Sustainable value chain
An increasing number of businesses, especially new market entrants, are also putting their sustainability credentials at the heart of their brand promise. This often creates challenges for long-established brands who, while working hard to become more sustainable, struggle to be seen as authentic given their history.
“More and more businesses are making public commitments about their environmental goals, such as becoming net-zero in carbon footprint by a given date,” Hutter said.
Measuring performance versus these commitments is clearly key and global reporting standards (supported by the International Financial Reporting Standards) are emerging for impacts on people and planet, as well as for the governance that businesses put in place. However, while the business case for becoming more sustainable is increasingly accepted by business leaders, most businesses are still unable to measure how their ESG strategies and narratives translate into individual engagement, preference and choice — hence into value creation.
“Retailers have a major role to play in building a better, more sustainable world through the way they touch and enable people’s lives every day, informing the choices they make about the products they buy and consume,” Hutter said. “The challenge most retailers have is that most of their value chain impact lies outside their business. For a typical grocery retailer, for example, less than 10% of their environmental impact lies within the perimeter of their business; more than 90% lies in the up-stream value chain of the products they sell.”
In turn, Hutter explained retailers need to:
- Make their own operations more sustainable — for example, becoming net zero in carbon footprint across their distribution system and stores.
- Work category by category with their suppliers to improve the performance of their upstream value chains from both environmental and social perspectives.
- Communicate the value proposition of these more sustainable products to customers that care in the most engaging and compelling way, in-store and on-line. Measuring and optimizing this is key.
“Scale is generally an advantage here because of the leverage it brings,” Hutter said. “It provides the opportunity for retailers to work with their major suppliers in areas such as regenerative agriculture, animal welfare, renewable energy, electrification and many others.”
Authentic brand narratives
What’s clear and measurable is that more individuals make choices influenced by considerations of product reputation and claims. For example, that damaging pesticides were not used, animals were well treated, forests were protected, workers had good conditions, etc.