2013 Retail Sustainability Report

FUELING CONTINUOUS DEVELOPMENT

Special thanks to our sponsor:

(www.ey.com/climatechange)

AT A GLANCE Retail companies sustainability programs are following a continuous development curve. They begin by developing programs and practices, implementing strategies and technologies, and collaborating internally and externally. These activities uncover significant business benefits that fuel further investment in turn. As the retail sustainability field evolves, a class of top performers has emergedthose companies that have defined the development curve for the industry by embracing the full breadth of sustainability activities, thereby achieving an equally wide breadth of benefits. The respondents to the survey that forms the basis of this report are retail companies representing more than 65,000 locations and $1 trillion in global revenue.

Letter from the Retail Industry Leaders Association

On behalf of the Retail Industry Leaders Association (RILA) and our member companies, we are proud to present RILAs second Retail Sustainability Report. For the past six years, RILA has provided resources to empower, enhance, and accelerate sustainability activities in the retail industry; research like this report is a cornerstone of our efforts, and is intended to help companies understand how they compare to others in the industry and where there are opportunities for improvement. The objective of this report is only to act as a snapshot of the industrys sustainability programs. Between the publication of our first Retail Sustainability Report in January, 2012 and the publication of this report, we have found that the industry is continuing to drive progress and increase accountability on the most critical issues. Also, through this report, we want to bring to your attention the significant business benefits retailers have achieved from their sustainability endeavors, ranging from improved employee loyalty to decreased costs to more resilient supply chains. As you will see illustrated in the subsequent chapters, these benefits are fueling the continued development of sustainability programs over time. However, program development does not come without challenge. Please use this report to understand the core components of a sustainability program, as well as the innovative strategies retailers are pursuing. We will continue to publish this report in future years to show how the industry is progressing on key sustainability indicators.

Sandy Kennedy President

Deborah White Executive Vice President and General Counsel

Adam Siegel Vice President, Sustainability and Retail Operations

Report Contents
6 7 8 11 About the Retail Industry Leaders Association About This Report Executive Summary: Fueling Continuous Development Managing Sustainability
12 Team and Organizational Structures 16 Investing and Benefiting 19 Prioritizing and Planning 23 Measuring and Reporting

26

Implementing Sustainability
27 Building Operations 31 Supply Chain Operations 35 Stakeholder Engagement

40 41

Conclusion Appendix: Member Survey

About the Retail Industry Leaders Association

The Retail Industry Leaders Association (RILA) is the trade association for the worlds largest and most innovative retail companies. RILA members include more than 200 retailers, product manufacturers, and service suppliers, which together account for more than $1.5 trillion in annual sales, millions of American jobs, and more than 100,000 stores, manufacturing facilities, and distribution centers domestically and abroad. The retail industry is proud of its accomplishments and excited to continue to evolve sustainability programs that drive business value, consumer and employee loyalty, and support a healthier planet. And RILA is excited to continue to convene the industrys leaders and advance the practices and breadth of business benefits of retail sustainability programs. RILAs Retail Sustainability Initiative (RSI) focuses on five topics key to successful retail programs: 1. 2. 3. 4. 5. Energy and greenhouse gas emissions Waste and recycling Products and supply chains Environmental compliance Communicating, reporting, and engaging

RSI engages retail sustainability executives to share best practices, develop new processes, and communicate their efforts to the industrys most crucial stakeholders. RILA uses its annual conference, benchmark studies, collaborative partnerships, and research on behalf of retail sustainability interests to achieve the objectives set by the five sustainability topics listed above.

