Sustainability is up in the cloud for retailers

Retailers know that they cannot address sustainability without working with suppliers, peers and consumers. Building a transparent cloud-based ecosystem can collectively enable sustainable value creation.

• Sustainability in retail will depend on delivering transparency to measure, guide and improve activity.
• Success requires an end-to-end approach that shapes better supplier and consumer behaviors.
• Cloud-based technology can lower enterprise impact and enable improvement across the ecosystem.

In retail everything begins, and ends, with the customer. The behavior of the retailer and their entire supply chain is shaped by the choices and preferences of the people that buy the products they sell. If enough customers want asparagus in mid-winter, then a grocery retailer will recalibrate their supplier network to meet that need, even if it means importing them from the other side of the world. To many retail mindsets this is what customer-centricity is all about: giving the customer what they want. But now retailers are operating in a landscape where the needs, wants and expectations of consumers are not always consistent. Added to this is the growing complexity of the stakeholders retailers need to serve. Consumers may want asparagus in mid-winter, but they may be unwilling to pay the financial or environmental price for it. Suppliers may be unable to reasonably deliver it. Regulators and investors may also raise uncomfortable questions about why retailers are doing it. The very act of selling asparagus in winter might cause consumers to lose trust in other sustainability efforts a retailer promotes.

Will transparency on carbon negatively impact your sales?

Retail is shifting to new measures of customer-centricity which seek to deliver the right blend of frictionless commerce (invisibility), immersive experiences (intimacy) and bundled products and services (indispensability). These won’t just deliver to what the customer wants, but they will leverage a broader stakeholder ecosystem to give them what they need. Part of this transition will depend on arming the customer with the information necessary to make better decisions. This is borne out by the EY Future Consumer Index, which surveys over 21,000 consumers across 27 countries. According to the programme 53% of consumers say purchasing sustainably is a guiding principle in everyday life, but 60% need better information to make sustainable choices. In 2021 a Norwegian online grocer began putting itemized carbon footprints on its shopping receipts, resulting in a drastic drop in the number of customers buying red meat. When customers were shown the impact of their consumption, they changed their habits.

Can ecosystems deliver sustainability where retailers cannot?

But retailers have struggled to get this information to customers at their point of need and making products truly sustainable is not something retailers can do alone. Instead, a systemic approach is needed, where retailers work with partners, suppliers, and other stakeholders to drive better outcomes. Consumers want this, with 70% believing that companies have a responsibility to drive better social and environmental outcomes. Retailers want this too. A study commissioned by EY with Economist Impact found that 84% of retailers intend to actively work with their network of ecosystem partners to create common sustainability practices and share best practices in the coming years. Among the same retailers, 81% also intend to build alliances that set binding sustainability commitments and KPIs.

The challenge to these commitments is possibly most acute at the crucial intersection between the retailer and their customer. According to the Economist Impact study, 50% of retailers see collaborating with partners as a critical measure for them to deliver sustainability. 47% even see allying with competitors on shared sustainability values as a critical measure. But tellingly, only 19% see educating consumers on key topics as critical. This is borne out by the experience of their customers. The Future Consumer Index shows that 47% of consumers are confused by the sustainability claims that companies make and 51% are put off from buying sustainable products because of a lack of information and transparency.

What is the balance between supplier management and customer satisfaction?

The problem for retailers lies in the balance they need to strike between managing and monitoring their suppliers and satisfying and informing their customers. Meeting expectations in areas such as price, quality and sustainability inevitably means that trade-offs take place, but understanding those trade-offs are much harder for sustainability than for price and quality, encompassing social issues such as inclusion and safety. After all, customers usually know how much something costs and will quickly learn if it meets their quality expectations, but there is much less visibility of the impact it has elsewhere, including working conditions, human rights, or transportation. Building transparency throughout the supply chain is a growing priority for retailers who not only need to satisfy the requirements of policymakers and investors in their reporting, but who also need to improve the activities of their suppliers and, ultimately, shape better consumer choices.

