across the retail organization or remain a separate and distinct role? Will the scope of

    sustainability focus areas continue to grow, or will companies hone their attention? This updated report format will

    allow us to answer these questions over time.

    We also recognize that it is important to show current trends. Where possible, we asked retailers about where

    they see their companys sustainability efforts progressing over the next two years. While we cannot definitively

    state that the industry will follow these projections, the trends provide a view of one potential future.

    SOURCES OF INFORMATION

    This report was developed through two sources: a survey and in-depth interviews. The survey, which can be

    found in the Appendix, was disseminated in July of 2012; 35 RILA member retailers responded, representing

    more than 65,000 locations and $1 trillion in global revenue. Ten RILA member companies were interviewed and

    eight companies served as report advisors.

    ERNST & YOUNG INVOLVEMENT

    RILA is extremely pleased that Ernst & Young LLP (www.ey.com/climatechange), a global leader in assurance,

    tax, and advisory services, supported this RILA effort. Ernst & Young, an organization that is well recognized for

    its sustainability leadership, provided RILA with financial and advisory support for the conceptualization and

    development of the 2013 Retail Sustainability Report.

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    Executive Summary:

    Fueling Continuous Development

    While developing this report, we listened to the stories, followed the funding, and analyzed the conversations that

    have led to the development and subsequent growth of company sustainability programs. From that research, we

    recognized that once a company kicks off a sustainability program, the program tends to grow and thrive, even in

    the midst of an economic recession. Why? we wondered. Inquiring further, we realized that, while sustainability

    programs are initiated in any number of ways, their development and growth hinge on the same key elements as

    any other business program. As a sustainability program matures within an organization, its business benefits

    become increasingly apparent, and the business applies more funding and resources to it. We also found that a

    class of top-performing companies that best exhibits this growth dynamic has emerged in the retail industry.

    PROGRAM GROWTH BEGETS FURTHER GROWTH

    Implementing systems that promote the expansion of resources, activities, expertise, and benefits of a particular

    initiative over time can fuel continuous development. In sustainability, we see that companies who kick off

    continuous development processes are growing, not only the amount and breadth of their sustainability-related

    activities, but also the business benefits of those activities.

    Once an organization overcomes any static friction and forms a sustainability program, success stories within the

    organization further solidify the business case for sustainability, and executives take note. With proof of concept

    established and the business case validated, senior management warms up to a broader range of potential

    activities. Increased confidence and commitment expands the programs resources and allows the scope of

    sustainability efforts to broaden.

    SUCCESSFUL PROGRAMS FEED THE GROWTH DYNAMIC

    We also recognized that the same ingredients are necessary for a

    sustainability program to be successful as for any other business

    initiative. In particular, five characteristics allow a retailer to effectively

    initiate, fuel, and accelerate sustainability programs:

    1. Executive engagement. Top executives control a

    companys purse strings and make strategic investment

    decisions. When they recognize that sustainability is not

    necessarily a cost center but rather drives strategic growth

    and innovation, there is potential to free up resources and

    integrate sustainability priorities into the overall business

    strategy.

    2. Investment in people and systems. Ultimately it is up to people to develop, lead, and execute any new

    business process. A team focused on orchestrating sustainability efforts across an organization can, in

    turn, educate and train employees in other functional roles about the importance of sustainability in their

    Brea

    dth

    ofbenefits

    Amount of activities

    All

    Top

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    decision making. Similarly, organizations can use investments in information technology such as

    environmental management systems (EMSs), reporting platforms, decision tools, and financial calculators

    to integrate sustainability planning broadly.

    3. Measurement and tracking.The business adage what gets measured gets managed is as true forsustainability as for any other effort. Setting metrics, developing a baseline, and implementing systems to

    periodically track and report makes a program accountable its progress. Measurement and tracking also

    provide the mechanisms necessary for the company to set goals and tell stories about their efforts.

    4. Goal setting. Setting goals is an integral part ofa companys business and sustainability strategies

    because the process of goal setting gains buy-in and alignment throughout the organization. To achieve

    their goals, retailers must develop strategies to engage both internal functional teams who make the

    business decisions and external stakeholders who provide resources, guidance, and services. Also,

    announcing goals internally and externally demonstrates a companys commitment to sustainability.

    5. Storytelling. Employees of any business constantly tell stories of all kindsfrom the informal anecdote at

    the water cooler to those conveyed through boardroom meetings and financial reporting. Stories are acrucial way for ideas, practices, and results to be shared across the enterprise, and they are a component

    of every companys decision-making process. Showcasing sustainability opportunities and success

    stories through a variety of channels creates an exciting buzz that promotes broader awareness of

    activities and shared understanding of how sustainability relates to business objectives.

    Properly told, stories can convey the business case for programs or projects that help executives to

    prioritize sustainability as a key strategy and provide the impetus for additional investment. But

    storytelling should not be confined to those stories told within the company; creatively discussing

    company achievements related to sustainability can engage consumers and other stakeholders, driving

    consumer loyalty, brand enhancement, access to additional expertise and resources, and more.

    Each of these strategies can generate new ideas related to, interest in, and investment for sustainability.

    A CLASS OF TOP PERFORMERS IS EMERGING

    While developing this report, we recognized that a variety of practices defined a class of top-performing

    companies. These top performers are active in a wide range of sustainability-related programsfrom facility

    efficiency to supply chain optimization to stakeholder engagementand achieve greater-than-average benefits.

    We identified top-performing retailers as those companies who are focusing on a wide breadth of sustainability

    issues. Of all the companies we surveyed, eight retailers indicated that they include more than three-quarters of

    the facilities, employees, product and supply chains, and stakeholder engagement issues listed below in their

    sustainability strategies.

    Facilities. What are you working on?

    Energy usage Greenhouse gas emissions Water usage

    Waste and recycling Green buildings (i.e. LEED, EPA EnergyStar) Land use and development High-efficiency lighting

    HVAC retrofitting

    Employees. What are you working on?

    Store employee engagement Senior management engagement Health and safety practices

    Diversity programs Ethics and governance (i.e. board oversight of

    sustainability, company ethics policy)

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    Stakeholder engagement. What are you working on?

    Consumer education Engaging suppliers

    Nonprofit / NGO engagement Community engagement

    Philanthropic donations Investor relations Government affairs

    Product and supply chain. What are you working on?

    Measuring life cycle impacts Product design

    Materials, including chemicals of concern Packaging design

    Manufacturing human rights impacts Manufacturing environmental impacts Sourcing locations (geographic)

    Transportation and logistics Product take-back Product use and disposal Plastic bag usage / reduction

    Business model innovation

    In particular, top-performing companies vary from other retailers in the following ways:

    Top-performing companies have sustainability teams that are led by a vice president or someone in a

    higher position and average nine team members in size.The teams primary roles are to orchestrate internalefforts, communicate with outside stakeholders, develop strategies, and interact with senior managers. And to do

    so, they have set up working relationships across the organization, focusing on public and government relations,

    the supply chain, merchandising, facilities, real estate, and construction.

    Top-performing companies focus on a wide variety offacility, product lifecycle, and stakeholder management

    issues. Facility improvements include waste, energy, green-building design, greenhouse gas emissions, and land

    use. Product lifecycle improvements focus on transportation, materials, packaging design, and product take-back.

    With regard to these issues, the sustainability team manages the development of a companys strategy and goals,

    with input from across the organization, and typically plans their efforts with a five-year strategic horizon.