About this Report

RILAs first sustainability report, the 2012 Retail Sustainability Report, highlighted the major trends and best practices within the industry in a case-study format. The report educated the industrys stakeholders about its sustainability achievements, goals, and challenges by highlighting the specific sustainability activities retailers are pursuing. The report found that environmental and social considerations are beginning to supplement traditional measures of competition, including price, service, and quality. We encourage you to reread the 2012 report to learn more about how these trends are influencing the industrys direction. As we reflected on the 2012 report and brainstormed about opportunities for improvement, we determined that it was important to update this years report format to provide a RILA-wide snapshot. The current report effectively portrays a detailed view of the industrys adoption of sustainability programs. Specifically, we asked the largest retail companies about the indicators they use to assess the depth and breadth of their sustainability programs. Equally important to establishing this baseline, we will update this view over time to see how the industry progresses in the coming years. Will the industrys efforts continue to accelerate? Will sustainability become integrated into functions across the retail organization or remain a separate and distinct role? Will the scope of sustainability focus areas continue to grow, or will companies hone their attention? This updated report format will allow us to answer these questions over time. We also recognize that it is important to show current trends. Where possible, we asked retailers about where they see their companys sustainability efforts progressing over the next two years. While we cannot definitively state that the industry will follow these projections, the trends provide a view of one potential future. SOURCES OF INFORMATION This report was developed through two sources: a survey and in-depth interviews. The survey, which can be found in the Appendix, was disseminated in July of 2012; 35 RILA member retailers responded, representing more than 65,000 locations and $1 trillion in global revenue. Ten RILA member companies were interviewed and eight companies served as report advisors. ERNST & YOUNG INVOLVEMENT RILA is extremely pleased that Ernst & Young LLP (www.ey.com/climatechange), a global leader in assurance, tax, and advisory services, supported this RILA effort. Ernst & Young, an organization that is well recognized for its sustainability leadership, provided RILA with financial and advisory support for the conceptualization and development of the 2013 Retail Sustainability Report.

Executive Summary: Fueling Continuous Development

While developing this report, we listened to the stories, followed the funding, and analyzed the conversations that have led to the development and subsequent growth of company sustainability programs. From that research, we recognized that once a company kicks off a sustainability program, the program tends to grow and thrive, even in the midst of an economic recession. Why? we wondered. Inquiring further, we realized that, while sustainability programs are initiated in any number of ways, their development and growth hinge on the same key elements as any other business program. As a sustainability program matures within an organization, its business benefits become increasingly apparent, and the business applies more funding and resources to it. We also found that a class of top-performing companies that best exhibits this growth dynamic has emerged in the retail industry. PROGRAM GROWTH BEGETS FURTHER GROWTH Implementing systems that promote the expansion of resources, activities, expertise, and benefits of a particular initiative over time can fuel continuous development. In sustainability, we see that companies who kick off continuous development processes are growing, not only the amount and breadth of their sustainability-related activities, but also the business benefits of those activities. Once an organization overcomes any static friction and forms a sustainability program, success stories within the organization further solidify the business case for sustainability, and executives take note. With proof of concept established and the business case validated, senior management warms up to a broader range of potential activities. Increased confidence and commitment expands the programs resources and allows the scope of sustainability efforts to broaden. SUCCESSFUL PROGRAMS FEED THE GROWTH DYNAMIC We also recognized that the same ingredients are necessary for a sustainability program to be successful as for any other business initiative. In particular, five characteristics allow a retailer to effectively initiate, fuel, and accelerate sustainability programs: 1. Executive engagement. Top executives control a companys purse strings and make strategic investment decisions. When they recognize that sustainability is not necessarily a cost center but rather drives strategic growth and innovation, there is potential to free up resources and integrate sustainability priorities into the overall business strategy.

Breadth of benefits

All Top Amount of activities

2. Investment in people and systems. Ultimately it is up to people to develop, lead, and execute any new business process. A team focused on orchestrating sustainability efforts across an organization can, in turn, educate and train employees in other functional roles about the importance of sustainability in their 8

