2015 Retail Sustainability Management Report FOR THE RETAIL INDUSTRY LEADERS ASSOCIATION'S RETAIL SUSTAINABILITY INITIATIVE PROGRAM SPONSORS From The Retail Industry Leaders Association On behalf of the Retail Industry Leaders Association (RILA) and our member companies, we are proud to present RILA’s third Retail Sustainability Report. RILA has been providing the industry with a forum to learn about sustainability activities in the retail industry and accelerate its progress for the past nine years. This report is different from our first two Retail Sustainability Reports, published in 2012 and 2013, because its content is structured according to a tool that RILA recently developed, the Retail Sustainability Management Maturity Model. Tools like the Maturity Model and reports like this are the cornerstone of RILA's efforts to help companies understand how they compare to others in the industry, and how they may want to progress in the future. Since the publication of the last report, we have seen companies grow more sophisticated by focusing their efforts on the most material issues— whether energy reduction in stores, engaging their suppliers, accessing product ingredient information, etc.—and engaging the most critical stakeholders—internal and external—to drive change. Companies are also better quantifying the business and environmental benefits of their programs, further justifying their efforts. As you will see illustrated in this report, these benefits are fueling the continued development of sustainability programs over time. But of course with progress on any major issue comes challenges as well. Please use this report to understand the core components of a retailer's sustainability program. We will continue to publish this report in future years to show how the industry is progressing on key sustainability indicators. Adam Siegel Vice President, Sustainability & Retail Operations Sandy Kennedy President Find more at www.rila.org/sustainability 2 Report Contents Letter from the Retail Industry Leaders Association About the Retail Industry Leaders Association About this Report About the Maturity Model Sustainability Team Structures & Resources Dimensions of Sustainability Management Conclusion Find more at www.rila.org/sustainability 2 4 5 6 7 10 47 3 About The Retail Industry Leaders Association About RILA The Retail Industry Leaders Association (RILA) is the trade association for the world’s 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. About RILA’s Retail Sustainability Initiative RILA’s Retail Sustainability Initiative (RSI) engages retail sustainability executives to share leading practices, develop new processes, and communicate their efforts to the industry’s stakeholders. RILA uses its annual conference, benchmark studies, collaborative partnerships, and research on behalf of retail sustainability interests to help our members learn and develop their programs. Learn more or access the program’s resources at www.rila.org/sustainability Find more at www.rila.org/sustainability 4 About This Report RILA’s 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 found that environmental and social considerations were beginning to supplement traditional measures of competition, including price, service, and quality. In 2013, we then determined that it was important to update that first report format to provide a RILA-wide snapshot. Therefore, RILA's second retail sustainability report highlighted indicators that the largest retail companies use to assess their sustainability programs. We promised to update that format periodically to see how the industry progresses. This latest report continues that tradition, but in a more organized format. Specifically, this report is aligned with a tool that RILA recently developed called the Retail Sustainability Management Maturity Model. This report summarizes retailers' current progress along the Maturity Model. We also recognize that it is important to show future trends. So for each dimension of the Maturity Model, we report not just on retailers' current progress, but also where they expect to be in 2017. While we cannot definitively state that the industry will follow these projections, the trends provide a view of current priorities. We will continue to update the data periodically to follow the industry's progress. Sources of Information This report was developed through an online survey. The survey was disseminated in June of 2015; 42 retail companies responded, representing more than 50,000 locations and $620 billion in global revenue. Retail Categories In analyzing the results of the survey, we broke down respondents into four retail categories, namely small, medium, and large format, and grocery retailers. This breakdown accounts for differences in operational characteristics and allows for similar retailers to be compared to one another. Sustainability Teams and Operations Questions Our first set of questions asked retailers about their sustainability teams and budgets to get a better context for what “sustainability management” really means at a national retail company. Sustainability Management Dimensions Questions Retailers were then asked to consider their company’s progress in 27 dimensions of sustainability management. Find more at www.rila.org/sustainability 5 About the Maturity Model This report is structured around RILA’s Retail Sustainability Management Maturity Model. The Maturity Model is a tool for retail sustainability executives to identify the management practices that will drive improved corporate and environmental performance, and assess the maturity of their programs. It is divided into seven sections, including: Strategy & Commitment, People & Tools, Visibility, Retail Operations, Supply Chain, Products, and Environmental Impacts. The Maturity Model is a tool that can be used for individual company and industrywide purposes. Individual retailers can use it to: identify the maturity of their program and opportunities for improvement, facilitate internal conversations about the sustainability program’s development, access more funding for sustainability programs, train employees with sustainability responsibilities, obtain buy-in from leadership and other departments, evaluate internal and external perceptions about the program, and more. The Maturity Model is based on Deloitte Consulting LLP and RILA's primary knowledge of the industry, and confirmed through three review periods that solicited input from environmental nonprofits and experts, and numerous retailers. While the first version specifically focuses on environmental impacts; subsequent versions may also include aspects of social, community, and diversity impacts. To download the RILA Retail Sustainability Management Maturity Model visit www.rila.org/sustainability Find more at www.rila.org/sustainability 6 Sustainability Team Structures & Resources Team Structures The first set of questions asked respondents about their sustainability teams' size, budgets, titles, and reporting structures to determine how roles and responsibilities of those teams are defined at nationwide retail companies. Resources and Benefits We also asked about the benefits, risk mitigation opportunities, budgets, and payback periods that sustainability teams work toward. That information illuminates the opportunities and constraints that teams must work within. While 30 percent have of respondents have just one executive dedicated to sustainability, nearly 20 percent have six or more people on the team. Further, sixty percent of respondents indicate that their company also has staff with part-time sustainability functions; often those executives manage other operational functions and work to integrate sustainability into those functions. For the most part, sustainability budgets stayed the same this year relative to last, however, 30% of budgets did increase. Not surprisingly, the typical payback period that sustainability projects need to achieve is 2-3 years—on par with the projects of other functions. Senior Director, Director, and Vice President are the most frequent titles for the senior-most sustainability executive, and they report to a wide range of places within the organization. Interestingly, sustainability is most often seen as a source of innovation for the company, though there are many other benefits: it can help companies enter new markets (regions, consumer segments, product types), mitigate risk, and enhance their brand. Find more at www.rila.org/sustainability 7 Sustainability Team Structures Respondents provided information about their sustainability team sizes, structures, titles, and goal-setting processes. Percent of peer respondents Staff Devoted to Sustainability 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Title