Consumers are acutely aware of the threat of climate change, which in recent years has filtered through to their purchasing habits, namely buying with a conscience. Businesses have capitalised on this, building sustainability-focused brand images that are met with enthusiastic consumer praise. Retail and Fast-Moving Consumer Goods brands have pioneered green offerings with excellent results; organisations including Nike, Ikea, Toyota and Unilever drive over $1 billion in revenue each year that can be directly attributed to a sustainable product or service.

There’s a catch. Sustainable product and service offerings are often more costly than their less eco-friendly counterparts, squeezing profit margins. To date, Retail and FMCG corporations have primarily devoted their attention to these sustainable products and services, which enhance customer engagement, acquisition and loyalty. But if the value of these offerings has little to no impact on your balance sheet, is it worth it?

Retail and FMCG corporations are missing an opportunity to impact the bottom line – driving sustainability initiatives within their organisations. Here’s how they should do it.

1. Create sustainable supply chains to drive down costs

Internal green initiatives present the opportunity to streamline costs. Organisations that are embedding sustainability into their supply chains are benefitting from greater resource efficiency, waste management, and energy conservation. Retail and FMCG businesses are especially reliant on their ability to rapidly produce, deliver and manage new products; a more efficient, sustainable supply chain will deliver cost-efficiency. For example, online supermarket provider Ocado has revolutionised their warehouse system using Artificial Intelligence to forecast customer demand and pre-stock their customer fulfilment centres. This initiative has resulted in 0.02% food waste and a reduced environmental impact. Further, this innovative fulfilment centre process allows Ocado to match supply with demand, optimising sales and reducing working capital.

Tesco have also unlocked similar benefits through improved process efficiencies. Improved fleet and fuel efficiency has been secured through better driver training and increased van capacity, with carbon reduction efforts saving 83 million miles in delivery trips. Tesco also increased their usage of double-deck trailers which carry 80% more than single-deck trailers for just a 20% higher cost. In 2021, the supermarket chain’s home delivery service introduced Lightfoot driver improvement technology across its entire fleet; employee engagement and driving efficiency is anticipated to rise as emissions fall, with over 7,000 tonnes of costly CO2 projected to be cut in just one year.

Retail and FMCG are missing an opportunity to impact the bottom line – driving sustainability initiatives within their organisations…

2. Focus on sustainability to minimise risk

Investing in sustainability is extremely valuable from a forecasting and risk management perspective. With an eye on long-term environmental conditions, organisations can future-proof their business against climate change and supply chain unpredictability. McKinsey estimates that up to 70% of corporations’ EBITDA is at risk of climate change impact, a statistic that could be further exacerbated for Retail corporations that typically manufacture their products in countries such as Bangladesh and Vietnam. These regions have experienced a disproportionate rise in extreme climate events such as flooding, which have already affected the Retail industry. Extreme floods in Thailand in 2011 caused Nike to close their factories and halt operations, causing mass disruption in their global supply chain.

By contrast, companies that have actively adapted to the increasing threat posed by climate change and reducing their overall environmental impact have seen tangible benefits in managing supply chain unpredictability. In response to a water shortage in India in 2004 and being forced to shut down one of their plants, Coca-Cola have put $2 billion toward reducing their water usage. This investment has allowed Coca-Cola to protect against future threats and minimise the risk of supply chain unpredictability. Other organisations are following suit; Mars, Unilever and Nespresso have invested in Rainforest Alliance certification, which is awarded to products and ingredients that have been produced by farmers using socially, economically and environmentally sustainable methods. The certification keeps businesses accountable and drives their resilience to extreme climate events, safeguarding the long-term security of their production and product supply.

Up to 70% of corporations’ EBITDA is at risk of climate change impact, a statistic that

3. Attract the right talent

Retail and FMCG corporations can leverage internal sustainability to enhance their employee attraction and retention. It’s no surprise that as customers seek brands with a sustainable agenda, the younger workforce is expecting similar accountability from their employers. Organisations with sustainable programmes better attract and retain their employees. Over 70% of respondents to a survey said they would be more likely to choose to work at a company with a strong environmental agenda; these organisations see a 38% increase in employee retention. Equally, attracting talent who are motivated by a business’ purpose boosts employee productivity, which impacts the bottom line. Studies indicate that organisations with environmentally sustainable practices experience a 16% rise in employee productivity.

4. Create sustainable products to drive innovation

Delivering a new strategy, particularly in the Retail and FMCG space, that is focussed on sustainable products, suppliers and materials provides a unique opportunity to accelerate innovation, explore new market segments and tap into new revenue streams. Nike is an example that has disrupted the fitness space, embedding sustainability into their manufacturing process and re-inventing the way they produce shoes. By developing the innovative ‘Flyknit’ yarn process, Nike created a $1 billion+ product line. This has not only driven increased sales and customer engagement, but the yarn system also requires minimal labour, generates large profit margins and has reduced £3.5 million of waste.

Waste not, want not

Sustainable products and services undoubtedly drive increased customer engagement and sales. But to unlock the full potential of green solutions, Retail and FMCG corporations can’t just use the sustainability brand tag as a customer attraction tool. They must embrace sustainability from an operational perspective; it will reap tangible long-term benefits.

Consumers are also wising up. Climate change education and awareness is improving, meaning consumers are less likely to be attracted by greenwashing or cosmetic climate commitments. To stay relevant, Retail and FMCG corporations must embed green initiatives and sustainability into every fibre of their business. Those brands who fail to adapt will lag behind their competitors.