A glimpse into the future of retailer sustainability

In our work helping retailers and retail suppliers embed sustainability into their businesses to build competitive advantage, CEOs ask us a lot of questions.

These three may be the most common:

1. How serious are retailers about sustainability?
2. Will they hold suppliers accountable? If so, when and how?
3. Where are retailers driving with sustainability?

The answer to the first question hasn't changed for years, except to solidify. Some retailers take sustainability more seriously than others, but on the whole, retailers are getting smarter and tougher about sustainability as they realize it's plain good business. Suppliers often see variation in retailers' commitments, but the long-term view verifies long-term commitment.  

For example, this is what Walmart has been doing on sustainability for the past decade:

Regarding the second question of supplier accountability, different retailers have different sustainability expectations for their vendors, but savvy suppliers are starting to realize that sustainability is inevitable and they are taking steps to get ahead now. For one thing, retailers' continual quest to squeeze inefficiencies out of their operations and their products creates a threat and an opportunity. Those suppliers who proactively scan and improve their supply chains using sustainability as a tool will hold a competitive advantage over rivals who also get squeezed but have no strategy to find additional savings.  

Second, retailers are realizing that a well-managed company tends to be well-managed on all fronts, whereas a poorly managed one likely carries unseen risks. As one retail CEO frames it, suppliers who neglect or hide their poor sustainability performance are likely to be neglecting or hiding other bad things as well.

Expect retailers to shift over time away from suppliers with poor sustainability performance to those who embrace sustainability as an opportunity to learn, improve their business and lead their sectors.

Third, seasoned observers of retailer behavior understand that today's internal practice will become tomorrow's supply chain expectation. This is just good business in an era of transparency; as retailers pilot test sustainability innovations to reduce risk, improve efficiency and enhance quality and brand appeal, instead of keeping their successes secret, a growing number are choosing to multiply the overall benefits (and minimize the overall risk) by cascading better practices through their supply chains.

The third question about the future of sustainability in the retail industry has several answers. Greater transparency and supplier engagement are clear trends. To identify others, watch where retailers invest collaborative energy. Pre-competitive sustainability collaborations such as The Sustainability Consortium, as well as those of industry groups, including the Electronics Industry Citizenship Coalition, Dairy Management Inc. and the Sustainable Apparel Coalition, are proving durable because they're delivering real insights and real value to their member organizations. The proliferation of these efforts implies that retailers see sustainability as a vital part of their future. Suppliers who want to understand specific questions retailers will ask would be wise to pay attention.

Another indicator of future direction is what retailers themselves say. After surveying dozens of major retailers on their sustainability actions and plans, the Retail Industry Leaders Association (RILA) released its 2013 Sustainability Report. Although self-reporting always carries some risk of distortion, several consistent trends appeared. For example, the report found growth in both the size of sustainability teams within retailers and the scope of sustainability issues retailers are addressing. This implies that many retailers are graduating from the pilot phase of sustainability and institutionalizing the function as a driver of business value.

To support ongoing performance improvement, retailers are clarifying and strengthening their sustainability metrics. Most companies engaged in sustainability track basic indicators of efficiency such as energy and material consumption, as well as waste generated. But leaders are not stopping there. RILA identifies a growing number of retailers who plan to begin measuring water usage, renewable energy generation and chemicals of concern during the next two years.

The research also found that sustainability is starting to spill over from retailers' direct operations into their supply chains.

"Retailers are realizing that their in-store impacts are small compared to the impact of their supply chains," says Adam Siegel, RILA's vice president of sustainability. "So they're planning to engage their supply chains through many mechanisms in the coming years. Transparency -- including disclosure of the social and environmental impacts of product supply chains -- is growing. Many already focus on transportation, chemicals of concern and packaging; in the future, companies will be tracking all aspects of the product life cycle from design through disposal."

For retailers and suppliers alike, the messages are clear:

1. Sustainability delivers business value.
2. Your competitors are doing it, or soon will be.
3. Today is a great day to start, because the sooner you start, the faster you'll reap benefits and the less ground you'll have to make up. Tomorrow may be too late.