of Senior-Most Sustainability Lead # people: > 10 8 to 10 Senior Manager/ Manager Senior Director/ Director 6 or 7 5 Vice President 4 EVP/SVP 3 2 Other / N/A 1 0% 0 Full-time Part-time 25% 50% 75% 100% Percent of respondents Sustainability Team Reporting Structure Sustainability Goals Set By Public Relations C-suite Human Resources Legal Sustainability team Marketing Facilities / Real Estate Functional department(s) Merchandising Supply Chain We do not have sustainability goals Other 0% 25% 50% 75% 100% Percent of respondents Find more at www.rila.org/sustainability 0% 25% 50% 75% 100% Percent of respondents 8 Resources for Sustainability Respondents also provided information about their sustainability programs' budget trends, payback requirements, and benefits. Budget for Sustainability in 2015 Capital Investment Payback Requirement Less than a year Increased 1-2 years 2-3 years Remained the same 3-5 years Decreased More than 5 years No minimum No dedicated budget It depends 0% 25% 50% 0% 75% 100% 50% 75% 100% Percent of respondents Percent of respondents Benefits of Sustainability 25% Risk Mitigating Benefits of Sustainability Increase profits Reduce costs Source of innovation Employee retention Brand enhancement Risk management New markets Satisfy stakeholders Satisfy consumers Address regulation Reputation Recruiting Energy dependencies Price fluctuations Human rights Financial instability Weather conditions 0% 25% 50% 75% 100% Percent of respondents Find more at www.rila.org/sustainability 0% 25% 50% 75% 100% Percent of respondents 9 Dimensions of Sustainability Management Respondents were also asked to consider their company’s progress in 27 dimensions that define an effective retail sustainability program. On the following pages, we track the current status and projections of the industry’s retail sustainability programs. Each page documents one of the 27 dimensions by overlaying the industry’s average maturity, the maturity of the current industry leader, and the average and industry leaders’ desired maturity two years from now. These “flags” are placed over the description of the corresponding maturity stage. Those dimensions, and corresponding maturity stages, were initially described in RILA’s Sustainability Management Maturity Model. The Maturity Model as a standalone document is a roadmap to help retail sustainability managers optimize their programs. Retailers can use it first to baseline the maturity of their program and then to identify the highest leverage opportunities for improvement. Further, each dimension is linked to a range of resources, case studies, and existing working groups that are already informing management of that particular dimension and catalogued in RILA’s Sustainability Management Resource Library. In the survey, retailers were asked to select the maturity stage that is most representative of their current state and then the maturity stage that most closely reflects where they plan to build their program in the next two years. Having those two data points allowed us to plot the industry’s current average and the highest performing “leader,” as well as their ambitions for development over the next two years. You can view the complete Maturity Model and the Resource Library at www.rila.org/sustainability Find more at www.rila.org/sustainability 10 Dimensions of Sustainability Management 12 Maturity Comparison Across All Dimensions 13 Strategy & Commitment 14 Strategy 15 Materiality / Risk Identification 16 Goals 17 Governance & Executive Engagement 18 Incentives 19 People & Tools 20 Stakeholder Engagement 21 Employee Engagement 22 Funding Mechanisms 23 Business Innovation Mechanisms 24 Visibility 25 Metrics & Measurement 26 Reporting & Communicating 27 Point-of-Purchase Consumer Education 28 Marketing Campaigns 29 Collaborative Involvement 30 Retail Operations 31 Stores / Corporate Offices 32 Warehouses / DCs 33 Data Center & Applications 34 Supply Chain 35 Transportation / Logistics 36 Supplier Engagement 37 Supply Chain Transparency & Traceability 38 Products 39 Product & Packaging Design and Development 40 Owned Manufacturing / Production 41 Product & Packaging End-of-Life Stewardship 42 Environmental Issues 43 Energy & GHG Emissions 44 Water & Wastewater 45 Waste & Recycling 46 Chemicals & Toxics Find more at www.rila.org/sustainability 11 2015 Average Maturity 2017 Prediction Find more at www.rila.org/sustainability 27) Chemicals & Toxics 26) Waste & Recycling 25) Water & Wastewater 24) Energy & GHG Emissions 23) Product & Packaging Stewardship 22) Owned Manufacturing / Production 21) Product & Packaging Design 20) Supply Transparency & Traceability 19) Supplier Engagement 18) Transportation / Logistics 17) Data Center & Applications 16) Warehouses/DCs 15) Stores / Corporate Offices 14) Collaborative Involvement 13) Marketing Campaigns 12) Consumer Education 11) Reporting & Communicating 10) Metrics & Measurement 9) Business Innovation Mechanisms 8) Funding Mechanisms 7) Employee Engagement 6) Stakeholder Engagement 5) Incentives 4) Governance & Executive Engagement 3) Goals 2) Materiality / Risk Identification 1) Strategy Program Maturity Maturity Comparison Across All Dimensions A snapshot of the 2015 average and leaders' programs across all maturity dimensions is presented below. Next practice Leading Excelling Standard Starting 2015 Leader 12 Strategy & Commitment The first critical steps toward achieving the desired outcomes of any business program is a strategy that reflects the company's priorities, operating environment, assets, and challenges; as well as strong senior executive commitment. In this section: Dimension 1 | Strategy Dimension 2 | Materiality / Risk Identification Dimension 3 | Goals Dimension 4 | Governance & Executive Engagement Dimension 5 | Incentives Find more at www.rila.org/sustainability 13 Dimension 1 | Strategy Overview Business programs can only be effective with a strategy that makes the best use of company resources, and addresses the material issues with the greatest potential for business, environmental, and societal outcomes. Key Findings: - This dimension currently ranks as one of the most mature dimensions for the industry, and is planned to be one of the most ma ture in 2017 - Both large and medium format retailers plan to grow signficantly in this dimension in the next two years The industry's maturity 6 • 9 2 1 2015 Maturity 25 22 3 8 2017 Predictions 1 5 Ad hoc efforts, no formal • Defined sustainability team • Defined sustainability team • Sustainability strategy aligns • Sustainability strategy and sustainability program or with responsibilities on short aligns with various key across departments and with corporate strategy are one program relies on volunteers and long-term sustainability departments on sustainability overall corporate strategy and the same only strategy strategy for the short-and • Incorporates internationally • Sustainability strategy / • Sustainability strategy is long-term recognized standards (e.g., results regularly reported to primarily focused on • Sustainability strategy UNGC, SA8000, etc.) into executives and the board operational priorities rather encompasses operations, long-term organizational • CEO regularly incorporates than sourcing or and merchandizing and strategy sustainability strategy in merchandizing practices sourcing practices • Balanced scorecard (people, meetings and planet, and profit) system in communications (e.g. place for reviewing strategies employee town halls / and projects investor calls, etc.) 2015 Average 2017 Prediction 2015 Leader Example resources to improve • Sustainability SWOT framework • Kroger • Retail Sustainability Management Maturity Matrix • ISO 50001 Energy Management System Standard • UN Global Compact • Ceres Roadmap for Sustainability Find more at www.rila.org/sustainability 14 Dimension 2 | Materiality / Risk Identification Overview Defining the issues most material to the business is critical for all corporate functions; and resources are best directed at those issues with the potential for a significant material impact. Key Findings: - The industry on average plans to make significant improvement over the next two years in this dimension - Large format retailers plan to grow signficantly in this dimension in the next two years The industry's maturity 2015 Maturity 22 15 19 16 • Ad hoc efforts to identify sustainability risks and opportunities 2015 Average • Assesses risks and opportunities through a formal materiality process Assesses risks and opportunities and conducts bi-annual review • Assessment incorporates a timeframe of 3-6 years • 3 2 1 0 Individual departments (e.g., • sourcing, operations) review materiality assessment • • Uses the same processes to review sustainability risks and opportunities as