    As the sustainability teams scope of responsibilities and breadth of benefits expand, top-performing companies

    are increasing their teams budget. They see a vast array of benefitsfrom their activities, including reducing

    costs, managing risks, staying ahead of regulations, and increasing revenues and profits. Risk

    management activitiesa crucial function for the success of any retail brandinclude managing reputational

    risks, energy and fuel dependencies, human rights risks in the supply chain, and commodity price fluctuations.

    To track and report on their performance, top-performing companies measure their energy, material, plastic

    bag, and fuel usage; waste generation; greenhouse gas emissions; and supplier code of conduct

    compliance. They communicate through many channels, including their corporate website, intranet site, social

    media, store signage, the Carbon Disclosure Project (CDP), and a sustainability report, which is assured

    internally.

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    Chapter One:

    Managing Sustainability

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    Team and

    Organizational

    Structures

    A sustainability team is the lifeblood of a

    sustainability program. Teams orchestrate

    the development of strategies, action plans,

    and implementation efforts by working with

    a diverse group, both internal and external

    to the company. Creating a multidisciplinary

    team that focuses on sustainability

    performance improvement is the first step

    on a path to success within an organization.

    KEY FINDINGS

    Most companies have full-time

    sustainability teams. Teams are

    growing, and reporting levels are gainingseniority.

    Sustainability teams mainly use their

    time to orchestrate internal efforts and

    develop strategies.

    No single department stands out as

    being the champion of retail

    sustainability; instead each company

    places their team where it can be

    most effective.

    The sustainability team either manages

    or has strong alignment with boththe

    environmental regulatory compliance

    and social compliance functions.

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    WHILE TEAMS GROW, SENIORITY RISES

    Of retailers surveyed, nearly two-thirds of companies

    have full-time staff dedicated to sustainability. Sixty

    percent of companies have part-time staff dedicated

    to particular aspects of sustainability.

    Figure 1. How is the sustainability staff structured within your

    company?

    % of top

    performers

    57

    29

    14

    0

    Of the retailers with staff, the full-time team grew on

    average from a little less than three to nearly fivepeople between 2009 and 2012.

    Figure 2. How many staff members does your company devote to

    sustainability?

    Staff of top

    performers

    8.9

    10.8

    As teams grow, so too does the highest reporting

    level of the team manager. Since 2009, 40 percent

    of sustainability teams gained new director positions,and 29 percent gained new vice president positions.

    As sustainability executives rise in seniority, they

    hold more influence and receive greater attention

    within the company.

    Figure 3. What is the title of the top full-time sustainability leader

    at your company?

    % of top

    performers

    20

    60

    20

    0

    TEAMS USE THEIR TIME FOR MANY TASKS

    All sustainability functions share common tasks.

    Together, orchestrating internal efforts and

    developing a sustainability strategy account for at

    least one-third of working hours. Complying with

    federal regulations, interacting with senior

    management, reviewing environmental metrics, and

    researching best practices collectively make up

    another third. While teams are reporting that theyspend less time interacting with suppliers,

    respondents say that supplier engagement will

    become more important over the next five years.

    Figure 4. What percentage of your time is spent on each activity

    throughout the year?

    % of top

    performers

    22

    12

    2

    12

    3

    13

    8

    8

    5

    4

    6

    REPORTING STRUCTURE VARIES

    The sustainability team does not typically report to

    any single department within retail companies;

    instead the reporting structure varies based on anumber of factors. The companys culture, the

    department with the biggest opportunity for impact,

    and the existing resources and enthusiasm all factor

    into the teams location. For example, a retailer that

    is primarily focused on supplier engagement may

    select the sourcing department as the sustainability

    lead, while a company focused on energy efficiency

    in its buildings will choose the real estate or facilities

    team to lead its sustainability efforts.

    Through our surveys Other option, some retailsustainability teams indicated that they report

    directly to executive management, whether the

    CEO, president, or another top executive. We intend

    to solicit this information through the survey more

    directly in the future.

    0% 20% 40% 60%

    Full and part-time

    Full-time staff only

    Part-time staff only

    No full- or part-

    Full- and part-time

    No sustainability staff

    0 2 4 6 8

    Full-time

    Part-time

    2012201120102009

    0% 25% 50%

    EVP / SVP

    Vice president

    Senior director

    Senior manager

    20122011

    2010

    2009

    0% 10% 20% 30%

    Orchestrating

    Developing strategy

    Complying with

    Engaging executives

    Complying withStakeholder

    Researching

    Reviewing metrics

    Interacting with

    Creating public

    Completing surveys

    Creating internal

    Stakeholders commsComplying with local law

    Orchestrating internally

    Federal compliance

    Researching trends

    Engaging suppliers

    Creating public reports

    Creating internal reports

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    Figure 5. To what department does the sustainability leader at

    your company directly report?

    % of top

    performers

    25

    13

    0

    13

    0

    0

    13

    38

    RESPONSIBILITIES ARE BROADENING

    Expanding a sustainability team also increases its

    breadth of responsibility and interaction within the

    company. The two most common functions ofsustainability teams are strategic planning and

    tactical implementation of sustainability programs.

    To guide the strategic direction of their sustainability

    programs, teams strategize, set goals, and report on

    sustainability initiatives, all while working to engage

    both the companys employees and external

    stakeholders. This tactical strategy extends to

    recycling operations, energy management,

    greenhouse gas reduction, and compliance with

    environmental regulations.

    Specific initiatives vary greatly among retailers. Eachcompany continuously defines and refines its focus

    on issues material to its business. For example,

    while grocers may focus on sustainable seafood

    sourcing, apparel merchandisers find addressing the

    working conditions of theirmanufacturers

    employees more relevant. Often public awareness

    and policy guide these emphases, such as

    electronics retailers who find themselves

    increasingly invested in growing e-waste recycling

    options. However, almost all retailers are uniformly

    responsive to such issues as legislation surroundingplastic bags since bag taxes or bans directly impact

    a fairly ubiquitous feature of retail shopping.

    COMPLIANCE IS THE FOUNDATION OF

    A SUSTAINABILITY PROGRAM

    The retail industry places significant priority on

    compliance with both regulatory requirements for

    environment, health, and safety, as well as industry-

    developed voluntary compliance to maintain proper

    working conditions and human rights throughout the

    entire supply chain, from raw material sourcing to

    the manufacturing process. Sustainability teams

    interact with key internal departments to ensure thatenvironmental and social compliance programs

    meet the expectations of all stakeholders.

    In retail, environmental compliance considerations

    mainly center on regulations from the U.S.

    Environmental Protection Agency and Department of

    Transportation, and state and local jurisdictions.

    Specific issues include facility construction and

    maintenance like stormwater runoff, employee

    health and safety practices, and hazardous product

    transportation and waste management.

    Retailers environmental compliance programs are

    managed between sustainability and environmental

    compliance operations, with half of companies

    holding both operations in the same department and

    the other half in separate departments.

    Figure 6. How strong is the alignment between your sustainability

    and environmental compliance functions?

    % of top

    performers

    0

    4329

    29

    Of those retailers with environmental compliance in

    a separate department from sustainability, the

    environmental compliance team is most often

    housed under loss prevention, asset protection,

    legal, or environmental health and safety. The

    teams, while reporting to separate locations within

    the organization, frequently coordinate for updates

    and strategy alignment. Two of every three retailers

    have an environmental compliance team that isdeeply aligned with the companys sustainability

    initiatives.

    While compliance is a familiar focus area for

    retailers, important new issues are always emerging.

    Increased awareness of chemicals of concern, as

    well as more comprehensive product safety and risk

    mitigation, has led to an even broader emphasis on

    0% 25% 50%

    Public Relations

    Human ResourcesLegal

    Marketing

    Facilities / Real

    Merchandising

    Supply Chain

    Other

    Facilities / Real Estate

    0% 20% 40%

    Same department

    Weak alignmentStrong alignment

    No env. compliance

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    regulatory compliance for those who sell products

    with hazardous properties. These teams are

    responsible for ensuring that all products posing any

    risk are in compliance with appropriate laws.