decision making. Similarly, organizations can use investments in information technology such as environmental management systems (EMSs), reporting platforms, decision tools, and financial calculators to integrate sustainability planning broadly. 3. Measurement and tracking. The business adage what gets measured gets managed is as true for sustainability as for any other effort. Setting metrics, developing a baseline, and implementing systems to periodically track and report makes a program accountable its progress. Measurement and tracking also provide the mechanisms necessary for the company to set goals and tell stories about their efforts. 4. Goal setting. Setting goals is an integral part of a companys business and sustainability strategies because the process of goal setting gains buy-in and alignment throughout the organization. To achieve their goals, retailers must develop strategies to engage both internal functional teams who make the business decisions and external stakeholders who provide resources, guidance, and services. Also, announcing goals internally and externally demonstrates a companys commitment to sustainability. 5. Storytelling. Employees of any business constantly tell stories of all kindsfrom the informal anecdote at the water cooler to those conveyed through boardroom meetings and financial reporting. Stories are a crucial way for ideas, practices, and results to be shared across the enterprise, and they are a component of every companys decision-making process. Showcasing sustainability opportunities and success stories through a variety of channels creates an exciting buzz that promotes broader awareness of activities and shared understanding of how sustainability relates to business objectives. Properly told, stories can convey the business case for programs or projects that help executives to prioritize sustainability as a key strategy and provide the impetus for additional investment. But storytelling should not be confined to those stories told within the company; creatively discussing company achievements related to sustainability can engage consumers and other stakeholders, driving consumer loyalty, brand enhancement, access to additional expertise and resources, and more. Each of these strategies can generate new ideas related to, interest in, and investment for sustainability. A CLASS OF TOP PERFORMERS IS EMERGING While developing this report, we recognized that a variety of practices defined a class of top-performing companies. These top performers are active in a wide range of sustainability-related programsfrom facility efficiency to supply chain optimization to stakeholder engagement and achieve greater-than-average benefits. We identified top-performing retailers as those companies who are focusing on a wide breadth of sustainability issues. Of all the companies we surveyed, eight retailers indicated that they include more than three-quarters of the facilities, employees, product and supply chains, and stakeholder engagement issues listed below in their sustainability strategies. Facilities. What are you working on? Energy usage Greenhouse gas emissions Water usage Waste and recycling Green buildings (i.e. LEED, EPA EnergyStar) Land use and development High-efficiency lighting HVAC retrofitting 9 Employees. What are you working on? Store employee engagement Senior management engagement Health and safety practices Diversity programs Ethics and governance (i.e. board oversight of sustainability, company ethics policy)

Stakeholder engagement. What are you working on? Consumer education Engaging suppliers Nonprofit / NGO engagement Community engagement Philanthropic donations Investor relations Government affairs

Product and supply chain. What are you working on? Measuring life cycle impacts Product design Materials, including chemicals of concern Packaging design Manufacturing human rights impacts Manufacturing environmental impacts Sourcing locations (geographic) Transportation and logistics Product take-back Product use and disposal Plastic bag usage / reduction Business model innovation

In particular, top-performing companies vary from other retailers in the following ways: Top-performing companies have sustainability teams that are led by a vice president or someone in a higher position and average nine team members in size. The teams primary roles are to orchestrate internal efforts, communicate with outside stakeholders, develop strategies, and interact with senior managers. And to do so, they have set up working relationships across the organization, focusing on public and government relations, the supply chain, merchandising, facilities, real estate, and construction. Top-performing companies focus on a wide variety of facility, product lifecycle, and stakeholder management issues. Facility improvements include waste, energy, green-building design, greenhouse gas emissions, and land use. Product lifecycle improvements focus on transportation, materials, packaging design, and product take-back. With regard to these issues, the sustainability team manages the development of a companys strategy and goals, with input from across the organization, and typically plans their efforts with a five-year strategic horizon. As the sustainability teams scope of responsibilities and breadth of benefits expand, top-performing companies are increasing their teams budget. They see a vast array of benefits from their activities, including reducing costs, managing risks, staying ahead of regulations, and increasing revenues and profits. Risk management activitiesa crucial function for the success of any retail brandinclude managing reputational risks, energy and fuel dependencies, human rights risks in the supply chain, and commodity price fluctuations. To track and report on their performance, top-performing companies measure their energy, material, plastic bag, and fuel usage; waste generation; greenhouse gas emissions; and supplier code of conduct compliance. They communicate through many channels, including their corporate website, intranet site, social media, store signage, the Carbon Disclosure Project (CDP), and a sustainability report, which is assured internally.

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Chapter One: Managing Sustainability

11

Team and Organizational Structures

A sustainability team is the lifeblood of a sustainability program. Teams orchestrate the development of strategies, action plans, and implementation efforts by working with a diverse group, both internal and external to the company. Creating a multidisciplinary team that focuses on sustainability performance improvement is the first step on a path to success within an organization.
KEY FINDINGS Most companies have full-time sustainability teams. Teams are growing, and reporting levels are gaining seniority. Sustainability teams mainly use their time to orchestrate internal efforts and develop strategies. No single department stands out as being the champion of retail sustainability; instead each company places their team where it can be most effective. The sustainability team either manages or has strong alignment with both the environmental regulatory compliance and social compliance functions.

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WHILE TEAMS GROW, SENIORITY RISES Of retailers surveyed, nearly two-thirds of companies have full-time staff dedicated to sustainability. Sixty percent of companies have part-time staff dedicated to particular aspects of sustainability.
Figure 1. How is the sustainability staff structured within your company?

least one-third of working hours. Complying with federal regulations, interacting with senior management, reviewing environmental metrics, and researching best practices collectively make up another third. While teams are reporting that they spend less time interacting with suppliers, respondents say that supplier engagement will become more important over the next five years.
Figure 4. What percentage of your time is spent on each activity throughout the year?