corporate risks and opportunities • Assessment incorporates a timeframe of more than 6-10 years • 2017 Predictions 1 3 Integration of sustainability and corporate risks Assessment incorporates a timeframe of more than 10 years 2015 Leader 2017 Prediction Example resources to improve • GRI Materiality • Gap • Sustainability Accounting Standards Board • Return on Reputation for the Retail Industry • adidas • Ceres Find more at www.rila.org/sustainability 15 Dimension 3 | Goals Overview Goals signal commitment, and drive focus and internal alignment. Some companies prefer to perform rigorous analysis before setting goals that they are certain to achieve, while others opt for ambitious goals to inspire employees to action. And some companies choose internally-facing goals, while others see value in publicly promoting them. Key Finding: Both large and small format retailers plan to grow signficantly in this dimension in the next two years The industry's maturity 2015 Maturity 25 10 8 1 Annual goals based on cost saving only • No efforts in place to benchmark sustainability goals against peers • 2015 Average 2017 Predictions 22 4 2 Short- and long-term • Identifies absolute reduction • sustainability goals, mostly goals for two or more material focused on operations risk categories (i.e., energy • Efforts in place to benchmark consumption, water, sustainability goals against waste/recycling, sourcing, • peers consumer education) • Routine and comprehensive • benchmarking efforts in place to prioritize focus areas • 2017 Prediction 8 0 2 Defines comprehensive, • Uses global and local context aggressive, and crossof environmental conditions functional goals addressing and aligns with scienceall material risk categories based targets to set Goals address most aspects appropriate goals of sustainability • Quantitatively links profit Includes separate goals goals with sustainability goals focused on supply chains, products, sourcing, and marketing 2015 Leader 2017 Leader Example resources to improve • PivotGoals • Eileen Fisher • WWF's The 3% Solution • Staples • RILA's Retail Sustainability Initiative • Power Forward Find more at www.rila.org/sustainability 16 Dimension 4 | Governance & Executive Engagement Overview Strong governance structures ensure buy-in from company leadership and focus the program's efforts. Further, program execution is more streamlined with engaged executives who can direct their teams and resources as appropriate. Key Finding: Large and medium format retailers, and grocers, plan to progress the most in this dimension in the next two years The industry's maturity 16 18 15 13 4 1 Ownership and accountability • for sustainability has either not been defined or is confined to one function (e.g., Environmental Health and Safety) • • No sustainability council in place Dedicated sustainability • executive to design, manage, and continuously improve sustainability program and initiatives • Sustainability council comprises senior leaders from key functional roles and meets periodically • Accountability is clearly • defined for sustainability goals and initiatives • 10 2015 Average 2015 Maturity 2 Board and company • leadership develop and/or endorse goals and initiatives to improve sustainability • Sustainability council comprises executives, defines priorities, and • periodically reports to senior leaders Senior management's sustainability roles are clearly defined 2017 Predictions 1 Board oversees and • endorses sustainability goals and initiatives Dedicated executive • champion for sustainability appointed by board Executives from all of the • relevant parts of the business are engaged (e.g., strategy, innovation, finance, HR, legal, marketing, sourcing) 2 Board and key executives held accountable for sustainability performance Dedicated Chief Sustainability Officer reports directly to CEO CSO & CEO partner to demonstrate business relevance of program to investors and other stakeholders 2015 Leader 2017 Prediction Example resources to improve • Governance for Sustainability • Best Buy • RILA's Retail Horizons • Marks and Spencer • Ceres Roadmap for Sustainability Find more at www.rila.org/sustainability 17 Dimension 5 | Incentives Overview Incentives drive all business behavior. Implementing programs will be more streamlined when the proper organizational, management, and employee incentives are aligned for achieving sustainability objectives. Key Finding: This dimension is one where nearly all companies are just starting The industry's maturity 12 2 • Sustainable business and • leadership practices do not factor into annual evaluations and compensation 2015 Average 2015 Maturity 28 27 1 Performance evaluation and • compensation considers multiple "balanced" goals and performance metrics Include basic sustainability • goals for select leaders as part of metrics 8 Includes sustainability metrics• in annual reviews and performance ratings for each business function Rewards (monetary or non- • monetary) biggest contributions to sustainability performance 0 2 2017 Predictions 1 1 Reviews mid-level • Links executive management processes compensation to regularly and links it to sustainability performance sustainability performance • Invests in incentives to Provides some incentives to influence positive employee influence positive personal behaviors (e.g., charging behaviors for all employees stations for electric vehicles (e.g., hybrid car or mass at store or office parking lots) transit subsidy) 2015 Leader 2017 Prediction Example resources to improve • Incentivizing and Valuing Employee Engagement • Loblaw Find more at www.rila.org/sustainability 18 People and Tools An appropriate amount of resources, mainly in the form of personnel, funding, tools, and stakeholder input, is critical in order to execute business priorities. A strong strategy and senior executive commitment can unlock access to resources that can drive a successful program. In this section: Dimension 6 | Stakeholder Engagement Dimension 7 | Employee Engagement Dimension 8 | Funding Mechanisms Dimension 9 | Business Innovation Mechanisms Find more at www.rila.org/sustainability 19 Dimension 6 | Stakeholder Engagement Overview If properly engaged, stakeholders—from customers to investors to nonprofits and government—can be a sustainability program’s greatest ally. Those stakeholders have valuable perspectives, expertise, resources, and more that can greatly benefit companies. Key Finding: This dimension is one where nearly all companies are just starting The industry's maturity 2015 Maturity 25 1 • • 9 19 3 Identifies key stakeholders • Assesses stakeholder Identifies some stakeholder concerns systematically concerns on a periodic basis through materiality analysis but no defined method of • Establishes and proactive engagement communicates methods of stakeholder engagement 2015 Average 13 2 6 2017 Predictions 2 2 Addresses stakeholders • Identifies comprehensive list • Consistently monitors and concerns through materiality of KPIs through stakeholder reports publically on KPIs analysis and identifies some engagement process identified through stakeholder KPIs from the process • Establishes and engagement • Builds relationships with key communicates methods of stakeholders stakeholder engagement by type and stakeholder group, including frequency of engagement • Incorporates feedback from key stakeholders into sustainability strategy • 2015 Leader 2017 Prediction Example resources to improve • Making Stakeholder Engagement Meaningful • Coca-Cola • 10 Tips for Activists When Engaging Companies • Nike • The Future of Stakeholder Engagement • 10 Tips for Stakeholder Engagement Find more at www.rila.org/sustainability 20 Dimension 7 | Employee Engagement Overview Company employees are the lifeblood of the organization; nothing will be accomplished without engaged employees from across the company. Further, the store associates are also the direct connection to customers, so getting them excited about sustainability can energize customers. Key Finding: Small format retailers plan to grow the most in this dimension in the next two years The industry's maturity 17 18 14 4 1 • Educates through basic environmental-awareness signage in stores 2015 Maturity 17 2 7 0 Develops store sustainability • Posts store sustainability • Provides collaborative forum • team(s) or sustainability performance (e.g., energy for high-initiative employees advocates to monitor on-site consumption, waste/recycling to receive recognition for their performance and provide generation) for all store sustainability efforts while feedback to corporate associates to compare their sharing best practices with sustainability team store to other similar stores colleagues • Solicits sustainability • Develops and maintains • Holds highly