Retailers agree that technology is a key enabler for delivering sustainability. In the EY Reimagining Industry Futures Study 54% of retail respondents see emerging technologies as vital in accelerating sustainability in their organization and 36% see ESG as the leading consideration for their investments in emerging technology, with 5G, a crucial tool to enable cloud-based systems, prioritized among other technologies.

How will retailers generate positive impact without cloud capabilities?

Even at the operational level cloud-based technology has the potential to lower-carbon intensity. Consolidating data centers onto shared servers in energy efficient locations can have an immediate and tangible impact on carbon footprints, by delivering economies of scale that reduce intensity and utilize local renewable energy sources. There are also intangible environmental benefits associated with using cloud-based services such as increased connectivity for remote working.

This is a good start, but the real value cloud can bring to sustainability comes in its ability to connect retailers with the information they need to make improvements and guide better choices. Retail value chains are often complex and multitiered ecosystems where a product can pass through many different hands before it reaches the retailer, and the consumer. All these stages have social and environmental benefits or costs which need to be considered and measured. Currently retailers may only have part of this picture, usually in their direct operations. Alternatively, they may have all of the picture but broken up into tiny fragments on different systems in different locations through different ecosystem partners.

Piecing together this jigsaw is difficult, especially for big, static enterprise resource planning (ERP) systems that operate on legacy infrastructure, a situation faced by many large retailers. A product whose environmental impact is minimal may have a huge footprint in logistics (such as flying asparagus halfway around the world). Meanwhile a product that is sourced and manufactured locally may be so inefficiently produced that it would have a better environmental impact to transport from further afield. To make the right trade off retailers need more visibility.

Tracking and interpreting multiple factors will depend on flexible small component-based solutions that use interoperable and distributed platforms. Not only will this create the right data fabric that allows retailers to piece the jigsaw together, but it will also draw in and incorporate other modular technologies which retailers can apply to adapt quickly to changing market conditions and pull in further data sources from third parties to fill any gaps that might remain.

The result of this process for retailers is much greater visibility and transparency across their entire value chain, pieced together by distributed, interoperable cloud-based technologies. Instead of relying on opaque claims about the sustainable impact of the products they sell, or on reporting aggregate impacts at the enterprise level, retailers can deliver absolute transparency to the consumer and other stakeholders at the SKU level, enabling an understanding for every product they sell. ?

The level of granularity that the cloud can unlock for retailers and their customers is transformational in how they can address sustainability challenges. An integrated cloud network can potentially deliver a full product footprint for a range of metrics across the value chain including suppliers, sub-suppliers, transport and logistics, warehousing and other externalities such as refrigeration and seasonality. These components can be integrated into a product certificate that demonstrates clear visibility to the customer and other stakeholders of product-level impact and potential lower impact alternatives.

Will transparency confer customer trust?

The potential benefits do not stop there. Once retailers can measure these impacts at different stages of the supply chain, they can work on improving them — by optimizing the operational footprints and working with suppliers to eradicate suboptimal outcomes in the value chain. By being able to compare the footprint of different products retailers can build these metrics into their loyalty schemes to reward positive consumer choices and make smart recommendations to guide better behaviors.

Many retailers have focused their value chain activities on incentivizing upstream reduction but influencing downstream activities. By bringing consumers into the equation this will not only improve their impact but will also deepen their relationship with the customers they serve. This may sound difficult, but some platforms are already well on their way to achieving this. Chinese ecommerce platform Alibaba has embarked on a Scope 3+ ambition to reduce emissions from its extended ecosystem by 1.5 gigatons of carbon. Cloud-based technologies enable Alibaba to provide visibility to every stakeholder in its extended ecosystem – including end customers who can now access a carbon ledger platform in Alibaba shopping apps to monitor, record and improve the effects of their own behaviors.

These activities do not just point to a way for retailers to mitigate the environmental impact of their business, but they enable retailers to stand at the forefront of delivering a more sustainable future by proactively leading and guiding better behaviors. This leadership will be essential in addressing key sustainability issues and pushes retailers from being transactional enterprises to civic leaders in helping to address some of the systemic challenges society faces.?