The business of ESG looks a lot like sustainability, but maybe call it 3.0.
And for retailers’ logistics and supply chain executives, environmental, social and governance initiatives may prove the answer to a major resources challenge facing anyone making, selling and shipping product now or in the future.
“When I look at the world of logistics, it’s anything but sustainable today,” American Eagle chief supply chain officer Shekar Natarajan said last week during the NRF Supply Chain 360 conference in Cleveland. “And what I mean by that is, basically, every one of the links of the supply chain is stressed with not having enough resources.”
Natarajan was at the conference touting a prototype foldable shipping container that could be shared among several brands shipping to the same consumer through American Eagle’s Quiet Platforms logistics arm. His point is that everything, from what product is being shipped in to the mode of transportation being used, requires resources that are ultimately finite.
Sharing back-end services via one platform and competing on product would seem to be the most sustainable course of action for brands, Natarajan pointed out. That’s especially the case given many of them technically already share resources at the supplier level, which he likened to a series of “non-interoperable pipes” created by companies that are competing on supply chains.
“The brands benefit because it’s a reduction in shipping expenses,” he said. “The courier is also incentivized because they’re getting more density at the doorstep; it’s cheaper for them to deliver. And, the consumer benefits because you’re not getting 17 boxes on the doorstep. So, it’s good for the environment and good for the planet and good for people.”
The concept of sharing is one Walgreens is open to as it relates to its microfulfillment centers, of which it currently counts four. Although the network is still being built out, so it’s too soon to know, Walgreens senior vice president and chief supply chain officer Roxanne Flanagan said.
“One of the things that we’re looking at is where do we want to take them long term,” she said of the microfulfillment facilities. “We could do it as a service. We could end up putting retail products through there. …There’s a lot of options. Our goal is to have 22, so we’re still early on. But we did build them with some flexibility so that we can try a few different things and have some space to grow with ourselves [and] grow with our partners.”
It’s clearly a philosophical change for brands as much as it is an overhaul across the board in how organizations operate.
In retailer Tractor Supply’s case, that meant setting big-picture goals two years ago in September, including a 20 percent reduction of its carbon footprint from 2020 levels. By 2030 it aims to reach a 50 percent emissions reduction and 100 percent by 2040.
That plan builds on the sustainability and stewardship programs the company operated with some 20 years ago, CEO Hal Lawton said.
The current initiatives come at a cost of about $100 million to the organization, with tactical steps that include greening the companies’ three new distribution centers by building them to the U.S. Green Building Council’s gold status under its Leadership in Energy and Environmental Design ratings system for developers. Existing distribution centers will be retrofitted to be more efficient over the next few years with features such as solar panels. Stores will also see solar panels or skylights installed.
“It’s all about reducing our carbon footprint,” Lawton said. “And, yes, as our supply chain keeps reminding us, the best carbon footprint is one that never gets created because you’re optimizing your flow paths. So, do you have the best point to point that you can on imports? Are you getting shorter mileage if you can lower costs but also lower emissions? Yes, ESG has been a big goal for us. We’re making great progress on it. And we’ve got some significant investments we’re making over the next two years to continue to make progress.”
While Tractor Supply at one time referred to ESG as sustainability and stewardship, for Bonnie Nixon, sustainability director at the Long Beach Container Terminal, today’s ESG is simply an evolution of companies’ pre-existing governance measures.
“People have often said about ESG—or, I have students going, ‘Now I have to learn about ESG.’ I said, ‘Look, it’s not that different.’ We’re still trying to protect the environment. We’re still looking at labor rights and human rights. We’re still looking at health and safety. We’re still looking at ethics and corruption. And these are still the things that we’re trying to protect. And then it became sustainability and now we’re calling it regeneration. Yes, there are some differences and nuances, but I believe ESG is really the financialization of sustainability. I remember even when I was at HP, I was like when are the investors and the CFO and the accountants going to get involved in that, because we were looking at how do we harmonize those standards.”
Lee Kindberg, Maersk head of North America environment and sustainability, stressed shippers not make up their own measures for reporting and instead use standardized reporting methods.
Even the Securities & Exchange Commission (SEC) is calling for greater consistency in rules and reporting forms for funds and advisers relaying ESG information to investors.
SEC chair Gary Gensler said in May, when the amendments were proposed, that ESG can mean a “wide variety of investments and strategies” and, to that end, “investors should be able to drill down to see what’s under the hood of these strategies.”
Retailers clearly want the transparency in a bid to make good on their emissions reductions goals, Kindberg said.
“[Customer voice] is absolutely vital in this, and our customers are telling us they want zero-carbon shipping,” Kindberg said. “And they’re telling us in ways that we can understand. They’re sending those demand signals. They are now actually paying a premium to ship zero carbon.”
Kindberg said shippers pay a little extra for the service, while Maersk fronts the money for some of the fuel handling costs. ECO Delivery has about tripled in size over the last two years, according to Kindberg.
Some two-thirds of Maersk’s top 200 customer have set decarbonization goals, many of them zero carbon targets that range from 2038 to 2050, Kindberg said.
Some shippers are even expressing interest in tracking emissions at the stock-keeping unit or parcel level. That’s potentially possible in the future with big data, Kindberg said.
In the nearer term, however, logistics is undergoing mammoth-size shifts, one could say starting with the Maersk vessels themselves. It’s hardly a knee-jerk reaction, but respect for the time that change actually takes.
“The lifetime of one of these vessels is 20 to 25 years and our commitment’s for 2040,” Kindberg said of Maersk’s net zero greenhouse gas emissions target. “So, you do the math. This is the decade of action. And that’s why you see so many announcements and so much change happening all at once, because this has to be the next decade of action. And, again, together we can do more than we can do alone.”