The shift to Paris Agreement-aligned diets won’t happen without retailers
Investors eyeing the UK retail market should remember that supermarkets face one of the toughest and most important climate transitions yet.
UK retailers are having a moment in the sun when it comes to international investment. Last week saw UK retailer Morrisons agree its purchase with new owners, US equity firm Clayton, Dubilier & Rice (which provoked concerns from Feedback and our allies in the Times this weekend). Meanwhile, Sainsbury’s is the next supermarket in US investors’ sights, with the firm that missed out on buying Morrisons, Fortress, said to be interested in the UK’s second biggest retailer instead.
Retailer sustainability strategies may not have been top of the agenda as these investors sized up their new assets. But investors large and small shouldn’t forget that UK retailers face one of the toughest new fronts in corporate climate action: how to create a sustainable food system, within the deadlines that the climate science tells us are looming ever closer. As the need for a rapid decarbonisation of the UK economy sharpens, the focus in the next few years won’t be on supermarkets’ electric vehicle fleets or plastic bag charges but on how they intend to tackle the emissions associated with the products they sell and the supply chains that produced them (their ‘Scope 3’ emissions), of which meat and dairy make up a major slice. Feedback’s new investor brief, ‘The Shift to Paris-aligned Diets and Investor Risk in the UK Retail Sector’ explores these themes, based on our 2021 Meat and Climate Scorecard, which used just under 40 indicators to assess the top ten retailers on their action to address the climate impact of the meat and dairy they sell.
The investor brief explores the physical and transitional climate risks retailers face, associated with their sales of meat and dairy, and argues that, as markets continue to price climate risk into the value of equity securities, setting and meeting ambitious and accountable science-based targets on product emissions will become a bellwether of a retailer’s long-term viability. And it makes the case that only by radically reducing how much meat and dairy they sell will retailers be able to meet these targets.
Most UK retailers have some sort of ‘climate plan’ and many, under pressure from the COP26 team as well as investors, have net zero targets. But, here’s the rub: to be credible, retailers’ net zero plans must include their Scope 3 emissions, which represent up to 95% of their overall carbon footprint. Retailers are reluctant to include these figures in their targets – Green Bonds issued by Tesco last year explicitly excluded their Scope 3 emissions from their action targets, and the retailer has yet to update their implausible Scope 3 estimates, which saw these emissions represented as only a small proportion of Tesco’s overall climate burden. This is because reducing Scope 3 emissions, otherwise known as taking meaningful climate action, requires fundamental changes to what retailers sell, and how they sell it. Figures on the proportion of Scope 3 emissions generated by retailers’ sales of meat and dairy are hard to come by because of a lack of transparency, but numbers published by a Dutch retailer Ahold Delhaize suggest they represent around a third of Scope 3 emissions.
So what should a climate-savvy investor eyeing one of the UK’s mega retailers be looking for?
First, does this retailer have a credible decarbonisation target that is science-based, independently audited, and in line with the global goal of limiting temperature rise to 1.5 degrees? Does this plan include how they will halve (at least) their Scope 3 emissions in a credible, Paris-aligned timeframe? This is a bare minimum: supermarkets have a huge amount of power in our food supply chain, and scientific evidence shows that if we don’t address food systems, we’re very unlikely to deliver 1.5 degrees. Investors can expect governments and the public to pay more and more attention to supermarkets’ role in delivering a just and safe future as we head towards 2030.
Just as importantly, does the retailer have a credible plan for how it will achieve this target, and the transparency to back it up? UK retailers provide hugely varying levels of detail on how they plan to achieve their plans: Tesco announced a new target in October but with little detail on how it will get there. Sainsbury’s, who was first out of the net zero blocks back in 2020, has still not published a detailed plan showing how exactly it will cut its emissions. This matters, because all the retailers have still to publicly face the very clear reality that they cannot achieve any credible climate targets without reducing how much meat and dairy they sell.
Where retailers talk about their plans, do they include action at every level of their business? This means from mainstreaming sustainability targets by linking them to senior staff’s renumeration packages to making changes on the shop floor that will actually start to shift their shoppers’ habits. We shouldn’t be naïve – supermarkets have been shaping how we shop and what we buy for decades, and the myth that they only respond to consumer demand is a dangerous one. Promotions, labelling, and even how food is displayed in stores all contribute to how we shop. Feedback’s supermarket scorecard had a series of suggestions for how supermarkets can address the ‘food environment’ they create, to make it healthier and more sustainable: but retailers need to do their own research and accept that selling less meat and dairy – not just more plant-based foods – is going to be a central piece of the puzzle.
The scorecard is not looking strong. Sainsbury’s, the ‘official’ supermarket of COP26, which kicks off next week, announced a net zero ambition back in early 2020. Yet Sainsbury’s have yet to provide investors with the essential transparency on their emissions, broken down by sales category, or with a concrete roadmap of how they intend to address them. Tesco is even further behind – their plan to have ‘net zero’ products and supply chains by 2050, announced earlier this month, fails to align with a commitment only a few weeks earlier to cut product-based emissions by half by 2030. Morrisons has vaguely guestured to future ‘net zero eggs’ and beef – an approach which will rely solely on offsets, a strategy which is coming under increasing scrutiny from climate-savvy investors (as we argue in this letter to the FT).
Until retailers have credible answers to each of these questions – and the transparency to prove it – investors may be left to conclude that the real answer to ‘what’s the plan on retailers’ climate transition?’ is that, currently, there is no plan.
Read the full investor brief: ‘The Shift to Paris-aligned Diets and Investor Risk in the UK Retail Sector’
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