The Commercial Imperative for Sustainability Analytics
Pursuing sustainability goals in the retail industry used to be a secondary goal, often being push aside due to commercial pressures. However, given the fast approaching climate crisis the pressure to become sustainable is now much harder to overlook. Customers’ awareness of the impact that retail and manufacturing sectors have on the environment continues to grow, and retailers need to respond accordingly.
According to Google, search activity for ethical online shopping increased by 600 percent in 2020. Much of this shift in attitudes towards sustainability is being driven by millennials, as that group is more than twice as likely to change their habits to benefit the environment than older baby boomers. As e-commerce sector serves more millennials than any other generational group, the corporate imperative starts to become clear.
The generation coming up behind millennials, generation Z, is also becoming increasingly focused on sustainability.
While there is an increased focus on the environment among these generations, the consumer push for sustainability is apparent across the board. Four out of five consumers want companies to do more on sustainability issues, while two-thirds are willing to pay more for products offered by sustainable brands.
Businesses lagging behind on the sustainability front risk getting left behind as customers start moving to the more environmentally conscious brands
As another group of influencers pushing toward higher product sustainability are investors also increasingly want to ensure they back companies that are working towards a sustainable future. According to research by Morgan Stanley, 80 percent of the investors they surveyed integrated sustainable investing into their portfolio. Another research has found that sustainability was a key consideration in the investment decisions of 33 percent of total US assets under management.
Investors are increasingly taking a more positive view of companies that have clear sustainability strategies, seeing benefits in terms of financial outlook, risk reduction, reduced regulatory costs, and a number of other factors.
The regulatory landscape is also changing as governments work towards their own sustainability goals and targets. The retail industry will play a role in achieving those targets, so regulatory requirements are only going to tighten.
In the UK, for example, the Competition and Markets Authority (CMA) recently published new guidance on greenwashing (misleading consumers on sustainability credentials – more below). Retailers are expected to comply with the guidance in relation to the products they sell, with increased enforcement action expected by the CMA since the new guidelines have been announced.
It’s clear that sustainability isn’t just about the future of the planet. It is also about the future of your business.
However, sustainability is not something that business management can simply aspire to. Becoming sustainable requires thorough planning and transformational decision-making processes across the entire organisation. It also requires constant monitoring of performance, as well as detailed analytics to identify issues, challenges, and opportunities.
For example, it is no longer good enough to tell your customers that one of your suppliers is sustainable because that supplier has told you it is. Evidence to support sustainability claims will be required, and this is where sustainability analytics comes into play.
Sustainability analytics is the process of identifying and quantifying the environmental impact of a product, service, or company. It helps businesses understand their carbon footprint and identify ways to reduce it.
Sustainability analytics involves capturing and assessing historical and real-time data. That assessment is conducted by algorithms that look at your position today while also making predictions for the future. The predictions for the future enable business leaders and workers to make data-driven decisions that help ensure the company achieves its sustainability objectives.
The changes that can be made using the insights provided by sustainability analytics include optimizing processes in the retail industry, including through automation. Changes that come from the knowledge provided by sustainability insights can also lead to the introduction of new technologies or the acquiring of new expertise, whether that is recruiting internal staff or appointing third-party experts.
For example, a retailer might choose to implement technology solutions like data science, robotic process automation, chatbots, machine learning, or blockchain technologies to advance its progress on sustainability goals. In terms of expertise, it might decide to increase the skills of existing employees or bring in new talent in data-focused disciplines, such as data engineering, or roles that are more traditional but still have a significant part to play in the sustainability agenda, including logistics and facilities management expertise.
Examples of data that is considered when measuring a retailer’s sustainability metrics and performance include:
- Energy use and how this use relates to CO2 emissions and the retailer’s carbon footprint. This includes the energy use of facilities – bricks-and-mortar stores, warehouses, distribution centres, and offices. It also includes energy use from vehicles used to transport stock and/or ship to customers, as well as product handling equipment, such as forklift trucks.
- Water usage and how water use can be minimized, including in areas like cleaning.
