A new McKinsey & Company report, titled “Retailers’ Climate Road Map: Charting Paths to Decarbonize Value Chains,” offers a comprehensive analysis of how retailers can reduce their greenhouse gas (GhG) emissions. Despite backing from major corporations like PepsiCo, Danone, Google, Lowe’s, as well as support from the Environmental Defense Fund and WWF, the report’s recommendations are unlikely to lead to significant decarbonization in the retail sector.
Key insights from the report include:
- A staggering 98% of retailers’ emissions come from Scope 3 sources, with 80% upstream and 20% downstream.
- The majority of emissions reduction opportunities are either technically unfeasible or would increase costs (83%), with regenerative agriculture being one of the few cost-neutral options.
- Many Scope 3 emissions reductions hinge on public sector initiatives related to energy and land use.
For apparel retailers, the report notes that 50% of emissions are tied to Tier 2 manufacturers, while raw materials contribute only 12% of total emissions.
However, despite this valuable data and ambitious corporate targets, meaningful progress is unlikely without systemic changes. Several challenges hinder decarbonization efforts:
- Energy Dependence: Many Tier 2 suppliers are located in Southeast Asia, where energy grids rely heavily on fossil fuels.
- Supplier Constraints: Upstream suppliers often face high borrowing costs, thin margins, and a lack of support from brands, making it difficult to prioritize emissions reductions.
- Capital Allocation: Without a carbon pricing mechanism, brands are more likely to invest in stores, marketing, and product innovation rather than carbon reduction initiatives.
- Fragmented Supply Chains: The distributed nature of supply chains and the lack of enduring partnerships between brands and suppliers complicate efforts to align incentives for decarbonization.
In short, while the McKinsey report provides a helpful framework, it highlights that the current system’s flaws mean that the ambitious decarbonization targets outlined are unlikely to be achieved, leading to disappointing outcomes for both the environment and society.
Read the full report online
