uk retailers and climate change: the role of partnership ...and impact of corporate climate...

UK retailers and climate change:

The role of partnership in climate strategies

Aoife Brophy Haney, Ian Jones & Michael Pollitt

www.eprg.group.cam.ac.uk

Aoife Brophy Haney, Ian Jones & Michael PollittUniversity of Cambridge

E&E Seminar Series 02.11.2009

Motivation

• Climate change – increasing emphasis as part of broader CR agenda

• Information – more disclosure of energy and carbon-related data

Corporate responsibility (CR)


2

carbon-related data

• Partnership – collaboration with external organisations to define and achieve goals

• Measurement – best practice; impacts of strategies? Impacts of partnership? Lots of variety

Why retail?

1. Large non-intensive energy users*o Carbon emissions mainly electricity-related (70%)

(Carbon Trust, 2005); projected growth

o Low-cost energy efficiency gains with existing technology but significant barriers

2. Influence on significant amount of UK emissionsDirectly (scope 1 and 2)


3

o Directly (scope 1 and 2)

o Indirectly (scope 3)

o Additional impacts on customers, employees, supply chain partners

Scope 1: Direct emissions (electricity/heat

generation, transport)

Scope 2: Indirect (purchased electricity)

Scope 3: Indirect other (upstream and downstream)

*Large = over 50 employees in

industry and 250 in service sector

A feel for the numbers….

� Total UK CO2 emissions

– 543Mt CO2 (2007)

• Retail sector emissions

–Scope 1: 2.3 MtCO2

–Scope 2: 5.4 MtCO2

Retail

16%

Garages

6%

Other

22%

Total: 48 MtCO2

CO2 emissions:

Large non-energy intensive organisations


4

–Scope 3: 69 MtCO2

• Wider retail sector

–Includes Retail

Wholesale trade and

Garages

–Approx. double the

above: 153 MtCO2

6%

Wholesale

trade

11%

Mech and

electrical eng.

16%Plastics

9%

Hotels and

catering

9%

Vehicle eng.

11%

Source: Carbon Trust 2005*Transport and storage, Real Estate,

Construction, Non-Metallic

Minerals, Printing, Textiles, Water

and Other Industries

Research Aims

• Characteristics of retail business responses to climate change in the UK

• Role of partnership market and its impact on best practice

General

Research Questions


5

• How committed are retail companies to “climate strategies”?

• Does partnering with specialist external organisations have a material benefit?

• Which forms of partnership are most effective and why?

• What distinguishes companies that are highly engaged in partnering from others?

5

Outline

1. Key concepts

2. Policy and sector context

3. Research approach

4. Results


6

4. Results

5. Analysis

6. Conclusions and Future work

6

Climate and responsibility

Climate strategies

• Specifically climate rather than wider environmental impacts

• Increased awareness of risks and opportunities (CDP, 2008)

• Shift from political to practical approach (Okereke, 2007)


7

Corporate responsibility (CR)

• Engaging with external society

• Voluntary programmes

• Closer integration of CR and business strategy

7

Marks & Spencer

“We're doing this because it's

what you want us to do. It's

also the right thing to do.

We're calling it Plan A

because we believe it's now

Plan A

Responsibility to

environment and society

now at the core of


8

because we believe it's now

the only way to do business”.

now at the core of

decision-making

Partnership

Transaction costs

• Implementing decisions and strategies

• Barrier, e.g. in energy efficiency (Grubb and Wilde, 2008)

External specialist partners


9

External specialist partners

• Non-governmental organisations (NGO)

• Specialist consultancies

• Government initiatives

• Supply chain partners

Sainsbury and Forum for the Future

• £30,000 per year donation for minimum 3 years

• Strategic sustainability services

• Commitment at senior

Alliance Boots and Business in the Community

• £12,175 membership contribution annually

• Dedicated relationship manager – practical advice

• Environment leadership • Commitment at senior management level

• Involvement with Masters course for sustainable development

• Environment leadership team

• CEO involvement

Outline

1. Key concepts

2. Sector and policy context


4. Results


11

4. Results

5. Analysis


CO2 emissions in the UK retail sector

Company reporting

• Increasing but in need of improvement and standardisation

• Voluntary protocols, e.g. GHG Protocol

• 18 of 60 companies in our sample report publicly


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• 18 of 60 companies in our sample report publicly