visible senior • suggestions from corporate online platform for employees leadership meetings on employees to review store & company sustainability where store • Hosts events for corporate sustainability performance employees, sourcing, employees to learn about and submit ideas to reduce merchants, logistics, and sustainability in their retail environmental footprint other staff are recognized roles and in their home (e.g., Earth Month events) • 2015 Average 2015 Leader 2017 Prediction 2017 Predictions 2 Regularly educates employees on company sustainability vision and business case to underscore relevance to employee daily work Trains in-store employees to educate customers about company’s sustainability/ecoawareness efforts 2017 Leader Example resources to improve • PwC Employee Engagement • Nestle • GreenBiz Employee Engagement • RILA Retail Employee Engagement Report Find more at www.rila.org/sustainability • Green Office Challenge-Chicago 21 Dimension 8 | Funding Mechanisms Overview Access to capital for resources and projects is a critical component in any corporate initiative. Sustainability can drive business value, but it needs to be measured in financial terms in order to demonstrate that value and receive funding and support. Key Finding: This dimension is the one where most companies plan to be "excelling" in 2017 The industry's maturity 7 9 8 1 Minimal funding dedicated for • sustainability programs • No mechanism to track ROI of sustainability efforts Ad-hoc funds for • sustainability programs (e.g., energy efficiency, recycling programs, marketing, etc.) • Conducts some adjustment of ROI on internal projects to account for sustainability metrics • 2015 Average 2015 Maturity 28 25 2015 Leader 2017 Prediction 0 4 Dedicated fund for • Key retail functions include • sustainability programs (e.g., sustainability budgeting (e.g., energy efficiency initiatives, distribution, sourcing, recycling programs, etc.) merchandizing, store operations) • • All corporate funding requests routinely include relevant sustainability metrics • ROI of projects considers total cost of ownership and reputational value 2017 Predictions 0 0 Corporate funding requests always include sustainability metrics relevant to the division or business unit Sustainability related funding on an upward trajectory over time 2017 Leader Example resources to improve • Energy Project Evaluation & Guide Usage • Kohl's • Funding and Financing for Energy Projects • Energy Funds-Best Practices Find more at www.rila.org/sustainability 22 Dimension 9 | Business Innovation Mechanisms Overview As the retail industry is undergoing profound changes—resulting from changing demographics, new consumption patterns, technologies, big data, transparency, and more—retailers must innovate. Sustainability provides a valuable frame in which to assess long-term trends and identify critical innovations. Key Finding: Nearly half of the respondents indicate that they will be "excelling" in this dimension in 2017 The industry's maturity 2015 Maturity 19 3 • 13 13 6 No specific channels in place • Innovation mechanisms in to invest in sustainable place - sustainability is a innovation (e.g., 3D printing, criteria but not weighted to RFID innovations, mobile, receive favorable score etc.) 2015 Average 2017 Predictions 20 2 3 1 2 Innovation mechanisms in • Dedicated team to create and • Innovation fund and place to invest in sustainable invest in sustainable dedicated team in place to innovations innovations invest in retail innovation • Solicits ideas from around sustainability employees, suppliers, and • Chief Innovation Officer external stakeholders incorporates sustainability and continuous improvement into goals • 2015 Leader 2017 Prediction Example resources to improve • Sustainable Innovation • Nike • Network for Business Innovation and Sustainability • Model Behavior Find more at www.rila.org/sustainability 23 Visibility While successfully executing on business priorities is the most important step, visibility is critical in order for senior executives and outside stakeholders to assess a program's progress and recognize a program's benefits. Metrics, measurement, reporting, and marketing all contribute to ongoing visibility campaigns. In this section: Dimension 10 | Metrics & Measurement Dimension 11 | Reporting & Communicating Dimension 12 | Point-of- Purchase Consumer Education Dimension 13 | Marketing Campaigns Dimension 14 | Collaborative Involvement Find more at www.rila.org/sustainability 24 Dimension 10 | Metrics & Measurement Overview Every strong business program or initiative requires metrics to define success and track progress. Those metrics should align to both the goals of the program and the whole organization; and should be periodically measured and shared with relevant stakeholders across the organization and outside. Key Finding: This dimension currently ranks as one of the most mature dimensions for the industry The industry's maturity 27 2 • 10 5 0 No defined metrics for sustainability Limited set of sustainability metrics; focused mainly on operations • Basic Excel spreadsheets used to track metrics • 2015 Average 2015 Maturity 25 Sustainability metrics focused • on only certain aspects of sustainability • Metrics informed by • materiality assessment and aligned to global frameworks (e.g., GRI, IIRC, SASB) • Sustainability metrics tracked • for some regions of the global business • Measurement tools track metrics • 1 9 Sustainability metrics focused • on all material aspects; including innovation Sustainability metrics tracked for all of the most relevant • regions of the global business Automated measurement tools; IT systems in place to • periodically track the majority of sustainability metrics 2017 Prediction 2017 Predictions 1 2 Comprehensive metrics defined to cover all aspects of sustainability; linking people & planet with profit Material metrics chosen from most global frameworks with rationale for metric selection clearly communicated Metrics captured consistently across entire organization, globally 2015 Leader Example resources to improve • UNEP Sustainability Metrics • Macy's • Sustainable Packaging Framework Project • Global Protocol on Packaging Sustainability Find more at www.rila.org/sustainability 25 Dimension 11 | Reporting & Communicating Overview More than ever before, customers, investors, regulators, and others are looking for metrics and qualitative stories about retailers’ sustainability efforts. Reporting and rating systems have been developed to help companies report on their sustainability impacts and compare them against one another. Key Findings: The industry's maturity 15 13 15 11 2015 Maturity 18 1 0 6 Regularly published report • Company either publishes a • Sustainability information is • Scores in top 10% of industry • contains cursory mention of sustainability report on a readily accessible in multiple peers in sustainability sustainable business regular basis, or provides formats and sustainability measures and indices (e.g., practices detailed webpages covering goals publicly articulated and Dow Jones Sustainability • Some limited all aspects of sustainability tracked Index, Carbon Disclosure sustainability/CSR • Sustainability report includes • Includes a balanced and Project) information is available on both quantitative metrics and honest discussion of • Uses 3rd-party standards • website (e.g., a webpage, or qualitative stories challenges as well as (e.g, GRI) • grouped with corporate progress Sustainability statements are philanthropy) • Discloses climate change, independently audited water, or forest-risk impacts • Communicates sustainability as part of the CDP programs in multiple, accessible formats (e.g., • websites, product marketing and labeling, advertising) • 2015 Average 2017 Predictions 1 2 Scores in top 5% of industry peers in sustainability measures and indices (e.g., Dow Jones Sustainability Index, Carbon Disclosure Project) Uses integrated reporting Focused multi-channel sustainability campaign with features such as an interactive sustainability website Communicates sustainability as integrated with brand ethos 2015 Leader 2017 Prediction Example resources to improve • GRI Resource Library • Whole Foods • Carbon Disclosure Project • Best Buy Find more at www.rila.org/sustainability • GRI Network 26 Dimension 12 | Point-of-Purchase Consumer Education Overview Consumers now are seeking more “sustainable” products, especially as that relates to certain product categories. But of course they are using terms they can relate to, like healthy, natural, local, organic, non-toxic, energy efficient, recyclable, etc. Providing information about product attributes can drive loyalty and sales. Key Finding: Respondents identified this dimension as one