    Social compliance or ethical sourcing can be defined

    as a continuous process in which companies refine

    their sourcing policies and practices to ensure the

    health, safety, well-being, and fundamental rights of

    all people employed throughout their supply chain.

    Most often focused on in developing countries,

    social compliance is driven by ethical

    considerations, consumer interest, and

    nongovernmental organizations investigating the

    working conditions of laborers throughout the supply

    chain.

    Suppliers and retailers adhere to social

    accountability standards, whether self-imposed or

    legal, within their social compliance objectives. To

    do so, companies create and implement ethical

    sourcing policies and practices that extend beyond

    their own organization into their product supply

    chains, both domestically and abroad. Consumer

    product manufacturers with well-recognized brand

    names will often have their own ethical sourcing

    policies and practices independent of the retailers

    they sell to; therefore, retail companies typically

    focus their ethical sourcing efforts on their private-

    label products.

    Over the past few decades, companies have

    continued to develop new strategies to educate,train, and ensureoften through facility auditsthat

    their supply chain partners are making products

    under conditions that meet their standards. Those

    standards are often documented and codified in

    supplier codes of conduct, which are written and

    enforced individually or collectively through industry

    associations.

    Nearly two out of three retailers report that their

    social compliance teams, like environmental

    compliance teams, are strongly aligned with their

    sustainability teams. Almost 80 percent managesocial compliance operations in a separate

    department, most commonly with the merchandising,

    legal, public relations, or supply chain groups. These

    groups, often with direct visibility to the supply chain,

    can be most effective in ensuring compliance to

    vendors codes of conduct. However, in recent

    years, the convergence of environmental

    sustainability and social compliance functions has

    begun to paint a complete picture of suppliers

    environmental and social impacts.

    PRACTICES OF TOP-PERFORMING COMPANIES

    DIMENSION TOP TRAIT(S)

    Top sustainability leader Vice president or aboveSize of sustainability team Average of nine team membersResident departments forpart-time sustainability reports

    Public and government relations, supply chain, merchandising, andfacilities, real estate, and construction

    How the sustainability leadspends his or her day

    Orchestrating internal efforts, communicating with stakeholderorganizations, developing strategy, and interacting with senior managers

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    Investing and

    Benefiting

    All companies must rank their priorities

    based on their strategic importance and

    business benefits and allot them proper

    funding and resources. When it comes to

    sustainability, the costs of certain projects

    whether efficiency upgrades, process

    changes, consumer education, employee

    training, or otherwiseand the direct

    resource savings are both quite tangible.

    However, the additional benefits can be

    even more significant than simply lower

    costs. Sustainability can increase brand

    loyalty and employee productivity and

    retention, mitigate risk, improve community

    relations, and more. Therefore, investment

    in sustainability must weigh the direct costs

    and savings with a host of benefits, even

    those that are difficult to measure.

    KEY FINDINGS

    Most companies sustainability

    budgets are remaining the same.

    Most companies act on sustainability

    investments that they expect to generate

    a two- to three-year payback.

    Companies see the primary benefits of

    sustainability as reduced costs, brand

    enhancement, and risk management.

    Sustainability programs target themanagement of reputational risks and

    energy and fuel price risks.

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    INVESTMENT MODELS

    Developing a strong business case for sustainability

    programs remains an important objective for

    companies. Retailers most commonly seek a return

    on investment for sustainability projects that issimilar to all other investments. Across the industry,

    the average minimum payback period for a

    sustainability project is two to three years. Top

    performers, however, plan with a longer time

    horizon, and most often look for paybacks as far out

    as three to five years.

    Many companies expressed that projects with

    environmental and/or social benefits often have a

    host of ancillary benefits that may difficult to quantify

    in the direct payback calculations. Programs mustalso anticipate other factors like shareholder

    interests, future consumer or regulatory trends, or

    potential risks to properly finance sustainability-

    related projects.

    Figure 7. Generally, what is the minimum payback a capital

    improvement project related to sustainability must show before

    being approved?

    % of top

    performers

    13

    25

    38

    0

    13

    0

    PRIMARY BENEFITS

    Retailers are reporting five primary benefits of

    sustainability programs: reduced costs, enhanced

    reputation, risk management, employee enthusiasm,

    and proactive regulatory strategies. On average,

    top-performing companies recognize a wealth of

    benefits that extend to increased revenues and

    profits.

    Nearly 90 percent of respondents mentioned that

    their sustainability efforts are lowering costs,

    primarily by improving business and resource

    efficiency. Increasing the store, distribution center,

    and trucking fleets energy and fuel efficiency are

    only a few examples that translate to lower costs.

    Reducing waste is another; it lowers costs and can

    even generate new revenue streams. Finally,

    partnering with suppliers may uncover resource

    efficiencies that also translate to lower costs,

    whether by reducing energy, water, material, orwaste. (Refer to the supply chain operations section

    for a thorough discussion of supplier collaboration

    around sustainability.)

    Figure 8. In which of the following ways have your sustainability

    activities proven to be beneficial?

    % of top

    performers

    100

    100

    100

    63

    88

    75

    75

    88

    88

    75

    50

    Beyond lowered costs, brand enhancement and risk

    mitigation are also crucial benefits. Seventy-one

    percent of companies report that they use

    sustainability activities to benefit their organization inthose ways.

    A retailers corporate brand is among its most valued

    assets. Retailers invest a significant amount of

    resources to enhance their brands with consumers,

    government, and other key stakeholders. Doing so

    keeps the companys brand at the top of consumers

    minds when they are deciding where to shop, and it

    builds trust in the communities in which retailers

    operate. So, it is not surprising that retailers

    recognize the corporate reputational rewards that

    sustainability brings.

    Risk mitigation, or seeking to protect the brands

    reputation, is another crucial business objective for

    retail. Retailers manage risks like brand reputation,

    energy and fuel dependencies, human rights issues

    in the supply chain, and commodity price

    fluctuations through their sustainability programs.

    0% 10% 20% 30% 40%

    2-3 years

    1-2 years

    3-5 years

    6 months to a year

    No minimum

    More than 5 years

    No minimum required

    0% 50% 100%

    Reduced costs

    Brand

    Risk management

    Employee

    Stay ahead of

    New sources of

    Satisfy

    Increased revenue

    Increased profits

    Satisfy consumer

    Enter new markets

    Employee enthusiasm

    Stay ahead of regs

    New innovations

    Satisfy consumer demand

    Brand enhancement

    Satisfy stakeholders

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    Figure 9. What risks to your business are you explicitly

    addressing through sustainability initiatives?

    % of top

    performers

    100

    75

    75

    75

    25

    38

    38

    Fostering employee enthusiasm for recycling,

    philanthropy, volunteerism in the community, and

    team building through meaningful projects are also

    benefits. Sustainability projects can give employees

    a sense of personal pride and fulfillment, which

    improves retention, draws in the best new talent,

    and promotes interdepartmental collaboration.

    Companies will often develop individual or industry

    voluntary programs to reduce the need for

    government regulations. If a retail company

    minimizes its waste generation, energy and fuel

    usage, land-use footprint, and other environmental

    impacts, and strives to improve the labor conditions

    of the workers across its product supply chains, it

    will have a competitive advantage when regulations

    are developed. Recent federal regulations requirecompanies to track the origin of forest products

    through their supply chains and to publicly report on

    the potential for the sourcing of certain conflict

    minerals in their products. California legislation

    requires companies to report on certain human

    rights performance standards in supply chain. And

    municipalities are updating building codes to reduce

    the burden on local energy and landfill infrastructure.

