McKinsey & Co: How Retailers Can Cut 15% From Scope 3
McKinsey & Company is suggesting retailers could reduce their Scope 3 emissions by 15% by 2030 with existing technologies – or as much as 50% with new technologies and pathways.
The figures may prompt raised eyebrows, as Scope 3 emissions are not controlled directly by companies, but are largely in their value chains.
But, in a report called ‘Retailers’ climate roadmap: Charting paths to decarbonised value chains’, the consultancy sets out a series of actions to help retailers hit the mark.
The report is written by Peter Spiller and Steve Hoffman, with Caroline Ling, Philippe Diez and Varun Mathur, representing views from McKinsey Sustainability.
They say: “As companies in all sectors work to shrink their carbon footprints and hit their decarbonisation targets, the path to reducing Scope 3 emissions is often anything but straightforward.
“For some, decarbonising Scope 3 emissions can be more like navigating a particularly Byzantine maze. Such is the case for retailers.”
Why is it so difficult to reduce Scope 3 emissions?
While scopes 1 & 2 emissions are produced and controlled directly by a business, they typically amount to no more than 5% of total reportable emissions.
For retailers, declared Scope 3 emissions include greenhouse gases generated from sourcing, making, transporting, housing, selling and using every product the retailer carries throughout its life cycle.
The report says: “This means that, for a multicategory retailer, reducing Scope 3 emissions involves players from multiple sectors and industries and entails efforts to decarbonise six energy and land-use systems.
“And about 80% of a retailer’s Scope 3 emissions are generated upstream in product value chains via feedstock production, materials and components, processing and manufacturing, and packaging.”
On top of this, each product value chain contains multiple tiers of suppliers and inputs from regions around the globe.
The report adds: “The commodities involved are often mixed together in agricultural areas or at shipping ports and each tier within a value chain can be highly fragmented.
“Additionally, suppliers can change their sources for inputs within the course of a single year. This complexity makes it challenging for retailers to influence how suppliers handle or report on emissions.”
And that is not all…
The burden on some retailers becomes even heavier with the inclusion of consumers in their Scope 3 emissions.
Their use of products including electronics devices and washing machines is swept into the reporting mix.
The report says: “Thus, reducing downstream product value chain emissions often depends on influencing changes in consumer behaviour or the energy sources powering the local electricity supply.”
The five authors use beef as a case study for a product that is top heavy, with 86% of value chain emissions generated upstream by animal feed farming and production, fertiliser production and cattle ranching, according to McKinsey analysis.
The report says: “Reducing ruminant methane emissions and shifting toward more efficient use of agricultural inputs, maximising productivity and adopting regenerative agriculture practices such as no- or low-till soil and cover cropping are key to realising reductions in this value chain.”
Seven decarbonisation themes
The report identifies seven areas that retailers can focus on to drive decarbonisation:
1 – Transitioning to clean and renewable energy
2 – Reducing farming emissions from livestock management
3 – Adopting regenerative practices in plant-based agricultural inputs
4 – Increasing circularity of products and packaging
5 – Reducing waste and increasing process efficiency
6 – Reducing emissions in transportation
7 – Transitioning from animal protein to plant protein products.
It also suggests there could be significant results, adding: “If all were deployed at scale, these actions could propel a 55 to 65% reduction in the average retailer’s Scope 3 emissions by 2030, although some actions carry sizable costs.
“Actions that reduce or do not increase costs in the system could yield a 12 to 17 percent reduction in the average retailer’s Scope 3 emissions by 2030.”
Retailers need to take hold of the decarbonisation levers
The report outlines four “levers” that can be used by retailers to drive down Scope 3 emissions. They are:
A: Cost-effective near-tier levers
Retailers could engage their direct suppliers, their direct suppliers’ suppliers and consumers in efforts McKinsey says would result in cost savings or have no impact on cost.
Examples include forming partnerships for renewable energy adoption, providing electric vehicle–charging infrastructure and using consumer-focused marketing and tools to promote sustainable energy consumption habits and reduce waste.
B: Cost-effective far-tier levers
The report says: “Retailers could influence actions by engaging suppliers (along with other industry partners) in efforts to deploy cost-saving or cost-neutral levers to facilitate adoption of sustainability levers.
“Deployed at scale, such efforts could potentially help reduce the average retailer’s Scope 3 emissions by around 11 to 15%.”
Examples include providing training, education and resource initiatives in regenerative agriculture practices and emissions reduction for farmers, sharing and collaborating with peer companies and other value chain stakeholders on best practices to reduce waste and maximise process efficiency and setting supplier standards under deforestation-free and conversion-free (DCF) policies.
C: Costlier near-tier levers
The authors suggest that, by engaging their tiers one, two and three suppliers and other value chain partners, retailers could “help spark innovation that could improve the feasibility of interventions that are technically achievable but not cost neutral”.
Among the examples are fostering private sector–led investment in emissions reduction innovations, advocating for public sector–led incentive programmes aimed at helping value chain partners address costs or resource issues and taking part in campaigns to stimulate consumer awareness of, and encourage greater consumption of, plant-based protein.
D: Cost-prohibitive far-tier levers
Group D levers are far removed from retailers and extremely costly to implement, but the report says retailers can support, advocate, mobilise and engage suppliers beyond tier three and other stakeholders to facilitate breakthrough innovation and solutions.
It adds that group D levers deployed at scale could yield a 25 to 30% reduction in the average retailer’s Scope 3 emissions.
Examples in this area include collaborating with value chain partners and other private and public sector actors to invest in and expand circularity of material, supporting recycling technology R&D, supporting rare earth recycling and sustainable sourcing and advocating for public sector–led incentives to promote regenerative agricultural practices.
In conclusion: It can be done
While the report makes it clear that reducing Scope 3 emissions is difficult, the conclusion is that it is possible to make significant inroads if the right pathways are followed.
It says: “The breadth and complexity of their Scope 3 emissions have far-reaching implications for retailers in areas including economic, strategic, brand and reputation, and regulatory compliance.
“This is why retailers worldwide have embraced the opportunities in these challenges, pursuing ambitious sustainability goals and wide-ranging initiatives that have led to meaningful reductions in product value chain emissions.”
It adds: “Decarbonising retailers’ value chains is feasible, but it cannot be done in isolation.
“At-scale deployment of the sustainability measures outlined in this report will require system-level change involving farmers and ranchers, manufacturers, suppliers, nongovernmental organisations, public sector actors, energy companies, financial institutions, data and technology providers and consumers.”
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