that will grow the least in the next two years The industry's maturity 17 17 18 3 0 Few products are explicitly • Some specifically designated • designed to reduce negative products offered have environmental impacts sustainability benefits; ad hoc • Limited education for communication on the consumers to learn about benefits of those products sustainability dimensions of • products • 2015 Average 2015 Maturity 17 7 2017 Prediction 2015 Leader High percentage of products • offered have specific sustainability benefits; regular communication on the benefits of those products • Provides some information or tips to consumers to use products/services in a responsible way (e.g., "Please recycle this cup when finished", "Wash this garment in cold water") • 3 Dedicated online storefronts • encourage consumers to select products with sustainability benefits Provides consumers with tools or incentives for • sustainable behavior change and actively engages with the consumer even after the purchase (via website, product packaging, etc.) Significant in-store signage or • sections dedicated to products with advanced sustainability benefits 2017 Predictions 0 0 Engages consumers about products with sustainability benefits (e.g., catalogs, web filters, icons, online calculators, product stories) Actively engages with customer even after the purchase (via website, product packaging, etc.) to mitigate any environmental impact of products Most own-brand products have advanced sustainability benefits, and communicate benefits on packaging 2017 Leader Example resources to improve • Marks and Spencer • Walmart Sustainability Leaders Find more at www.rila.org/sustainability 27 Dimension 13 | Marketing Campaigns Overview Marketing is the fundamental channel between retail brands and consumers. So as consumers increase their demand for more "sustainable" products—whether that's healthy, natural, local, organic, non-toxic, energy efficient, recyclable, or other product attributes—marketing those attributes will grow in importance. Key Findings: - Respondents identified this dimension as one where nearly the most number of companies are just starting - Small format retailers plan to grow signficantly in this dimension in the next two years The industry's maturity 2015 Maturity 23 17 4 • 16 1 0 3 Ad hoc sustainability-related • Regular sustainability-related • Ongoing efforts and funding • Dedicated sustainability marketing campaigns marketing programs related to marketing focused marketer within • Tend to focus on specific sustainable products and marketing team themes or times (e.g. Earth services • Marketing effectiveness Day) metrics focus on reputation/brand value 2015 Average 2017 Prediction 2015 Leader 2017 Predictions 18 0 0 Significant marketing budgets for sustainability-related marketing • Marketing effectiveness metrics include financial ROI • 2017 Leader Example resources to improve • Green Biz-Sustainability Marketing • Levi's Find more at www.rila.org/sustainability 28 Dimension 14 | Collaborative Involvement Overview While some aspects of sustainability performance lead to a competitive advantage for a retailer, there are often opportunities to work together to benefit not only the collaborators, but also consumers and the environment. Additionally, often sustainability performance can be enhanced more efficiently through a collective effort. Key Findings: - This dimension currently ranks as one of the most mature dimensions for the industry, and is estimated to be one of the most mature in 2017 - Both large format retailers and grocers are currently most mature in this dimension The industry's maturity 14 3 • 13 2015 Maturity 15 9 7 9 2 1 Does not formally engage with peers on sustainability issues • Actively shares sustainability • Member of one or more • information with peers industry associations focused on sustainable supply chain issues • Actively collaborates with peers to make positive impact• within industry 2015 Average 2017 Predictions 9 Premier member of one or • more industry associations or multi-lateral groups focused on relevant sustainability issues Partners with NGOs, • governments, academia, or other institutions to identify improvement opportunities 2017 Prediction Takes a leadership role in developing new tools or capabilities that will enable peers to improve sustainability impact Takes a leadership role in developing new tools or capabilities that will enable entire value chains to improve sustainability performance 2015 Leader Example resources to improve • Collaboration and Leadership for Sustainability • Best Buy • RILA Retail Sustainability Initiative • The Lego Group • The Sustainability Consortium • The Sustainable Apparel Coalition Find more at www.rila.org/sustainability 29 Retail Operations Retail operations relate to a company's physical infrastructure -- from stores and corporate offices, to distribution centers and data centers. This infrastructure consumes energy and generates wastes, and therefore pose eco-efficiency opportunities. In this section: Dimension 15 | Stores / Corporate Offices Dimension 16 | Warehouses / DCs Dimension 17 | Data Center & Applications Find more at www.rila.org/sustainability 30 Dimension 15 | Stores / Corporate Offices Overview Retail facilities often represent the main environmental impacts that are directly under the company's control. Stores are the major touch-point for customers; and corporate offices for the headquarter employees. Therefore it is necessary to focus on energy, water, and waste reduction at those facilities. Key Findings: This dimension currently has the most number of "standard" performers, but is a dimension where many companies plan to be "excelling" in 2017 The industry's maturity 2015 Maturity 30 3 11 0 2017 Predictions 23 7 0 6 1 1 Construction, renovation, and • leasing decisions adhere to local regulations, but little or no 'green' standards • Environmental impact, energy• use, and occupant health are only minor considerations Incorporates some 'green • Routinely incorporates • Majority of store site • Green building and building' opportunities into sustainability metrics into incentivizes customers to certification (LEED, construction, renovation, or construction, renovation, and practice sustainable BREEAM, Living Building leasing projects leasing decisions behaviors (e.g., premium Challenge, EPA ENERGY Opportunities are limited to • Accounts for sustainability parking spaces for hybrid or STAR, etc.) is expected on all lower-cost options (e.g., factors (e.g., recycling electric vehicles) projects, except in extreme efficient toilets, faucets, light infrastructure, alternative • At least half of facilities have cases bulbs, and ceiling fans; transportation for customers, ENERGY STAR or LEED • Routinely employs smart recycled / reclaimed flooring; etc.) in store site selection certification landscaping, solar panels, low-VOC paint) • Higher percent of facilities • Implements smart wind turbines, or other • Small percent of facilities have ENERGY STAR or landscaping at some store technologies in the design have ENERGY STAR or LEED certification and warehouse sites to and construction of new LEED certification improve water efficiency stores, and warehouses • 2015 Average 2015 Leader 2017 Prediction Example resources to improve • RILA’s Green Lease Primer • Starbucks • USGBC • USGBC Calculators • Walgreens • RILA's Retail Energy Management Program • Green Lease Library • DOE's Better Building's Alliance Find more at www.rila.org/sustainability 31 Dimension 16 | Warehouses / Distribution Centers Overview In addition to stores and corporate offices, warehouses and distribution centers are often in the control of retailers (though in many cases they are leased spaces). Due to their size, there are a lot of opportunities to improve the environmental performance of these facilities. Key Findings: - This dimension currently ranks as one of the most mature dimensions for the industry - Large format retailers plan to be further ahead on this dimension in two years The industry's maturity 2015 Maturity 24 3 9 8 1 20 5 Storage facilities do not • Programs are in place to • Redesigns warehousing employ any eco-efficient minimize waste and improve facilities in order to optimize technologies or practices work flow space and reduce energy • Emissions are compliant but • Upgrades moving consumption not fully contained and technologies (forklifts, • Continuously minimizes inventoried automated belts, etc.) with footprint and resource energy-efficient power consumption to create best sources uses for storage space and • Installs low-energy lighting, replaces non-sustainable HVAC, and refrigeration products equipment • 2015 Average 2017 Prediction 8 Regularly adds new • technology to reduce energy