    Companies that proactively address these issues will

    be positioned to succeed when other such

    regulations emerge. Top performers especially

    recognize this advantage.

    SUSTAINABILITY BUDGET

    Sustainability budgets reflect company priorities.

    Many retailers report that their most recent budget

    for sustainability activities will not change for this

    year. However, more than a quarter of companies

    expect to grow their budget in the coming year.

    Figure 10. Did your sustainability budget increase, decrease, or

    remain the same for 2012?

    % of top

    performers

    38

    0

    25

    25

    Furthermore, most companies report that

    sustainability continues to become more important to

    their organization. Nearly three out of every four

    respondents say so, while no company says that

    sustainability is becoming less important.

    Figure 11. Is the importance of sustainability increasing,

    decreasing, or remaining the same at your company?

    % of top

    performers

    100

    0

    0

    PRACTICES OF TOP-PERFORMING COMPANIES

    DIMENSION TOP TRAIT(S)

    Sustainability budget Increasing budgetProject payback threshold Three- to five-year paybackBenefits of sustainability programs Reduced costs, increased risk management, staying ahead of

    regulations, increased revenues, and increased profitsRisk mitigation Addresses risks related to reputation, energy and fuel dependency,

    human rights issues in the supply chain, and commodity pricefluctuations

    0% 50% 100%

    Reputational risks

    Energy / fuelSupply chain

    Commodity price

    Drop in employee

    Financial instability

    Weather

    Commodity fluctuations

    Factory human rightsEnergy dependencies

    Employee recruiting

    Weather conditions

    0% 25% 50%

    Increased in 2012

    Decreased in 2012

    Remained the same

    No dedicatedNo dedicated budget

    0% 50% 100%

    Increasing

    Decreasing

    Remaining the sameRemaining the same

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    Prioritizing and

    Planning

    Prioritizing, planning, executing, and

    evaluating are crucial phases to the success

    of every companys program. Since the

    breadth of opportunities for sustainabilityprograms is extensive, it is more important

    than ever to properly set priorities and plan

    for the long term. Doing so will ensure that

    companies are pursuing the opportunities

    with the greatest impact given the

    resources. When implemented correctly,

    these strategies have a significant payoff.

    The return may be in terms of measured

    lowered costs like reduced energy usage or

    intangible benefits like brand enhancementor a more engaged workforce.

    KEY FINDINGS

    Sustainability functions will increase in

    scope significantly over the next two

    years.

    Setting goals is an important

    component of a sustainability strategy.

    The typical planning horizon for

    sustainability strategies is five years.

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    BROADENING EFFORTS

    Each companys definition ofsustainability reflects

    its business, customers, and long-term strategy.

    However, most retailers are pursuing a core set of

    sustainability functions. More than 90 percent of

    respondent companies are pursuing waste

    reduction, energy reduction, and community

    engagement initiatives.

    Notably, companies indicate that a number of

    sustainability priorities will grow significantly over the

    next two years. Those priorities that are expected to

    receive attention from 20 percent more companies

    within two years include water usage; manufacturingenvironmental and human rights impacts; business

    model innovation; product design, use, take-back,

    and lifecycle impact measurement; government

    affairs; customer education; and investor relations.

    We defined top-performing companies as those

    retailers who prioritize over three-quarters of the

    issues related to their facilities (Figure 12), products

    and supply chains (Figure 13), employees (Figure

    14), and community (Figure 15) in their sustainability

    strategies. Nearly all of the top-performing

    companies are engaged in all aspects of facilities

    improvement. All of them also define sustainability to

    include ethics and governance issues. Within their

    supply chains, they are all focusing on improving theenvironmental performance of their product

    transportation and on using fewer plastic bags and

    chemicals of concern. And they all engage their

    communities, suppliers, and partner NGOs through

    their sustainability programs.

    While every company develops its program in a

    different way, retailers follow a typical progression.

    They first tackle store, distribution center, and

    transportation performance, specifically with regard

    to waste, energy, and fuel reduction. These

    environmentally beneficial activities generate easilyquantifiable financial benefits and quick returns.

    Next, retailers engage employees and the outside

    stakeholders necessary for a comprehensive

    program. The companies that are making the most

    progress around sustainability are focusing on issue

    areas like product development and supply chain

    management. These may include, for example,

    ecological assessments in cotton mills, sustainability

    audits in foreign factories, or increased use of

    recyclable materials in products.

    Figure 12. Facilities - what are/will you work on?

    % of top

    performers

    100

    100

    100

    100

    75

    88

    Figure 13. Products - what are/will you work on?

    % of top

    performers

    100

    100

    88

    88

    75

    63

    75

    6375

    50

    50

    20% 40% 60% 80% 100%

    Waste and recycling

    Energy usage

    Green buildings

    Greenhouse gas

    Water usage

    Land use and

    Now

    2 years

    GHG emissions

    Land use

    20% 40% 60% 80% 100%

    Transportation

    Chemicals of

    Packaging design

    Product take-back

    Manufacturing

    Product design

    Factory labor

    Sourcing locationsProduct use and

    Business innovation

    Measuring life cycleNow

    2 years

    Chemicals of concern

    Factory labor conditions

    Manu. env. impacts

    Product use & disposal

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    Figure 14. Internal organization - what are/will you work on?

    % of top

    performers

    100

    88

    88

    100

    88

    Figure 15. Stakeholder engagement - what are/will you work on?

    % of top

    performers

    100

    88

    100

    100

    88

    88

    88

    PLANNING AND SETTING GOALS

    For any business initiative, companies must plan

    their activities up to a certain horizon. One third of

    retailers report that they typically plan their

    sustainability activities five years in advance, and

    another third plan for four year or fewer.

    Figure 16. What is your sustainability strategic planning horizon?

    % of top

    performers

    0

    0

    13

    0

    50

    25

    Retailers often see tangible sustainability goals asan integral part of their business and sustainability

    strategy because the process of setting goals will

    gain buy-in and alignment throughout their

    organization. The sustainability team facilitates

    nearly 60 percent of corporate sustainability goals,

    and most often the team develops them with a five-

    year horizon in mind.

    Figure 17. What is your companys process for formulating your

    corporate sustainability goals?

    % of top

    performers63

    13

    38

    25

    To achieve their goals, retailers must develop

    strategies to engage both internal functional teams

    (those who make the business decisions) and

    external stakeholders (those who provide resources,

    guidance, and services).

    The areas and rigor for setting goals depend on the

    retailer. Some are motivated to reduce greenhouse

    gas emissions, water use, or waste, while others

    look beyond operations to supplier engagement.

    Some retailers set their sights on absolute reduction,

    while others pursue normalized improvements.

    Some set ambitious and aspirational goals with only

    minimal up front research on how they might be able

    to achieve those goals, while others set analytically

    derived goals, ensuring they have a roadmap to

    success before launching. Some goals are public

    promoting awareness and accountabilitywhile

    others are only announced internally.

    Table 1. Types of sustainability goalsGOAL TYPE EXAMPLE PURPOSE

    Ambitious Become carbonneutral

    Aspirational andinspirational

    Grounded Reduce waste by15 percent by 2015

    Can develop aroadmap to achieve

    Normalized Reduce packagingby 25 percent perproduct sold

    Achievable andincorporatescompany growth

    Absolute Reduce carbonemissions by 20million metric tons

    Makesenvironmentalbenefit explicit

    Not surprisingly, the most commonly reported type of

    goal among retailers relate to reducing energyusage and/or greenhouse gas emissions. Those are

    the focal points of most early sustainability programs

    because of their tangible, quantifiable savings.