Significant opportunities for scope 3 emissions

• Innovative approaches needed

• Complex and will remain voluntary

• Leadership role – performance differentiation

CO2 by end-use:

UK commercial and public sector buildings

37%

11%

7%

6%4%

Total:

Approx. 71 MtCO2• Carbon Trust advice for

retail companies

– Lighting

– Heating, ventilation, A/C

– Refrigeration


13

26%

Heating Lighting

Catering Hot water

Cooling/ventilation Computing

Source: Pout and MacKenzie, 2005

– Refrigeration

– Building fabric

Policy framework

Climate change levy

Tax on energy use

Buildings regulations

European Energy Performance Directive

Support services via Carbon Trust

Set up in 2001 by UK gov’t

Commercial sector organisations (incl. retail)


14

Tax on energy use

Business and public sector

Main method for encouraging efficient energy use

Directive

Residential and non-residential; new and existing

Certification; regular inspection of boilers, A/C

Set up in 2001 by UK gov’t

Independent company offering advice and services

Several partnerships with retail companies

Barriers to efficient energy use

Large non-intensive energy users

• Energy costs typically less than 3% of operating costs (DEFRA, 2008)

Other significant factors

• Transaction costs


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• Transaction costs

• Organisational structure

• Hidden benefits

• Lack of adequate skills

• Market misalignment (e.g. tenant-landlord split) (Grubb and Wilde, 2008)

CRC Energy Efficiency Scheme

• Carbon Reduction Commitment– Cap-and-trade scheme

“Plugging the gap in energy efficiency policies”

(Grubb, Haney and Wilde 2009)


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– Cap-and-trade scheme

– Introductory phase commences April 2010

– Fixed price allowances (£12/t CO2) from 2011

– Full auctioning in phase 2 (from 2013)

• Interesting features– Revenue neutral

– League table and adjustment to recycled revenue based on performance

Who and what’s covered?

Public sector and commercial organisations

• With at least one half-hourly electricity meter;

• And electricity consumption of > 6,000 MWh/year

• Approximately 5,000 organisations


17

Direct and indirect emissions

• On-site heat/electricity generation

• Purchased electricity emissions

• At least 90% of emissions must be covered by CRC, CCAs or EU ETS

• Estimated savings of 4.4 MtCO2 per year by 2020

Strengths/criticisms

1. Focus on organisations not

installations

2. Reputational incentives via

1. Complexity of corporate

structures not accounted for

2. All electricity consumption


18

2. Reputational incentives via

performance league table

3. Standardised measurement

and reporting

2. All electricity consumption

treated the same (except

unsubsidised on-site

renewables)

3. Complexity of recycling

mechanism

Outline

1. Key concepts



4. Results


19

4. Results

5. Analysis


Research needs

• Analytical approach

Focus:

Engagement with external partners in development

and impact of corporate climate strategies


20

• Analytical approach

– Analysis of partnerships that vary in nature

– Framework that compares strategies where reporting of information is not standardised

– Means of measuring impact of strategies where data is limited

Retail company sample

• 60 retail companies

– From Value Added Scoreboard 2008

– Wide definition of retail that includes:

• Food retailers and wholesalers

• Drug retailers

• General retailers: apparel; broadline; home improvement;


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• General retailers: apparel; broadline; home improvement; specialty; specialised consumer service providers

– 25% of sector value added; 34% of total sector employees; considerable share of emissions

– 18 companies publicly report emissions

• Considerable variation in methods

Social capital

• Impact and structure of social relations

• Some definitions:

– “features of social organisation, such as trust, norms and networks, that can improve the efficiency of society by facilitating coordinated actions” (Putnam, 1993, p. 167)