consumption in moving and storing goods within warehouses • Incorporates green standards • for all new warehousing to minimize energy and safety costs • 2015 Leader 2017 Predictions 0 4 Incorporates green standards for all new warehousing or retrofits existing warehousing to minimize energy and safety costs Develops partnerships with customers, upstream processes, and transportation vendors to maximize flow of goods through facilities while minimizing waste 2017 Leader Example resources to improve • Best Practices in Warehouse Efficiency • Prologis • ENERGY STAR Portfolio Manager - Warehouses Find more at www.rila.org/sustainability 32 Dimension 17 | Data Center & Applications Overview Data centers are one of the fastest growing consumers of energy in the U.S. While they currently only represent a small fraction of retailers' impacts, they will be increasingly important as retailing continues to move to internet-enabled platforms like the internet and mobile devices. Key Finding: Respondents identified this dimension as one that will not significantly grow in maturity in the next two years, likely becau se it is a minimal component of retailers' environmental impacts The industry's maturity 2015 Maturity 17 22 5 2 Application development has • little or no awareness of potential techniques for • greening • Does not consolidate • applications • Sizing and layout of owned or contracted data center • infrastructure is ad hoc and geared towards meeting current needs • There are no explicit decisions around green IT considerations • 2015 Average 20 14 0 2 2017 Predictions 0 0 Reduces redundant functions • in inventory of applications Employs some efforts to consolidate applications Takes advantage of new • efficiency methodologies in application development Identifies and monitors some • green metrics around power, cooling, and airflow 2017 Prediction Considers and tracks green • Fully leverages enterprise • All data center build outs or impact along with other software across the contracts must pass through business objectives in data organization to maximize a rigorous green evaluation center use/capabilities process before approval Shares applications and • Actively tracks green metrics • Seeks to improve ENERGY related platforms across against business green STAR scores for all data business units objectives centers Software development • Participates in ENERGY • Employs effective 'big data' lifecycle regularly uses new STAR recognition program strategies to analyze efficiency technologies (e.g., for energy efficient data sustainability data and virtualization, SOA and other centers metrics sharing and flexible technologies) • Follows green technology standards throughout organization 2015 Leader 2017 Leader Example resources to improve • ENERGY STAR Data Centers • Verizon • DOE Data Centers and Servers • Apple Find more at www.rila.org/sustainability • National Data Center Efficiency Program 33 Supply Chain One of retailers' most critical strengths lies in efficiently transporting goods around the globe and to retail stores just when they are needed. Further, they often interact with product suppliers to ensure that their product requirements are being met. In this section: Dimension 18 | Transportation / Logistics Dimension 19 | Supplier Engagement Dimension 20 | Supply Chain Transparency & Traceability Find more at www.rila.org/sustainability 34 Dimension 18 | Transportation / Logistics Overview Fast and efficient logistics systems allow retailers to ship goods to stores and even to customers' homes at low cost. Since fuel consumption is the largest contributor to the environmental impact of transportation, retailers have a keen interest in reducing its use and associated costs. Key Finding: Nearly half of the respondents indicate that they are currently "standard" in this dimension The industry's maturity 2015 Maturity 9 20 3 9 9 18 3 Aware of impact of • Employs improved blend of • Packaging and transportation • transportation decisions on rail, road, and air system designs concurrently the environment transportation modes occur to optimize flow of • No precision or baseline • Includes capacity goods and minimize space emission measurements management as a criteria in and energy usage • • Does not implement managing distribution • Develops innovative shipping sustainable transportation • Uses or tests some mechanisms to maximize • initiatives or they are in early alternative fuels in load capacity planning stages transportation vehicles • Uses reusable • Participates in EPA containerization for nearly all SmartWay products • Recognized EPA SmartWay Carrier & Shipper with a highly ranking score • 2015 Average Demonstrates reduction of environmental impact by optimizing transportation & warehouse network Replaces vehicle fleet with 'green vehicles' Considers emissions when selecting transportation vendors 2015 Leader 2017 Prediction 8 2017 Predictions 0 3 Forms transportation alliances to maximize load capacity and minimize waste • Recognized excellence in reducing environmental impact from transportation strategies • 2017 Leader Example resources to improve • DOE's Vehicle Technology • FedEx • EDF's Green Fleet • Workplace Charging Challenge • EPA SmartWay Program • EPA SmartWay Resources Find more at www.rila.org/sustainability 35 Dimension 19 | Supplier Engagement Overview While the environmental impacts in product supply chains are often not in the direct control of retailers, many work with product manufacturers to reduce the energy, water, and material use, and waste and wastewater generated during production. Key Findings: - The industry plans for this dimension to be one of the top performing in two years - Both large and medium format retailers plan to progress the most in this dimension in the next two years The industry's maturity 2015 Maturity 21 14 18 1 Does not explicitly consider • sustainability dimensions in sourcing process • Supplier code of conduct addresses various environmental aspects, but • may be missing certain key attributes from recognized industry standards (e.g., SA8000) • • Audits suppliers according to a risk profile or in response to problems • • No formal internal management system for tracking audits and remediation steps • • 2015 Average 1 Incorporates key • sustainability considerations into initial supplier onboarding and ongoing • sourcing decisions Supplier code of conduct incorporates all dimensions of recognized industry standards • Delivers some training or guidance to suppliers on sustainability opportunities • Performs mix of internal and external audits on a regular basis according to supplier risk profile Works closely with suppliers to remediate sustainability issues 10 Assesses all suppliers according to sustainability criteria Supplier code of conduct includes measurable sustainability metrics that auditors can objectively check against Tracks supplier sustainability performance quantitatively over time Actively collaborates with suppliers to capture shared savings through improvements in sustainability performance 2 9 Sourcing/merchandise teams use sustainability scorecards as integral part of sourcing decisions • Hosts annual "Sustainability Summit” with key suppliers/vendors • Encourages vendors to improve and report on sustainability metrics (e.g. energy, waste, water) of their products, possibly leveraging services like CDP Supply Chain • Works closely with suppliers to monitor subcontracting arrangements • Example resources to improve • RILA Supplier Engagement Report • IKEA 3 • • • • • 2015 Leader 2017 Prediction 2017 Predictions 3 Encourages sustainable manufacturing practices for all products and suppliers Employs in-house team of expert auditors to check suppliers according to supplier risk profile Develops remediation plans in collaboration with supplier and closely monitors quantitative progress against them Relevant departments test and actively partner with research groups or vendors to design next generation equipment for sustainable performance Defines and executes on appropriate actions with suppliers failing to meet performance criteria • CDP Supply Chain • Target Find more at www.rila.org/sustainability 36 Dimension 20 | Supply Chain Transparency & Traceability Overview Data on a product's make-up, the source of the raw materials and finished goods, and the manufacturing process, are increasingly valuable—to identify the product lifecycle stages with the greatest impacts and opportunities for improvement. Transparency and traceability are enabling that exchange of critical data. Key Finding: Respondents identified this dimension as one where nearly the most number of companies are just starting The industry's maturity 2015 Maturity 25 10 6 • 18 3 Does not publish any • information on suppliers