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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



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



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


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



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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30

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.


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


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.


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

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