ESG 2023: COUPLING CARBON AND COST REDUCTION
“We have made significant progress in developing a clear ESG strategy with relevant metrics and targets that we believe align with our purpose”
“We are beginning to take action to minimise the environmental impacts of our business and continuously improve our environmental performance to support our long-term strategy.”
“We are we are humbled by the critical role we are playing in combating the climate crisis by focusing on Scope 3 emissions”
ESG as a corporate fundamental
As we can see from the above three statements taken from three UK retail annual reports in 2022 every retailer is on an ESG journey. Some are further along than others and you just need to do a quick Google search to see that there are many different approaches.
What this shows is that the ESG retail continuum is a complex scale. Despite this a number of consultancies have attempted to define it. PWC has created the ESG Maturity Index, Thomson Reuters has devised an ESG scoring system, whilst J.P. Morgan recently revealed its ESG Global Corporate Index. All these measures are constructed to help retailers make sense of their ESG strategy; benchmark their perceived strengths and weaknesses against their peers or organisations from other sectors. And whilst these measures provide a valuable snapshot, what they don’t do is convert intention into action or, in other words, turn strategy into a tactical plan that can be operationalised.
Whilst on the surface of it this might not be viewed as a problem, the reality is that the gap between intention and action is a major contributor to strategies falling by the wayside. Moreover, research by Sheeran and Webb (2016) reveals that within strategies the intentions that fail to be realised are those that are complex, large, poorly planned, or too conceptual.
What has become clear over the course of the past 12 months is that ESG is not just a corporate fundamental to be measured and benchmarked, it is increasingly becoming an operational concern for several reasons. COP 27 starkly highlighted the need for more action and one of the key asks of business leaders was to drill down to the nitty gritty of carbon emission reduction. Another driver is less altruistic and more to do with the cost of doing business. This is rising at an alarming rate and shareholders are demanding expenditure reduction across the board. With the price of electricity and gas soaring, an obvious place to start is energy consumption.
Energy consumption reduction.
Like with overarching ESG strategy, when it comes to energy consumption reduction, there are different approaches that can be taken. A case in point is the open/ closed door debate. Due to the recent cold snap the media has been full of reports investigating the impact of closed doors on the high street. Do the cost savings of keeping the door closed, mitigate the level of lost sales? In France, during the summer, retailers weren’t given an option. Airconditioned stores were ordered to shut their doors during the heat wave or face legal action. But the reality is, whilst this is an important element, open or closed doors is not an energy consumption reduction strategy. And the fact that none of the reports were founded in data, speaks volumes. No retailer would decide to open a new store without detailed analysis, the same should hold true when it comes to energy consumption. Without understanding the underlying data, any decision can only be based on the best guess and more importantly, progress can’t be measured (and therefore celebrated).
Mobilising energy data, like you would customer or EPOS data, is a game changer. It is a valuable resource for three reasons:
Retailers can understand their energy consumption and find tangible ways to reduce it contributing to their ESG Scope 1 and 2 goals
Retailers can provide a better experience for their customers and teams members by optimising instore temperature and humidity. This results in a better workplace environment which positively impacts productivity and contributes to an uplift in sales
Retailers can derive insight from this new data source and convert it into the creation of new streams
The value of energy data
These benefits have recently been realised by DFS and Robert Dyas. Both retailers invested in smart infrastructure turning their sites into state-of-the-art data rigs that report back energy information in real time. Having this data across the whole of the estate means it has been possible to reduce energy consumption by optimising the air quality, humidity, and temperature controls for each site. This is controlled centrally but can be activated locally meaning that store managers, for example, do not need to manually change settings or remember to turn lights and heating off. Additionally, by syncing data with external data sources such as the weather forecast, pragmatic recommendations can be made in real time on a location-by-location basis regarding when the heating needs to be turned on and at what temperature to ensure an optimum temperature for opening. It also enables proactive maintenance and alerting for instance, the ability to schedule engineer callouts without human intervention. The approach to centrally managing the entire estate, means that changes to policy, such as air quality levels or temperature settings can be rolled out to individual sites via a single central action.
Both businesses have reduced energy consumption by a third and have improved employee productivity and wellbeing through enhanced air quality and temperature control. This also makes stores more comfortable for customers, enhancing the overall customer experience, leading to increased sales. Specifically, for DFS there has been a reduction in CO2 across the estate of over 1,100 tCO2 per annum which is equivalent of the carbon emissions of over 400 homes. The reduction in expenditure on energy means that the project has already paid for itself.
Furthermore, emerging technology is enabling faster, smarter approaches to energy reduction. For instance, by creating a digital twin of each site we can create simulations that predict how the site will perform under different variables. This means that retailers can redefine the process for store design and fitout, whilst optimising layout and time to deliver. Moreover, energy usage and traffic flow insight will enable enhanced space utilisation and product placement.
Pragmatism in 2023
The economic indicators are not favourable for 2023. The retail sector is facing a tough operating climate, but this does not mean that the Climate (with a capital C) can be forgotten about.
Therefore, a pragmatic approach that couple carbon reduction with cost reduction is a no brainer when it comes to ESG in 2023.
So, how do you fare answering these basic questions?
How many solar panels did you install across your estate last year?
How many of your building are smart with proper software and control beyond last man switch off?
How do you communicate your estate energy strategy?
Do you know at a granular level how the spaces you own/manage are engaged with to support space optimisation through to customer engagement?
Too easy? How about these?
Have you productised your ESG data?
Are you treating ESG as a project or part of your operations?
Have you allocated ownership of ESG to a team with the right capability, resource, budget and organisation clout to make things happen?
Are you making the most of Smart Building technology?
Are you working with your landlords or other third parties to mitigate the capital expenditure associated with generation?
If you’ve struggled with any of these questions perhaps now is the time to consider unlocking the value of your energy data.
To understand more about the value of implementing data analytics in your ESG plans, contact our team of strategy experts directly. You might like to read more of our Featured Insights such as our recent publication on understanding human behaviour Reading Between the Lines.