    Through the process of setting or achieving energy

    reduction goals, companies realize the potential for

    goals in other areas like waste reduction, product

    sourcing, and supply chain management.

    20% 40% 60% 80% 100%

    Executive

    Store employee

    Health and safety

    Ethics and

    Diversity programs

    Now2 yearsStore engagement

    Executive engagement

    Health & safety

    Ethics & governance

    20% 40% 60% 80% 100%

    Community

    Philanthropic

    Engaging suppliersNGO engagement

    Government affairs

    Consumer

    Investor relations

    Now

    2 years

    Engaging communities

    Philanthropic donations

    Consumer education

    0% 25% 50%

    1 year

    2 years

    3 years

    4 years

    5 years

    6+ years

    0% 20% 40% 60% 80%

    Sustainability team

    No sustainability

    C suite

    Functional

    No sustainability goals

    Functional dept(s)

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    Table 2. Stakeholders necessary to engage for each goal type

    GOAL TYPE EXAMPLEINTERNALSTAKEHOLDERS

    EXAMPLEEXTERNALSTAKEHOLDERS

    Reduce

    energy use

    Facilities, real

    estate, and energyprocurement

    Landlords, utilities,

    and serviceprovidersReducewaste

    Facilities, realestate, and storeemployees

    Landlords, wastehaulers, anddistributors

    Managesupplychain

    Procurement,sourcing, logistics,and product design

    Suppliers,transportationservices, andwholesalers

    Engage thecommunity

    Store employees,community affairs,andcommunications

    Local nonprofitsand city servicedepartments

    PRACTICES OF TOP-PERFORMING COMPANIES

    DIMENSION TOP TRAIT(S)

    Facility focus areas Reducing energy usage, land use and develop impacts from construction,and waste creation, and promoting green-building design

    Internal programs Senior management engagement, ethics and governance, store employeeengagement, diversity programs, and health and safety programs

    Product and supply chainprograms

    Transportation efficiency, plastic bag reduction, materials management(including chemicals of concern), packaging design, and product take-back

    Stakeholder engagementprograms

    Suppliers, NGOs, and community engagement

    Goals Set by sustainability teamStrategic planning horizon Five-year horizon

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    Measuring and

    ReportingIn order to track and report on the progress

    of sustainability programs, relevant financial,

    environmental, and social metrics must be

    selected. As with all business programs,

    measurement can be used to hold

    organizations and individuals accountable.

    When corporate sustainability goals are set,

    metrics and milestones are used to track

    progress in areas like energy or wastereduction or percent of suppliers in

    compliance with a companys code of

    conduct.

    Furthermore, external interest in corporate

    sustainability performance has fueled the

    need for more accurate measurement and

    reporting methods. Doing so allows

    companies to open dialogues with their

    customers, communities, investors, and

    suppliers, making their strategies known

    and strengthening trust in their brand.

    KEY FINDINGS

    Most retailers measureenergy, fuel,

    material usage, and waste generation.

    More than 25 percent more retailers will

    begin to measure code of conduct

    compliance, water usage, suppliers

    audited for social compliance,

    renewable energy generation, andchemicals of concern over the next

    two years.

    Companies communicate their

    sustainability plans and performance

    through websites, intranet sites, and

    annual sustainability reports.

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    MEASURING KEY SUSTAINABILITY METRICS

    The adage what gets measured gets managed is

    as true for sustainability as it is for all corporate

    initiative. And given that retailers focus first on their

    own operations, it is not surprising that the threemost commonly tracked metricsfacility energy

    consumption, transportation fuel usage for private or

    third-party fleets, and waste volumesrepresent the

    impacts of company buildings and trucking fleets.

    These metrics ensure that operational issues are

    managed and that company managers are held

    accountable for their performance.

    While companies will continue to track these three

    metrics over time, nearly every company will be

    tracking the 11 key metrics identified in the survey

    by 2015. Water usage, suppliers audited, renewable

    energy generated, and chemicals of concern will see

    a significant uptick in measurement over the next

    five yearsfrom 50 percent or fewer of companies

    tracking them now to more than 70 percent by 2015.

    Notably, most top-performing companies are already

    tracking the majority of these metrics. Retailers use

    this breadth of data to trace improvements in their

    operations and examine the effectiveness of their

    operational and supply chain strategies.

    Figure 18. What sustainability metrics does or wil l your companymeasure?

    % of top

    performers

    100

    88

    88

    100

    88

    100

    88

    75

    88

    75

    25

    Internal measurements are most often reported

    across an organization on an annual basis and are

    reviewed by the sustainability team and other

    relevant functional departments. As teams track the

    progression of their programs, they are able to make

    adjustments to their strategies to ensure success.

    ACTIVE SPEAKERS FOR ACTIVE LISTENERS

    As retailers continue to integrate sustainabilitymeasures into operations, they are also more

    creative in their communication strategies.

    Achievements in sustainability can engage

    consumers and other stakeholders, driving demand

    for products that are healthier, safer, and more

    environmentally friendly, as well as interest in

    companies that have strong sustainability programs.

    In turn, that demand can drive sales and investment,

    simultaneously elevating the value of internal

    sustainability efforts and creating a need for even

    more stakeholder communicationsfueling avirtuous cycle.

    Figure 19. Growth cycle for sustainability messaging

    Retailers access a variety of channels to reach their

    customers, employees, and other stakeholders.

    Many choose to highlight their efforts publicly on

    websites and privately through employee-onlyintranet sites. Sustainability reports and social media

    are also common information outlets. Nearly half of

    companies report to investor groups through

    mechanisms like the Carbon Disclosure Project

    (CDP) and Dow Jones Sustainability Index (DJSI).

    Few companies are communicating sustainability

    through television or radio, though the use of those

    0% 50% 100%

    Energy usage

    Fuel usage

    Waste generation

    Material recycled

    Greenhouse gas

    Plastic bag usage

    Code of conduct

    Water usage

    Suppliers audited

    Renewable energy

    Chemicals inNow

    2 years

    Supplier CoC compliance

    Social compliance audits

    Chemicals of concern

    GHG emissions

    Sustainabilitymessaging

    Stakeholderinterest and

    demand

    Sales ofsustainable

    products

    Sustainabilityactivities

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    channels is expected to rise more than threefold

    over the next five years.

    Figure 20. How do/will you communicate your sustainability

    efforts?

    % of top

    performers

    100

    100

    63

    100

    88

    75

    75

    88

    75

    13

    THE EMERGENCE OF THE REPORT

    Investors, consumers, and other stakeholders are

    becoming more sophisticated at evaluating

    companies efforts. To respond to the need for

    increased transparency, companies publicly share

    goals, strategies, milestones, and progress updates

    with stakeholders in the form of an annual report and

    on their website. These reports go by a variety of

    names, including corporate social responsibility

    (CSR) report, corporate sustainability report, or aseparately branded document.

    Figure 21. How often does/will your company produce or update

    your Sustainability Report?

    % of top

    performers

    0

    0

    50

    0

    50

    While about two-thirds of companies currently

    produce reports, by 2015 nearly 95 percent are

    expected to be reporting on sustainability issues.

    Most retailers reporting now, including the top

    performers, are publishing reports on an annualbasis. Reports can be a point of pride for retailers,

    prompting key stakeholders like employees,

    executives, investors, customers, and suppliers to

    join in the conversation. They typically cover

    relevant financial information extracted from investor

    reports, as well as the companys environmental and

    social objectives and performance. These reports,

    often using the Global Reporting Initiatives (GRI)

    reporting guidelines as a framework, also provide an

    organizational profile, governance indicators,

    management approaches, and more.