– “interpersonal networks” (Dasgupta, 2005)


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– “interpersonal networks” (Dasgupta, 2005)

• CR literature

– Several examples of social capital framework

– Our study builds on work of Jones, Pollitt and Bek (2007) –multinational firm engagements in host country communities

[email protected] 22

Category Indicator Max. Score

Measurement Scope 1 emissions 2

Scope 2 emissions 2

Scope 3 emissions 2

External verification 1

Relative measures 1

Longer-term plans/targets 2

Integrated into business strategy 2

Best practice index


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Target setting Lighting 2

HVAC and/or refrigeration 2

Distribution network 2

Target impacts Achievement of CO2 targets from previous year 2

CO2 reduction commitment ((+1 for baseline; +1 for clear

footprint info; +2 for specific reduction targets)

4

Implementation/enga

gement programmes

Employees

Suppliers

Customers

2

2

2

TOTAL 30

Database – best practice


24

Database – CO2 Targets


25

Partner types

Partner organisation Definition

NGO – membership Non-governmental international, national

or local organisation with a focus on

benefits to members, e.g. trade association

NGO – service Focus on providing services to other

organisations or to entire populations, e.g.


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organisations or to entire populations, e.g.

WWF

Academic Academic/research institutions based in

the UK and internationally

Firm For-profit companies, e.g. consulting firms

Partnership scoring system

Indicator Maximum score

Membership/Donation/Payment for services 1

Involvement in projects/advice services specific to the company 1

Involvement in projects/issues beyond company-specific 1

Board-level engagement (e.g. required CEO/board involvement as 1


27

Board-level engagement (e.g. required CEO/board involvement as

part of partnership model or emphasis on CEO/board involvement

by the company)

1

Longer-term engagement, i.e. beyond 1 year; not annually

renewed

1

TOTAL 5

Going back to our earlier examples…

Sainsbury and Forum for the Future

• £30,000 per year donation for minimum 3 years

• Strategic sustainability services

Partnership score:

– Donation (+1)

– Longer-term (+1)

– Company-specific (+1)

Board-level/senior


28

services

• Commitment at senior management level

• Involvement with Masters course for sustainable development

– Board-level/senior involvement (+1)

– Beyond company-specific (+1)

Total: 5

Partnership score:

– Donation (+1)

– Company-specific (+1)

– Beyond company-

Alliance Boots and Business in the Community

• £12,175 membership contribution annually

• Dedicated relationship manager – practical


29

–

specific (+1)

– Board-level/senior

involvement (+1)

Total: 4

manager – practical advice

• Environment leadership team

• CEO involvement

Outline

1. Key concepts



4. Results


30

4. Results

5. Analysis


Company scoresMeasure-

ment

Target

setting

Target

impacts

Implement-

ation

Total

John Lewis 6 10 5 6 27

Tesco 7 9 5 5 26

Sainsbury 5 7 6 3 21

Halfords 2 8 5 4 19

NEXT 5 3 2 1 11


31

Carpetright 0 5 2 3 10

Somerfield 0 5 2 0 7

Aldi 0 3 0 0 3

House of

Fraser

0 0 0 1 1

Lloyd’s

Pharmacy

0 0 0 0 0

Top 10 companies….