or country of origin beyond what is mandated by law 10 Publishes some summary • audit statistics (e.g., % of factories non-compliant) • Publicly discloses where products are made (without factory-specific details) • • May disclose some anecdotal factory-specific information Makes audit results available publicly (e.g., through FLA) Supply chain information is available through a number of channels/media Publishes supplier code of conduct and summary of monitoring and enforcement mechanisms • Efforts to trace supply chain from suppliers to subcontractors/vendors back to raw materials suppliers 3 • • • • • 2015 Average Active member of supply • chain transparency organizations (e.g., CDP Supply Chain, TSC, SAC) Publishes summary audit statistics (e.g., % of noncompliant factories) Explains challenges in the supply chain through a number of channels (e.g., website, reports) Works with credible third parties to introduce sustainable best practices (e.g., FSC, MSC) Actively markets supply chain stories to consumers 2015 Leader 2017 Prediction 6 2017 Predictions 0 1 Publishes list of factories and locations, with stories, photographs, or other information on all key suppliers 2017 Leader Example resources to improve • Harvard's The Transparent Supply Chain • Walmart • The Sustainable Apparel Coalition • Patagonia Footprint Chronicles • The Sustainability Consortium • EICC Supply Chain Code of Conduct Find more at www.rila.org/sustainability 37 Products The full lifecycle of products, from the initial design, to manufacture, to transportation and sale, poses the largest environmental footprint of all of retail's impacts. Therefore, it is critical to address those product-related impacts. In this section: Dimension 21 | Product & Packaging Design and Development Dimension 22 | Owned Manufacturing / Production Dimension 23 | Product & Packaging End-of- Life Stewardship Find more at www.rila.org/sustainability 38 Dimension 21 | Product & Packaging Design and Development Overview The design phase of product development may often be the best place to intervene to reduce a product's environmental impact, as this is the phase where the product's materials, configuration, functionality, etc. is determined. That influences the manufacture, use of the product, and eventual disposal options—its full lifecycle. Key Finding: Nearly half of the respondents indicate that they are currently "standard" performers, but many companies plan to be "excelli ng" in 2017 The industry's maturity 2015 Maturity 16 20 4 11 3 2 Products are not measured • Ad hoc measures employed • Employs credible criteria to • for environmental impact and to reduce product impacts evaluate sustainability not designed to minimize use such as the purposeful performance of products of materials, energy, water, merchandizing of products representing > 30% of retail and toxics using credible certifications sales • Minimal attention given to (e.g., FSC, fair trade), and • Collaborates with suppliers to • packaging optimization general pronouncements or identify, develop, and market guidelines to suppliers to product/service innovations minimize product and that further reduce packaging impacts environmental impact • 2015 Average 2017 Predictions 22 4 Employs credible criteria to • evaluate sustainability performance of products representing > 60% of retail sales Sets meaningful business• relevant revenue targets for product sustainability performance (e.g., 30% of sales will come from products that meet design criteria) 0 0 Designs all products with a "cradle to cradle" outlook, using tools based on life cycle and hazard assessments Publicly reports on product sustainability goals and the net benefits of product sustainability performance 2015 Leader 2017 Prediction Example resources to improve • Global Protocol on Packaging Sustainability • McDonald's • US EPA's Products/Packaging • UPS • Sustainable Packaging Coalition • Product Sustainability Webinar Find more at www.rila.org/sustainability 39 Dimension 22 | Owned Manufacturing / Production Overview While only a few retailers own manufacturing plants, the ones that do see opportunities to save costs through resource efficient operations. These manufacturing facilities can often be some of the retailer's most energy and water intensive operations. Key Finding: Respondents identified this dimension as one that will not significantly grow in maturity in the next two years, likely because it is a minimal component of retailers' environmental impacts The industry's maturity 2015 Maturity 27 13 9 11 3 13 1 3 Basic understanding of • Develops plans and policies • Sets targets for key • Benchmarks key • sustainability principles and to make manufacturing sustainability KPIs (e.g., environmental and social practices processes more sustainable waste, GHG, water) inclusive sustainability KPIs against • Sustainability principles have (including agricultural of raw material, industry standards and • been incorporated to meet practices as applicable) manufacturing, and other exceeds industry average only regulatory requirements production activities • Sets plans to achieve highly • Measures against those aspirational goals (e.g., 100% targets and communicates renewable power, zero success and improvement waste, zero accidents) opportunities to facilities • Uses renewable energy sources in most manufacturing processes with limited exceptions • 2015 Average 2017 Predictions 1 1 Achieves world class sustainability manufacturing / production levels Publicly report success against aspirational goals 2015 Leader 2017 Prediction Example resources to improve • Business Case for Sustainable Manufacturing • REI • US EPA Life Cycle Assessments • Safer Choice Product Manufacturing Resources • Eileen Fisher Find more at www.rila.org/sustainability 40 Dimension 23 | Product & Packaging EOL Stewardship Overview Customers are increasingly concerned about the disposal of the products they purchase after their useful life, and environmental laws are increasingly targeting product disposal. To respond, retailers are providing more options for responsibly handling those products. Key Finding: Respondents identified this dimension as one that will not significantly grow in maturity in the next two years, likely becau se retailers do not have any major influence on product disposal The industry's maturity 2015 Maturity 17 21 6 15 2 Products are not designed • Some limited mechanisms in • with their end-of-life in mind place to design products that • No recycling or product takeconsider reuse or recyclability back initiatives available to at end of their useful life customers • Offers select recycling and • product take-back bins in some retail locations • 2015 Average 2017 Predictions 17 1 Designs >20% of all products • to consider reuse or recyclability of product at end of useful life Offers select recycling and • product take-back bins are located in all retail locations 3 Designs >40% of all products • to consider reuse or recyclability of product at end of useful life • Collaborates with other stakeholders (e.g., trade associations, civil society, • competitors, value chain) for system change to upcycle/recycle product components • Markets product take-back services to consumers and see as a competitive differentiator • Begin designing and selling consumer services to mitigate the one-way consumption cycle 0 0 Designs all products to consider reuse or recyclability of product at end of useful life Actively retrieves products at the end of their life for reuse and recycling Measures and reports the percentage of reclaimed products and their packaging materials for each product category 2015 Leader 2017 Prediction Example resources to improve • The How2Recycle™ Label • Best Buy • Wrap Recycling Action Program • US EPA Life-Cycle Assessments • Sears • EPA Responsible Appliance Disposal • Product Stewardship Institute Find more at www.rila.org/sustainability 41 Environmental Impacts The outcome of a robust sustainability strategy, executive and employee engagement, access to appropriate resources, and a visibility campaign results in improvements in a company's environmental performace. In this section: Dimension 24 | Energy & GHG Emissions Dimension 25 | Water & Wastewater Dimension 26 | Waste & Recycling Dimension 27 | Chemicals & Toxics Find more at www.rila.org/sustainability 42 Dimension 24 | Energy & GHG Emissions Overview Energy represents a significant operational expense for retail stores and therefore an opportunity for cost savings. New technologies, enhanced controls, and behavior changes can result in large reductions in energy usage. Key Finding: Over half of the respondents indicate that they are currently "standard" performers, but more than half of companies plan to be "excelling" in 