    Currently, the data reported in a sustainability report

    can be difficult to gather, since it resides in many

    parts of a business and lacks a common system to

    account for it. Therefore, most companies focus on

    gathering the data internally in a format that they can

    use for consistent reporting. As internal accounting

    systems become more sophisticated and industries

    develop and adopt data standards, data accuracy

    will become increasingly important. While more than

    60 percent of companies currently assure the

    accuracy of sustainability reports internally, external

    assurance will double in the next two years.

    Figure 22. How does/will your company seek assurance on

    sustainability metrics?

    % of top

    performers

    88

    50

    PRACTICES OF TOP-PERFORMING COMPANIES

    DIMENSION TOP TRAIT(S)

    Metrics being tracked internally Energy use, volume of materials used, plastic baguse, fuel use, waste generation, greenhouse gasemissions, and supplier code of conduct compliance

    Communication methods Website, intranet site, social media outlets, storesignage, and CDP report

    Reporting assurance Mainly internal assurance with a trend to externalassurance

    0% 50% 100%

    Company website

    Intranet site

    Report

    Social media

    Store signage

    Print media

    Product labels

    Reporting (CDP)

    Answering surveys

    TV or radioNow

    2 years

    Reports to investors

    TV or radio

    0% 50% 100%

    Monthly

    Quarterly

    Annually

    Every two years

    Not producingNow

    2 yearsNot producing report

    0% 50% 100%

    Internal assurance

    External assurance

    Now

    2 years

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    Chapter Two:Implementing Sustainability

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    Building Operations

    Retail stores and distribution centers vary

    significantly in size, design, and location, but

    they all have one thing in common: there

    are significant opportunities to cut expenses

    by reducing energy and carbon use and

    waste production. New technologies

    promote energy management and accurate

    tracking of energy use. Store employees

    and consumers are becoming ever more

    conscious about sustainability, especially as

    it relates to recycling.

    Implementing recycling, energy

    management, and other sustainability

    initiatives in retail facilities have benefits

    beyond cutting costswhen done well, they

    also generate profits and improve the

    comfort, indoor air quality, employee

    productivity, and customer experience in the

    store.

    KEY FINDINGS

    Waste and energy reduction are the

    top facility-related improvements

    retailers are undertaking.

    Green-building practices and

    management of greenhouse gas

    emissions and water use will grow

    significantly over the next two years.

    Green leases can unlock waste-

    reduction and energy-saving

    opportunities.

    The highest impact energy-efficient

    upgrades include lighting, HVAC

    (heating, ventilation, and air-

    conditioning) systems, and refrigeration

    units.

    Waste and energy reduction

    initiativesin stores and distribution

    centers energize retail employees.

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    MeasurementOpportunityidentification

    Execution

    RECYCLING AND WASTE MANAGEMENT

    Figure 23. Facilities - what are/will you work on?

    % of top

    performers

    100100

    100

    100

    75

    88

    Retail stores generate a host of material wastes,

    mainly from product packaging for transportation.

    Transportation packaging plays the crucial function

    of keeping the product safe through transportation

    and consists of materials including cardboard,shrink-wrap, mixed paper, plastic, scrap metal,

    aluminum, wood and plastic pallets, organic

    materials, and more. Minimizing retail waste requires

    economical recycling or reuse options for these

    material commodities.

    Waste reduction efforts begin with analyzing waste

    streams to identify the most prevalent commodities

    and then developing an action plan that accounts for

    regional hauling costs and commodity values.

    Ultimately, upstream reduction effortsnamely to

    redesign products and packaging to incorporatefewer materials or less material volumewill further

    reduce hauling needs, saving truck space and

    lowering costs related to waste.

    Nearly all surveyed companies are currently

    improving their environmental performance by

    reducing waste and increasing recycling. In fact,

    more companies have founded recycling initiatives

    than energy reduction initiatives. Recycling at stores

    reduces costs and engages the store employees

    some of its biggest advocates. Most companiesmeasure or estimate the amount of waste they

    generate and the volume of material they recycle.

    Setting waste reduction goals is another useful tactic

    to align the organization and demonstrate the

    companys commitment to these goals to its

    business partners and employees alike. Reducing

    energy use and greenhouse gas emissions and

    waste are the two types of goals retailers most often

    set. Specific commitments range from reducing

    waste by 25 percent by 2015 to aspirational goals

    like sending no (zero) waste to landfills.

    ENERGY IMPROVEMENTS

    Stores mainly use energy for lighting, heating,

    cooling, and, in the case of grocers, refrigeration.

    Since each of these functions affects the shopping

    experience, it is crucial to reflect on the customers

    perspective when determining how to upgrade

    energy systems. However, there are significant

    opportunities for energy reductionand saving costs

    and mitigating greenhouse gas emissionsthrough

    efficiency measures and renewable energy

    development that can also enhance a customersexperience.

    Tools:

    Submeter Smart meter EMS

    Criteria:

    Cost-benefitanalysis

    Relevance tostakeholders

    Benefit tocustomers

    Internal partners:

    Facilities Real estate Operations

    Construction

    Reducing energy use begins with measuring it. Most

    companies are currently measuring or estimating

    their energy usage. To do so accurately requires

    direct access to energy meterswhich are

    occasionally unavailable in leased spacesand

    systems to track monthly energy use. Companies

    use an EMS to track and analyze energy

    consumption, allowing them to compare stores to

    determine the best- and worst-performing locations.

    This analysis often requires that the company

    consider different store designs and local weather

    profiles. Some EMSs also have the capability to

    control store lighting, temperature, and other

    systems.

    Companies then identify the highest payback

    opportunities for energy-efficient retrofits. Most

    retailers focus on high-efficiency lighting systems

    20% 40% 60% 80% 100%

    Waste and recyclingEnergy usage

    Green buildings

    Greenhouse gas

    Water usage

    Land use and

    Now

    2 years

    GHG emissions

    Land use

    Figure 24. Energy-saving progression

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    like LED (light-emitting diode) bulbs with significantly

    improved lifetimes and energy performance; motion

    sensors and other automation systems to control the

    artificial lighting, depending on the outside

    conditions; as well as retrofitting HVAC systems.Incorporating daylighting (mainly through skylights)

    saves energy and improves the customer

    experience in stores. Retailers with grocery

    operations have upgraded food refrigeration

    systems to improve efficiency while recognizing

    customer and employee usage trends.

    Beyond efficiency, a growing trend is to generate

    renewable electricity onsite or purchase green

    power from a third-party generator. Solar power is

    the most common form of onsite renewable power,

    mainly because retailers operate stores anddistribution centers with large rooftops. Some

    companies are testing onsite wind power, either with

    microturbines on store roofs or larger turbines

    located at distribution centers. Sourcing renewable

    energy allows retailers to offset electricity bills and

    meet carbon emissions-reduction goals.

    Similar to reducing waste, companies are setting

    goals to reduce energy use and greenhouse gas

    emissions. Some goals are aimed at improving the

    per-square-foot performance over time, while others

    seek to obtain absolute reductions.

    DESIGN AND CONSTRUCTION

    Selecting a site is the first step toward opening a

    new store. Sites are selected based on a number of

    criteria, including proximity to specific customer

    demographics and related stores, lease cost,

    building type, availability of parking and alternative

    transportation, and more. Once they have selected a

    store location, retailers will either contract with third-

    parties or work with their own in-house teams to

    design and construct stores from the ground up or

    build out existing spaces. Because new locations

    are only profitable once their doors are open, it is

    extremely important that the time to design and build

    a new space is minimized. Therefore, companies

    develop store-design prototypes, which they use as

    a basis for the development or build out of their new

    spaces.