- Air quality within retail units and warehouse and distribution centre environments, as well as the impact that operations are having on general air quality. Emissions by vehicles is one example.
- Consumption of materials and resources, especially materials and resources that are not recycled and/or cannot be recycled, as well as materials where there is a general consensus that consumption should be reduced for sustainability reasons. Water has already been mentioned, but packaging is another example.
- Weather and environmental conditions and how those conditions impact key sustainability metrics. For example, the impact of heat and humidity on energy use, or the sustainability impact that bad weather has on logistics and shipping.
- Employee headcount and how it impacts sustainability, particularly as retailers seek to automate previously manual processes.
- Productivity and its impact on sustainability.
- The production of waste, particularly packaging waste. This includes external packaging waste that comes off delivery vehicles at warehouses and distribution centres but is discarded before the product is offered for sale to customers. It also includes packaging waste needed for shipping products to customer locations.
- The impact that retail sales have on sustainability, including seasonal sales trends.
Sustainability data can be collected from both internal and external sources. Crucially, all or most of the above data points and datasets can be collected from those in the supply chain as well as within the retailer itself.
Sustainability data can also be collected from:
- Sensors and IoT devices
- Buildings and facilities, including bricks-and-mortar stores, warehouses, distribution centres, and offices
- Machines and equipment, including manual handling equipment, as well as fridge and freezer units
- Software applications, such as data from point-of-sale software, e-commerce software, sales apps, and CRMs
With sustainability analytics, you will have clear oversight of the environmental and social impacts of your business, helping you align those impacts with your strategy, so you can achieve your sustainability goals. Sustainability analytics also help you quantify and compare the risks you might face in the future.
Sustainability analytics in retail will give you a better understanding of your carbon emissions and consumption of energy. These insights are especially important if you operate multiple bricks-and-mortar stores, as each one of those stores is likely to have a different energy efficiency performance and carbon footprint. Having this knowledge allows you to make operational adjustments to your units accordingly.
Sustainability analytics can also help in a number of other areas that are of crucial importance to retailers, such as reduction of packaging waste which consumers are becoming increasingly concerned about This includes the role the retail industry must play in the development of the circular economy. After all, data is going to be essential in getting to a position where we have products that are endlessly recycled.
Sustainability analytics metrics will also enable you to monitor the environmental and social impacts of your suppliers’ activities to ensure they are meeting the standards that you have set.
There is a direct connection between environmental aspects described above and the performance of your business. This correlation is driven by your customers and their buying habits. If customers stop shopping with you because they don’t feel your business is sustainable, your bottom line will be affected.
Sustainability analytics can help you pro-actively drive changes in your business and foresee the impact that your business decisions have not only on the environment but also on your customers’ behaviour. Here are some examples of the business areas that benefit from sustainability analytics
Greenwashing is a term used to describe situations where companies mislead their customers about the environmental impact of their operations and products. In other words, it is about companies claiming to be more sustainable than they are.
For retailers, this is challenging as suppliers that are guilty of this practice are not only greenwashing the end-user, but also you as a retailer. Sustainability analytics make it possible for you to get a deeper, unfiltered understanding of your suppliers’ sustainability practices and policies to make wiser choices on who you wish to work with
This will help you identify those who are potentially misleading you and your customers, so you can take action.
For most retailers the complex nature of the supply chain leaves room for improvement when it comes to reducing the environmental impact. Sustainability analytics will help you optimise your supply chain by reducing logistical inefficiencies and making more accurate predictions about future demand. This can help you reduce energy and fuel consumption or reduce waste generated by your retail stores.
You can also use sustainability analytics to help make your supply chain more resilient and to identify and address potential issues and inefficiencies as early as possible.
The momentum behind the circular economy is growing fast, where we move away from the throwaway culture to one where products are endlessly recycled. Many of the technologies that will be required to achieve this already exist. For example, sensors, Industry 4.0, and internet of things (IoT) technologies make it possible to monitor products throughout their entire lifecycle.
However, achieving the circular economy is not a technical problem. It requires a change of approach and emphasis on innovation, adaptability, and continuous improvement. Analysing sustainability data gives you actionable insights that will help you achieve these goals.