2017 The industry's maturity 2015 Maturity 24 6 9 4 7 No concerted strategies or • policies to reduce energy consumption in retail portfolio • Energy usage is not methodically measured or analyzed • • Traditional (non-renewable) energy sources are relied • upon; no consideration of alternative energy sources Measures and analyzes • current energy usage and future projections of retail portfolio in manual or • fragmented way Outdated, inefficient equipment has been replaced Undertakes some investigation of alternative • energy sources • Currently draws less than 5% of energy use from alternative sources • 2015 Average 2017 Predictions 24 Develops coordinated energy • efficiency policies across operations and value chain Designs and executes • systematic energy management program (data tracking, training of relevant employees) Uses only energy efficient refrigeration equipment and tracks GHG emissions of equipment continually 1 3 Capital expenditure decisions • consider energy cost implications Relies on alternative energy for >25% of energy needs, • through combination of RECs and onsite generation 2017 Prediction 3 1 Relies on alternative energy for >40% of energy needs, through combination of RECs and onsite generation Joins external alliances to drive energy/climate policy 2015 Leader Example resources to improve • Commercial Buildings Resource Database • Home Depot • RILA's Retail Energy Management Program • Walmart • Better Buildings Alliance Find more at www.rila.org/sustainability 43 Dimension 25 | Water & Wastewater Overview Water and wastewater are especially important to certain retail segments (e.g. those with grooming facilities or food preparation stations), companies with landscaping needs, and stormwater run-off from paved surfaces. And retailers are raising the priority of water, considering the increased emphasis on addressing regional droughts. Key Finding: Over half of the respondents indicate that they are currently "standard" performers, but more than half of companies plan to be "excelling" in 2017 The industry's maturity 2015 Maturity 13 • 9 4 3 2 No concerted strategy to • Measures current water • reduce water consumption in usage of stores, warehouses, retail operations, product distribution centers and manufacturing or supply offices across some portion chain of the portfolio Conducts comprehensive • water footprint across retail portfolio including stores, warehouses, distribution centers and offices to understand where impacts lie • Efforts and technologies in place to minimize company's • direct water usage, such as low-flow faucets 2015 Average 2017 Predictions 24 23 0 1 Conducts comprehensive • Pursues innovative water water footprint exercise reduction techniques such as across value chain, including grey water recycling, stores, warehouses, xeriscaping, storm water distribution centers and management, etc. offices and develops • Identifies water withdrawal reduction strategy sources and remediates any Efforts and technologies in localized risks place to recycle water Identifies water withdrawal sources and communicates localized risks 2015 Leader 2017 Prediction 3 2017 Leader Example resources to improve • US EPA Wastewater Management • Gap • EPA WaterSense • EDF-AT&T-GEMI Water Efficiency Toolkit • Alliance for Water Efficiency Find more at www.rila.org/sustainability 44 Dimension 26 | Waste & Recycling Overview Operational wastes at retail stores include cardboard, plastic shipping wraps, and a variety of other materials. While each local area has different abilities to recycle those materials, the trend is toward more recycling, which can often represent a cost savings, or even new revenue, for retailers. Key Findings: - This dimension currently ranks as one of the most mature dimensions for the industry, and is estimated to be one of the most mature in 2017 - Both large and medium format retailers plan to be farthest ahead on this dimension in two years The industry's maturity 14 4 15 19 13 2 1 2017 Predictions 1 Aware of main sources of • Measures waste footprint of • Measures waste footprint • waste generation in own stores, warehouses, across retail portfolio company operations, product distribution centers and including stores, warehouses, manufacturing and supply offices, across some portion distribution centers and chain of the portfolio offices, comprehensively • Little active efforts to reduce • Ad-hoc efforts to reduce and • Implements waste • waste beyond required local recycle waste at stores, minimization programs regulations and limited warehouses, distribution involving reduction, reuse, recycling options centers and offices and recycling at stores, warehouses, distribution • centers and offices • 2015 Average 2015 Maturity 7 6 Implements leading waste • Conducts comprehensive technologies and policies waste footprint exercise (e.g., balers for hard-toacross value chain recycle materials, customer • Efforts in place to completely recycling options) remove hazardous waste Waste reduction targets and from retail operations, continuous improvement product development and method in place for products, supply chain supply chain and operations • Commitment to zero waste Commitment to zero waste goals across all locations goals at some retail locations 2017 Prediction 2015 Leader Example resources to improve • Waste Prevention and Recycling at the Office • Dean Foods • Closed Loop Fund • Pepsico • Waste Management Find more at www.rila.org/sustainability 45 Dimension 27 | Chemicals & Toxics Overview Customers are increasingly asking about product ingredients to make informed purchasing decisions, and NGOs are becoming vocal about toxic chemicals. Chemicals, whether a true or perceived hazard, are top of mind; and as a consequence, retailers are ever-more diligent about monitoring the ingredients in products. Key Findings: The industry's maturity 16 18 5 4 • Complies with minimum environmental regulations 2015 Maturity 19 13 2 Maintains a list of regulated • Defines relevant metrics to • chemicals or a restricted monitor use of chemicals and substance list (RSL) toxins throughout value chain • Undertakes beyond• Defines goals around use of • compliance measures to chemicals and toxics in reduce the use of chemicals products and toxics across the value chain • • 2015 Average Understands sources of • toxins throughout value chain and what's driving them Establishes green chemistry • program with the goal of reducing toxics across the value chain Conducts comprehensive assessment of chemicals in products and processes, with an evaluation of hazard and exposure potential 2015 Leader 2017 Prediction 4 2017 Predictions 0 1 Establishes alliances with industry peers to further green chemistry innovation Communicates green chemistry policies to suppliers 2017 Leader Example resources to improve • US EPA Toxic Chemical Resources • Walmart • Chemicals Management Module • Green Chemical & Commerce Council • US EPA Pesticide Pilot Project • Sustainable Chemicals Management Report Find more at www.rila.org/sustainability 46 Conclusion Evolution of retail sustainability Over the time we have tracked the progress of retail sustainability programs, we have noted a specific development trajectory. Retailers' programs typically begin with a focus on their own operations—with an emphasis on energy and waste reduction in stores and distribution centers—and then turn to addressing the product and supply chain impacts. Finally, the leading companies go one step further by engaging consumers and other stakeholders in the company's journey, and help consumers to understand the full impact of their product purchases. The industry's development dynamic Retail sustainability programs are following the same dynamic as other critical business functions, namely to hone their focus, align business resources, and expand their breadth of activities. As more retailers build their sustainability strategies and report on their successes, they will further solidify the business case for sustainability. That, in turn, will increased commitment to these programs and expand programs' resources, building momentum across the industry. The leading companies are already taking advantage of this development dynamic by leveraging the key ingredients for success: engaging executives, investing in people and systems, measuring and tracking progress, setting goals, and storytelling. And they are getting a wide range of benefits from it. What is next for RILA RILA will continue to engage retail executives on the sustainability journey, further building the business case for such programs, and providing venues for retailers to share with one another. And we look forward to tracking and reporting on these developments in the future. Find more at www.rila.org/sustainability 47