    Interior space build outs require the installation of

    electrical wiring and lighting fixtures, space heating

    and cooling, and refrigeration for food products. In

    addition to these features, new buildings may also

    require parking spaces and access to transit,stormwater management, and landscaping. When

    developing a new site, there are numerous

    opportunities to implement green technologies and

    processes, such as building on brownfield sites,

    using recycled, certified-sustainable building

    materials, or recycling construction wastes. Some

    companies may choose to install solar panels when

    they move into the space as well.

    Depending on their goals, retailers may follow

    green-building standards like the U.S. Green

    Building Councils (USGBC) for Leadership inEnergy and Environmental Design (LEED)

    framework. The Commercial Interior (LEED-CI) and

    LEED for Retail certifications are particularly relevant

    for retail stores. Also, the LEED Volume Program is

    especially valuable for retailers, since it allows

    companies to streamline the certification of

    numerous building projects.

    GREEN LEASING

    While it may seem that retail brands control their

    waste operations and energy performance,oftentimes changes in these operations require

    partnerships with landlords, utility companies, waste

    haulers, and other business partners who manage

    the retailers buildings and infrastructure. Retailers in

    leased locations, like malls or shopping centers,

    must interact with their landlords for certain

    operational improvements.

    Green leasing presents an opportunity for retailers

    and their landlords to make improvements that can

    reduce operating costs. The definition and

    implementation of these leases vary across the

    United States and by company, but lease provisions

    that foster reduction of energy use and waste

    creation will become more common as the influence

    of certifications like LEED or ENERGY STAR (a joint

    program of the U.S. Environmental Protection

    Agency and the U.S. Department of Energy)

    increase in public recognition. While every lease is

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    different, leases that incorporate green provisions

    will typically address the issues shown in Table 3.

    Table 3. Components of a retail green lease

    IMPROVEMENTDIMENSION

    PURPOSE

    1. Improve basebuilding efficiency

    Improve the energy, water, andwaste efficiency of the base building,including the common areas.Includes insulation, windows,rooftops, parking lots, etc.

    2. Align incentives Develop financing and paymentmechanisms that encourage eachparty to reduce energy and wateruse and waste.

    3. Improve tenantspace

    Support the resource efficiency of atenants space, consistent with thepremises requirements if available.Includes tenant build out and

    operation.4. Make resourceuse moretransparent

    Make energy and water use andwaste generation visible to bothparties.

    5. Clarify accessto and control ofkey spaces

    Define which party(ies) will haveaccess to important spaces like therooftop and who has the control toimplement capital projects such asrooftop solar units in those spaces.

    The most common obstacle that retailers and

    landlords typically face is that of aligning the

    financial incentives between the parties to reduce

    energy use in stores and common spaces. To

    address that need, New York City and otherorganizations have developed the Energy Aligned

    Clause, a publicly available provision that property

    owners can conveniently insert into leases that

    allows the developer to recuperate energy-retrofit

    costs through savings in tenant energy use. Such

    lease language is immediately beneficial to both the

    retailer and the developer. Another common

    obstacle that retailers and landlords face is that of

    defining who has access to and control of key areas

    on the premises like the rooftop or parking lots.

    Defining in which instances the retailer has access

    to the facilitys roof allows them to more easily installrooftop solar units.

    Few retail companies are currently addressing green

    leasing in a holistic way, but many are beginning to

    focus on one or more of the aspects mentioned

    above. We expect to see both retailers and landlords

    integrate more green provisions into their contracts

    over the next couple years.

    PRACTICES OF TOP-PERFORMING COMPANIES

    DIMENSION TOP TRAIT(S)Facility improvements Reducing waste generation, energy use, greenhouse

    gas emissions, and land use and designing facilitiesaccording to green-building standards

    Programs to reduce waste generation Redesigning products and packaging and developingrecycling programs, occasionally with backhaulingcapabilities

    Programs to reduce energy use Retrofitting lighting, HVAC, and refrigeration systems tomake them more efficient

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    Supply Chain

    Operations

    The consumer product supply chain is an

    extensive and complex global network.

    Supply chains span countries and cultures.

    And retails greatest environmental impacts

    and social performance challenges are in its

    supply chain.

    Therefore, true sustainability is achieved byintegrating it throughout the product supply

    chain. Retailers have many opportunities to

    improve business performance in the supply

    chain. Through incentives, training

    programs, and collaborative projects,

    suppliers and retailers have begun to

    integrate sustainability into the supply chain,

    leading to benefits like stronger retail-

    supplier relationships, lower transportation

    costs, greater transparency, and mitigated

    risks and costs.

    KEY FINDINGS

    Supply chain improvements have

    focused on transportation, materials

    including chemicals of concern, and

    packaging design. Managing all

    aspects of the product life cycle, from

    design through use and disposal will

    become increasingly prevalent practices

    over the next two years. Transparency into the social and

    environmental impacts of product

    supply chains is a growing practice.

    Risk mitigation is a major benefit of

    supply chain sustainability programs.

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    DRIVING SUPPLY CHAIN EFFICIENCIES

    Retailers recognize that managing the complete life

    cycle of the products they sell is a valuable

    competency to leverage as their sustainability efforts

    progress. Doing so helps them identify opportunitiesto cut costs and innovate products as well as

    potential business and supply risks.

    Retailers can intervene in their product supply

    chains to achieve business and environmental

    benefits. Not surprisingly, transportation and

    logistics top the list of current activities that retailers

    have long focused on. Other product lifecycle issues

    that more than half of companies are addressing

    include reviewing materials of concern in products,

    packaging design, product take-back, andmanufacturings environmental impacts.

    Figure 25. Products - what are/will you work on?

    % of top

    performers

    100

    100

    88

    88

    75

    63

    75

    63

    75

    50

    50

    MANAGING THE FULL PRODUCT LIFE CYCLE

    Retailers are at different stages on the road to

    managing the full lifecycle impacts of the products

    they sell. However, it is important to note that four

    out of five retailers who responded to our survey

    intend to engage in nearly all aspects of productsupply chain sustainability within the next five years:

    from product and packaging design (including

    measuring lifecycle impacts and chemicals of

    concern) to sourcing, manufacture (environmental

    and human rights impacts), transportation, sale, and

    product use and disposal (take-back options).

    Design is the first stage in any products life.

    Considerations like product size, ingredients or

    materials, function, energy usage specifications,

    packaging, recyclability, etc., influence the future

    impacts associated with the manufacture, transport,use, and disposal of that product. Therefore,

    designing products with an eye to environmental

    efficiencyand cost savings and product

    innovationis crucial. To do so first requires

    alignment within the company, including involvement

    from the merchandising, sourcing, and product

    design teams and then partnerships with suppliers.

    While only 48 percent of retailers report that they are

    currently designing products with the environment in

    mind, that figure is expected to increase to more

    than 80 percent in two years.

    Lifecycle analysis (LCA) is a key tool for assessing

    the lifecycle impacts of products. LCAs account for

    the raw materials, manufacturing processes,

    transportation, and typical use and disposal of

    products to calculate the impact of products across

    the full supply chain. Using LCAs uncovers supply

    chain inefficiencies, innovative design and

    manufacturing techniques, and potential supply

    risks. Measuring lifecycle product impacts is

    expected to grow threefold from 23 percent today to

    77 percent in five years.

    Manufacturing operations are complex and global.

    Retailers work diligently to partner with suppliers and

    manufacturers to ensure that products are produced

    in factories with the highest quality working

    conditions, proper health and safety features, and

    ecologically-efficient production capabilities.

