Policy interventions imperative for sustainable development of India’s retail segment

As climate change consequences accelerate globally, the world stands at crossroads. The balance between growth imperatives and sustainable development is the need of the hour. Consequently, the spotlight is firmly focused on the measures that enterprises, institutions and individuals are taking to safeguard the environment.

Given the rising environmental consciousness among consumers, investors and allied stakeholders; businesses feel the urgency to embrace ESG (environmental, social and governance) norms. Whether it is consumers, investors, regulators or enterprises, all are monitoring the ESG metrics even as businesses are trying to maintain profitability while managing the compliance costs of running eco-friendly operations.

Significance of Retail and its Carbon Trail

The ESG requirements are valid for all industries, including India’s retail segment, which is the world’s fourth-largest retail market and the third-largest in the country. While retail contributes about 10% of the nation’s GDP, it is anticipated to grow at a CAGR exceeding 12% within five years. Pegged at $690 billion in 2021, the nation’s retail segment is slated to reach around $2 trillion by 2032 according to a BCG-RAI report.

Additionally, the industry employs more than 50 million people, with the potential to hire another 25 million by 2030. Besides, it provides substantial indirect employment opportunities to allied domains such as logistics, warehousing, packaging and construction. Given all these advantages, retail can be labelled the Indian economy’s growth engine.

Yet, all this comes at an environmental cost – retail is ranked universally as one of the ten most carbon-intensive segments. Against this backdrop, sustainability and decarbonisation have become pressing needs for the industry as consumers are incorporating these elements in their purchase decisions. Consumer concerns about the environment have triggered an upsurge in eco-labelling demand based on broadly accepted standards as well as for eco-friendly products.

Realising the criticality of boosting efficiency in energy usage, India’s retail players have been shifting to solar, wind and other renewable sources for energy needs. But industry efforts in this direction would fall short if these were not supported by institutional support. Fortunately, the central and state governments have already initiated multiple schemes to promote renewables. Moreover, big and small Indian retailers are paying attention to green supply chains or green logistics since this represents a more sustainable avenue for logistics and shipping, which can also save costs in the long run.

Decarbonisation and allied sustainability measures

At the global level, the Indian government has pledged its commitment to a net-zero target by 2070 along with a short-term target of 2030 for reducing the emissions intensity of its GDP by 45%. Governments at the central and state level have been vocal about sustainability through various interventions such as single-usage plastic ban, renewal energy push, electric vehicles, etc.

Since supply chain emissions remain the biggest contributor to the retail industry’s carbon footprint, the decarbonisation goal can be achieved via the visibility of emissions. In retail, supply chain emissions are linked to procurement decisions. Therefore, by judiciously selecting the input material at sourcing, and following sustainable processes for the manufacturing base as well as the customer distribution centre; one can mitigate emissions substantially.

In essence, embracing a net-zero model will be contingent on a systematic thought process wherein retailers create a roadmap of their enterprise decisions going beyond the immediate steps in the value chain. Organisations would also require strategies to decarbonise the retail segment such as creating energy goals and investing in sustainable supply chains backed by more efficient logistics in green retail operations wherein buildings are structured and managed through a life-cycle perspective.

Furthermore, apart from retailers crafting a cohesive climate strategy, this must combine a path to decarbonisation as well as a source of funds to finance it. In context, all stakeholders need to note that along with social and ecological benefits, decarbonisation leads to new revenue streams, cost savings and more reputational resonance. This is primarily because rising consumer consciousness about safeguarding the planet has made sustainability a vital value proposition.

Thanks to the unique position of retail in supply chains between upstream vendors and downstream customers, retail companies remain at the centre of a circular economy wherein goods at the initial end-of-life phase can be returned to supply chains for sustained usage. Along with its energy-intensive characteristic, these other elements can ensure the retail space exerts a major impact on the global campaign for sustainability playing out worldwide.

Policy Mandates and Promotions

The government can also bolster decarbonisation efforts by making emission declarations and targets mandatory, standardising the calculation of emissions and incentivising recycling while educating and enabling consumers to opt for sustainable choices.

Policies to promote increased reuse and recycling are also necessary. The country has implemented EPR (Extended Producer Responsibility) laws, extending the responsibility of the producer vis-à-vis recycling, plastic collection and e-waste. Consequently, producers will be required to recycle at least 80% of their generated e-waste by 2025. Similarly, India plans to have 100% EPR for plastic packaging. Likewise, a stringent monitoring and verification system is necessary to monitor emissions as well as the production, material use and recycling policies of organisations.

Going by the scale of the overall change needed, government policies can pivot the retail industry in the right direction through the requisite infrastructure support, fiscal incentives and policy mandates. In addition to these measures, the government should consider the interests of small retailers too if sustainability is to be encouraged across all segments of the industry. Implementation of an inclusive National Retail Policy will enable the safeguarding of the interests of small retail players by establishing a level playing field for them. Also, the retail segment should be accorded an industry status at the earliest, to help streamline the sectoral issues and promote the sustainable goals more prominently.

Lastly, as organisations with sustainability at the core of their operations outperform peers, the retail sector would be better off by mainstreaming sustainable management practices and embedding them in value chains.

The writer is MD and CEO, METRO Cash & Carry India and ex-Chairperson FICCI Retail & Internal Trade Committee (2000-2022)