Best practice score Partnership score

John Lewis 27 23

Marks & Spencer 27 31

Tesco 26 28

Cooperative Group 24 24


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Debenhams 22 6

Kingfisher 22 21

Sainsbury 21 15

WH Smith 21 8

Halfords 19 4

Home Retail 19 9

….and the bottom 10

Best practice score Partnership score

AAH Pharmaceuticals 0 0

Arnold Clark Automobiles 0 0

BHS 0 1

Costco UK 0 0


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Giant Topco UK 0 0

Harrods 0 0

Icebox (aka Iceland) 0 2

Lloyds Pharmacy 0 0

Martin McColl 0 0

Saga 0 0

Overall trends

20

25

30

35S

core Best practice

Partnership


34

0

5

10

15Sco

re

Partnership

In order of best practice score

Depth and diversity

Total score Depth Diversity

Asda 15 2.1 3

Debenhams 6 2.0 2

Game 2 2.0 1

Greggs 3 3.0 1

Halfords 4 2.0 1

• Other measures of

partnership also

instructive

– Partner types


35

HMV 1 1.0 1

John Lewis 23 2.3 4

Kingfisher 21 2.1 3

M&S 31 2.2 3

Marshall of

Cambridge

1 1.0 1

Average 1.0

– Partner types

– Average engagement

depth

– Outliers

Outline

1. Key concepts



4. Results


37

4. Results

5. Analysis


Regression analysis

• Determinants of best practice?

• How do different aspects of partnership affect

company performance?


38

Main hypothesis:

Partnership has a significant effect on the climate strategy

performance of retail companies

Regression results1 2

Dependent variable BPI PSHIP

Observations 58 58

R2 0.7478 0.4155

Adjusted R2 0.7066 0.3593

Lprofit 1.51** 3.55***

Sales/emp 2.37 -3.42


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Listed 3.88*** 0.23

Foreign -2.01

General retail 2.86 -2.18

Ngo_member 5.19***

Ngo_service 2.49

Firm 3.72**

Academic 9.67***

Constant -7.71** -8.56

Significance

levels:

***1%

**5%

*10%

Outline

1. Key concepts



4. Results


40

4. Results

5. Analysis

6. Conclusions

Partnership conclusions

Best practice and partnership

• Evidence that the two go hand-in-hand

• No examples of high

Partnership type

• Effect on best practice varies

• Not just a one-way


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• No examples of high partnership/low best practice

• Reducing transaction costs

• Not just a one-way relationship, i.e. higher levels of best practice may reinforce partnering

• Effectiveness: Depth and diversity

General conclusions

Commitment to climate strategies

• Far from universal

• Target setting most promising area

• Measurement in need of improvement

• Lack of focus on the long-term


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• Lack of focus on the long-term

Transition to CRC

• Significant change for many retail companies

• Wide range of performance

• Increasing potential role for partnership

References

• Carbon Disclosure Project (2008). Carbon Disclosure Project Report 2008: UK FTSE 350. London: Carbon Disclosure Project.

• Carbon Disclosure Project (2007). Carbon Disclosure Project Report 2007: UK FTSE 350. London: Carbon Disclosure Project.

• Carbon Trust (2005). The UK Climate Change Programme: Potential evolution for business and the public sector. London: Carbon Trust.

• Dasgupta, P. (2005). Economics of Social Capital. The Economic Record 81(s1): S2-S21.

• DEFRA (2008a). Carbon Reduction Commitment: Analysis of organisation structures in the public and private sectors London: Department for Environment Food and Rural Affairs.

• Grubb, M. and J. Wilde (2008). Enhancing the efficient use of electricity in the business and public sectors. Delivering a Low-Carbon Electricity System. M. Grubb, Jamasb, Tooraj and Pollitt, Michael G. Cambridge, Cambridge University Press: 229-256.


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G. Cambridge, Cambridge University Press: 229-256.

• Grubb, M., Haney, A. B. And J. Wilde (2009). Plugging the gap in energy efficiency policies: The emergence of the UK ‘carbon reduction commitment’. European Review of Energy Markets 3 (2): 19-30

• Jones, I., M. G. Pollitt and D. Bek (2007). Multinationals in their communities: A social capital approach to corporate citizenship projects. Basingstoke, Hampshire, Palgrave Macmillan.

• Okereke, C. (2007). An Exploration of Motivations, Drivers and Barriers to Carbon Management: The UK FTSE 100. European Management Journal 25(6): 475-486.

• Pout, C. and F. MacKenzie (2005). Reducing carbon emissions from commercial and public sector buildings in the UK. Watford: Building Research Establishment (BRE).

• Putnam, R. (1993). Making Democracy Work: Civic Traditions in Modern Italy. Princeton, NJ, Princeton University Press.

uk retailers and climate change: the role of partnership ...and impact of corporate climate...

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