As retailers and suppliers grapple with the pandemic, inflation, Brexit, and rising fuel and energy costs, they risk missing another flashpoint. Following COP26, the UK government pledged to introduce mandatory climate-related financial reporting. Like all regulations, TCFD reporting and wider sustainability and environmental, social, and governance (ESG) reporting will impact the unprepared.
For some, it has already started: as of 6 April 2022, any retailer with over 500 employees or £500 million in turnover is obliged to take part. This means big names, such as Tesco, Aldi and (on the supplier side) Coca-Cola, already have auditing processes underway.
Smaller businesses don’t have to report until 2025. But many suppliers will face pressure to provide environmental and emissions data sooner than that – for use in the compliance journey of their large retail customers.
Regulation or no regulation, there is a strong environmental imperative to combat carbon emissions. Businesses that can align themselves with ESG reporting frameworks sooner rather than later will find their corporate reporting transition smoother as regulations evolve. It also enables businesses to:
Reporting is based on the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD). This is one of the most effective frameworks for companies to analyse, understand and disclose climate-related financial information.
Its structure is based on four pillars: governance, strategy, risk management, and metrics and targets. It divides carbon emissions into the following categories:
The scope 3 category of emissions is much broader and provides the opportunity to decarbonise the supply chain. It contains 15 different types of emissions including: purchased goods and services, capital goods, upstream transportation, waste, business travel, commuting, leased assets, downstream distribution, use of sold products, end-of-life treatment, downstream leased assets, franchises and investments.
Early work from larger retailers has shown that scope 1 and 2 are the easiest to audit, with scope 2 bearing the lowest hanging fruit for improvement. Scope 3 emissions are more challenging to measure and tackle.
Organisations are in direct control of scope 1 emissions so these are relatively easy to reduce. Steps can include replacing ageing assets with energy-efficient alternatives, improving recycling of materials as part of manufacturing, reducing power consumption, and optimising heating and lighting.
Example: In 2021, Sainsbury’s purchased 1,200 lithium-ion pallet trucks, a move with the potential to save enough energy to power 700 average-sized UK homes for 12 months.
Retailers are tackling scope 2 by developing partnerships with renewable energy partners or purchasing green energy from the grid at a premium.
Example: In its most recent annual report, Marks & Spencer outlined how a focus on renewable energy influenced the inclusion of a roof-mounted solar array at a new clothing and home warehouse.
On average, more than 80% of retail and food sector emissions are scope 3, relating to the supply and value chain.
Example: Scope 3 contributes to approximately 98% of Aldi South's greenhouse gas emissions, according to the group's 2021 progress report on climate protection. Both Tesco and Sainsbury’s said that cracking scope 3 will rely on close collaboration with their suppliers.
We anticipate it will take large companies between three and five years, and smaller companies two years, to accurately implement the new and complicated TCFD reporting requirements. The overarching tasks are to:
This is, of course, an extremely high-level action plan and most retailers will need dedicated resources or third-party guidance to help with TCFD requirements and ESG reporting frameworks.
Perhaps the most important starting point for all retailers, however, is simply to realise that – as with all environmental matters – action is needed sooner rather than later.