    Components and finished goods are then

    transported across the globe. Transportation

    accounts for a small but important component of

    product cost and greenhouse gas emissions fromthe burning of fuel. Retailers who pursue

    transportation sustainability have experienced

    measurable savings by optimizing fleet efficiency

    through local sourcing, smart packing methods,

    route optimization, mode optimization, technology

    implementation, and setting goals. The recent surge

    in popularity of online retail shopping makes

    transportation improvements even more important

    20% 40% 60% 80% 100%

    Transportation

    Chemicals of

    Packaging design

    Product take-back

    Manufacturing

    Product design

    Factory labor

    Sourcing locations

    Product use and

    Business innovation

    Measuring life cycleNow

    2 years

    Chemicals of concern

    Factory labor conditions

    Manu. env. impacts

    Product use & disposal

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    as traditional retailers look to streamline costs and

    maintain store inventory.

    At some point, consumers determine that they no

    longer need a product. In any locale, there are oftenmultiple ways to dispose of unwanted products:

    donating, selling, recycling, and disposing are the

    most common. Some retailers have voluntarily

    developed customer recycling centers in stores

    where their capabilities, store footprint, and staffing

    allow for it and where the business can benefit from

    it. Some companies even provide incentives, such

    as cash or a gift card, for consumers to bring back

    their used goods for recycling. These incentive

    programs drive additional traffic and shopping trips

    to the store and spur sales of new items. Also, some

    of the products returned are still valuableas fullyfunctioning items or scrap materialsand retailers

    can reroute these products to offset costs or even

    open a new revenue stream.

    INCREASING SUPPLY CHAIN TRANSPARENCY

    New media sources and increased access to

    information throughout the world have allowed

    communication to be easier and faster. Additionally,

    certain regulations require public disclosure of social

    and environmental impacts throughout the supply

    chain, such as conflict minerals, human rights, andlogging practices. These changes have led to a

    global trend toward increased transparency within

    the supply chain.

    Questionnaires, scorecards, audits, and LCAs are

    simply some of the basic tools used to increase

    visibility within the supply chain. Long-term

    strategies include certifications, product traceability,

    supplier management training, data sharing, and

    more.

    Transparency efforts pay dividends. From the

    standpoint of consumers, retailers expand their

    loyalty base when customers trust retailers and

    recognize their efforts, even when they make

    mistakes. And when operations are transparent,

    retailers and suppliers alike can more easily identify

    opportunities to improve performance and can

    develop plans to reduce costs or supply chain risks.

    However, it is also challenging for retailerswho sell

    many thousands of products, each with its own

    unique environmental and social footprintto gather

    accurate product and sourcing data. Manufacturers

    energy, water, material, and ingredient usage is

    often thought of as proprietary information, meaningthat they are unwilling to share it. Furthermore,

    current data systems and processes struggle to

    reach through the whole supply chain to the farms,

    mines, raw material sources, and numerous

    organizations involved, making it difficult to assess

    the impact of complete product life cycles and effect

    change.

    MANAGING SUPPLY CHAIN RISK

    The global recession has made companies more

    susceptible to market and supply chain risks. Tomaintain the health of their brands, retailers are

    working to manage and mitigate sustainability-

    related risks such as those related to reputation,

    agricultural output, commodity prices, resource

    availability, and the possibility of regulations.

    Because retailers care about factory labor conditions

    and because media organizations are quick to

    identify labor concerns in manufacturing facilities,

    companies pursue risk management and

    sustainability efforts in order to ensure positive

    relations with their suppliers, consumers, and otherstakeholders. Sharing success stories about

    sustainability efforts not only mitigates certain public

    scrutiny, but it also promotes a positive brand image.

    However, companies must be careful with their

    external messages, as public reporting exposes

    companies to additional accountability. Since much

    of a retail companys value lies in the value of its

    brand, retailers recognize the importance of

    proactively mitigating reputational risks.

    Agriculture is the foundation of many supply chains,

    from apparel to food. With the increase in extreme

    weather events like droughts, fires, and storms,

    agricultural-based supply chains will become

    increasingly volatile and difficult to manage. Water

    conservation, commodity efficiency (for cotton, grain,

    and fuel, for example), and other measures can be

    used as a hedge against increasingly severe

    weather conditions.

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    And as the public continues to recognize the

    importance of environmental stewardship and

    human rights in supply chains, they will advocate for

    stricter controls on global supply chains. Retailers

    are proactive about these issues, ensuring that they

    have a solid understanding, where possible, of the

    materials they use to make their products, where

    those materials come from, and how they are made.

    PRACTICES OF TOP-PERFORMING COMPANIES

    DIMENSION TOP TRAITS

    Supply chain sustainability performance Focus on transportation, materials including chemicalsof concern, packaging design, and product take-back

    Supply chain goal setting Set goals for supplier engagement, supplier carbonreduction, or other performance improvements

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    Stakeholder

    Engagement

    Retail companies connect the global goods

    marketplace and local communities. While

    their businesses may operate worldwide

    and their products are sourced globally,retailers bring employment, economic

    vitality, and a cultural foundation to the local

    neighborhoods in which they operate. To

    weigh these diverse and far-reaching

    priorities, retailers build bridges to a broad

    set of stakeholders, beginning with

    shareholders, employees, and customers

    and extending to governments, nonprofits,

    academic institutions, and local community

    organizations.

    KEY FINDINGS

    Companies are strategically engaging

    their stakeholders in the ways that are

    most relevant for each.

    Pressure for retail sustainability efforts

    is strongest from employees,

    competitors, and regulators.

    Companies can educate consumers

    through a variety of channels.

    Collaboration is becoming imperative

    for effective sustainability action.

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    MEETING EVOLVING STAKEHOLDER NEEDS

    Because of the breadth of benefits that sustainability

    programs provide to companies, it is often difficult to

    pinpoint a single reason a retailer begins a particular

    program. However, it is clear that companies oftenfound sustainability programs because of one or

    more relevant stakeholders evolving needs.

    Employees, competitors, and government are the

    top three stakeholders driving retailers to strengthen

    their sustainability programs.

    Figure 26. Order the stakeholders who are applying the pressure

    to increase sustainability activities (1 = strongest pressure)

    Rank - top

    performers

    4.5

    4.4

    5.1

    4.0

    5.3

    3.9

    4.6

    ENGAGING THE MOST RELEVANT ISSUES

    Retailers are able to engage their many

    stakeholders through a variety of channels. An

    effective stakeholder engagement strategy focuses

    on the issues most relevantor materialto thatstakeholder.

    Table 4. Engagement topics for key stakeholders

    EXAMPLESTAKEHOLDER

    TYPICAL ENGAGEMENT TOPICS

    Employees Corporate or store green teams,educational sessions, in-store recycling

    Competitors Benchmarking against competitors,collaboration on key topics

    Government Voluntary partnerships and regulatoryobligations

    Customers Green products, product labels, andmarketing

    Investors Sustainability reporting and risk disclosure

    NGOs Supply chain engagement and chemicals ofconcern

    DEVELOPING EMPLOYEE PROGRAMS

    Retails own employees are often their toughest

    critics. Many store employees, especially younger

    ones, seem enthusiastic about sustainability and are

    the first to promote the benefits of reducing energy

    use, creating less waste, and engaging with

    suppliers and in philanthropy. And an engaged

    workforce leads to improved productivity, increased

    retention, and great new ideas to fuel the business.

    Numerous companies cite employees both as the

    biggest driver and as the most importantbeneficiaries of sustainability programs.

    Achieving sustainability goals requires collaboration

    across many departments. Two-thirds