How Can Retail Reach Net Zero?
The UN climate conference COP26 in Glasgow, the most recent IPCC report, Australia's fresh-off the press Net Zero target – there is a lot happening around climate and the urgent need for action to set ourselves onto a path towards Net Zero. This begs the question: "How can retail get to Net Zero?"
Net Zero means achieving an overall balance of greenhouse gas emissions produced and greenhouse emissions taken out of the atmosphere. According to the UN, to set ourselves on a path to Net Zero by 2050, it is critical to halve our emissions by 2030.
When looking at the emissions of a retailer, the so-called scope 1 and 2 emissions from shops, offices, and corporate activities such as business travel contribute only a small share to total emissions. 90% of total emissions sit in the product supply chains, with a staggering 50% of total emissions driven by the production and processing of raw materials, 15% by transporting materials and products, and another 25% by customers using a product and its end of life. All of these combined make up the so-called scope 3 carbon emissions that need to be tackled to drive the emissions reduction required to meet the goal that is Net Zero 2050.
One step is working with suppliers to ensure a switch to renewable energy across the entire supply chain. But beyond that, fundamental emissions reduction can only be achieved by drastically reducing our need for new raw materials and shifting to circular models such as rental, resale, repair and also recycling. Only those will allow uncoupling revenue generation from driving virgin resource consumption and associated emissions and can de-risk business activity into the future.
The Current Linear Retail Model is Unsustainable
The current retail operating model is a take-make-waste approach with products being made from virgin resources, going through countless hours of manufacturing sometimes across multiple continents and distribution to even more. Generally, products are purchased outright, owned by only one household, often only used for a fraction of that time, and eventually disposed of. This linear model of production and consumption is unsustainable because humanity is already using up twice the resources that our planet can regenerate annually, and this trend has been getting worse year by year.
However, sustainability within the confines of this model is not only constrained by the need for a limitless number of limited resources – but also by consumer wants and needs.
Humans are attracted to novelty, which has motivated us to explore and learn, is rewarded with a dopamine rush in the brain and tapped into by marketers.
Asking consumers to consume less requires individuals to ignore human desires for novelty in favour of self-imposed scarcity plus does not account for changes in circumstance, which is unrealistic and thus unsustainable. This is where circular models come in.
Circular Models Extend the Life of Resources Through Rental, Resale and Repair
Businesses with circular models strive to keep the resources they use alive for as long as possible. They move away from linear sales to individual once off buyers, but rather innovate their business models around offering the same products to multiple customers over time through rental or resale, and also repair them if needed. The outcome for the customer – they can benefit from a product’s novelty and utility (e.g., wearing a new dress or using an electric appliance), just that they are not the only person to ever use or own it. This scenario does require breaking up with the concept of traditional ownership in favour of only temporarily accessing products or procuring used ones to satisfy one’s wants and needs, but this shift in consumer attitudes has been underway for a while already.
The resale market was first and has been driven by independent marketplaces such as Ebay and Gumtree for over 20 years now and recently found a strong competitor in Facebook Marketplace. This group of players is being complemented by many more specialized independent resellers. 10 years later entered the sharing economy as a challenger to traditional ownership models. Global tech unicorns Airbnb and Uber have long been the crowning jewels, but the number of such service-based businesses is growing, including fashion rental businesses Rent The Runway in the US, and, on Australian shores, GlamCorner or Designerex for fashion and recently-launched Releaseit for household items.
Both the sharing economy and resellers have brought incremental change within a flawed system, but barriers remain to building a truly circular economy. Firstly, circular activities have generally been driven on third party platforms without the original seller or maker receiving a clip of the ticket on the rental revenue or second sale generated by their products. Consequently, there has been a lack of incentivization for brands and retailers to keep the resources used in circulation for longer.
Secondly, and most importantly, resellers and the sharing economy have not yet fully closed the loop onwaste as the goods being offered are still part of the old system and ultimately designed for disposal. Overall, the structure of production and consumption needs to change to include efficiently reclaiming resources at the end of life of a product to truly uncouple consumption from using virgin resources.
Full Circularity will Require Innovation, Investments, and Incentives
A fully circular economy not only keeps resources alive for longer, but also recoups resources for recycling at their end of life. This not only requires big structural shifts in business models, but also strategic investments, collaboration and changes in government policy.
Traditionally, waste management has mostly been driven by the public sector but momentum in the private sector has been growing and innovative organisations have recognized both their responsibility and the commercial opportunity.
To close the loop, some leading businesses have started to strategically invest into whole business units around circularity, e.g. food retailer Kaufland in Germany becoming fully integrated in recycling for the plastic bottles they sell (and other waste). They run a take-back scheme, recycle bottles in a group-owned plant and re-insert them back into the sales cycle. They also recycle bottles from other players - these partnerships help drive scale.
In fashion, Patagonia, alongside rental and resale models, also focuses on re- and upcycling, showing their strategic direction towards retaining responsibility for the resources they have put out into the world through the entire lifecycle. They recycle unusable manufacturing waste and worn-out garments into polyester fibers for their collections or upcycle scraps of fabric waste into one-of-a-kind pieces in their project ReCrafted.
Another example is Ikea, who are attempting to take a holistic approach and innovate for circularity along their entire supply chain. They have pledged to be a fully circular business by 2030. Alongside also trialing rental and resale models, a strong focus for them is to design products for disassembly and recycling in the first place, so they can recoup the resources later. Only when considering circular design principles and product end of life from the start, can a circular system truly come to life.
To facilitate this systemic transition, governments continue to play a key role in supporting the expansion of recycling infrastructure, but also through policy changes such as formalizing NetZero regulation to help businesses plan strategically, penalizing waste disposal (e.g., in France) or incentivizing labour in the circular economy, such as repairs and recycling, through tax breaks (e.g., in Sweden).
Over time, this multifaceted circular system can become more profitable than linear outright sales of goods, environmental impact and costs are decreased, and job growth is also promoted. According to Patagonia, this is how to achieve “scale, growth and profitability in a way that’s more efficient than continuously making new stuff.”
The Only Way to Have Our Cake and Eat it Too – How to Consume in a Net Zero Future
Rather than aiming for sustainability just from scarcity and curbing consumption, a truly circular economy allows consumers to continue enjoying a large range of products new to them. At the same time, circular models mean businesses can greatly reduce emissions, generate sales from services such as rental or resale, and access further revenue and future resources at yesterday’s prices through recycling. A strong policy framework, strategic investments and collaboration are needed to foster the systemic changes required to make this shift – but it is the only approach to consumption that can be sustainable and provide retailers a space to exist in the future.