0% Full and Fulland part-time part-time Full-time staff only Part-time staff only No full- or part- No sustainability staff

20%

40%

60%

% of top performers 57 29 14 0

0% Orchestrating Orchestrating internally Developing strategy Federal compliance Complying with Engaging executives Complying with Complying with local law Stakeholder Stakeholders comms Researching Researching trends Reviewing metrics Interacting with Engaging suppliers Creating public Creating public reports Completing surveys Creating internal reports Creating internal

10%

20%

30%

Of the retailers with staff, the full-time team grew on average from a little less than three to nearly five people between 2009 and 2012.
Figure 2. How many staff members does your company devote to sustainability?

0 Full-time Part-time

Staff of top 8 performers 2012 8.9 2011 2010 10.8 2009

% of top performers 22 12 2 12 3 13 8 8 5 4 6

REPORTING STRUCTURE VARIES The sustainability team does not typically report to any single department within retail companies; instead the reporting structure varies based on a number of factors. The companys culture, the department with the biggest opportunity for impact, and the existing resources and enthusiasm all factor into the teams location. For example, a retailer that is primarily focused on supplier engagement may select the sourcing department as the sustainability lead, while a company focused on energy efficiency in its buildings will choose the real estate or facilities team to lead its sustainability efforts. Through our surveys Other option, some retail sustainability teams indicated that they report directly to executive management, whether the CEO, president, or another top executive. We intend to solicit this information through the survey more directly in the future.

As teams grow, so too does the highest reporting level of the team manager. Since 2009, 40 percent of sustainability teams gained new director positions, and 29 percent gained new vice president positions. As sustainability executives rise in seniority, they hold more influence and receive greater attention within the company.
Figure 3. What is the title of the top full-time sustainability leader at your company?

0% EVP / SVP Vice president Senior director Senior manager

25%

50%

% of top performers 20

2012 2011 2010 2009

60 20 0

TEAMS USE THEIR TIME FOR MANY TASKS All sustainability functions share common tasks. Together, orchestrating internal efforts and developing a sustainability strategy account for at 13

Figure 5. To what department does the sustainability leader at your company directly report?

0% Public Relations Human Resources Legal Marketing Facilities Real Facilities / Real/Estate Merchandising Supply Chain Other

25%

50%

% of top performers 25 13 0 13 0 0 13 38

developed voluntary compliance to maintain proper working conditions and human rights throughout the entire supply chain, from raw material sourcing to the manufacturing process. Sustainability teams interact with key internal departments to ensure that environmental and social compliance programs meet the expectations of all stakeholders. In retail, environmental compliance considerations mainly center on regulations from the U.S. Environmental Protection Agency and Department of Transportation, and state and local jurisdictions. Specific issues include facility construction and maintenance like stormwater runoff, employee health and safety practices, and hazardous product transportation and waste management. Retailers environmental compliance programs are managed between sustainability and environmental compliance operations, with half of companies holding both operations in the same department and the other half in separate departments.
Figure 6. How strong is the alignment between your sustainability and environmental compliance functions?

RESPONSIBILITIES ARE BROADENING Expanding a sustainability team also increases its breadth of responsibility and interaction within the company. The two most common functions of sustainability teams are strategic planning and tactical implementation of sustainability programs. To guide the strategic direction of their sustainability programs, teams strategize, set goals, and report on sustainability initiatives, all while working to engage both the companys employees and external stakeholders. This tactical strategy extends to recycling operations, energy management, greenhouse gas reduction, and compliance with environmental regulations. Specific initiatives vary greatly among retailers. Each company continuously defines and refines its focus on issues material to its business. For example, while grocers may focus on sustainable seafood sourcing, apparel merchandisers find addressing the working conditions of their manufacturers employees more relevant. Often public awareness and policy guide these emphases, such as electronics retailers who find themselves increasingly invested in growing e-waste recycling options. However, almost all retailers are uniformly responsive to such issues as legislation surrounding plastic bags since bag taxes or bans directly impact a fairly ubiquitous feature of retail shopping. COMPLIANCE IS THE FOUNDATION OF A SUSTAINABILITY PROGRAM The retail industry places significant priority on compliance with both regulatory requirements for environment, health, and safety, as well as industry14

0%
Same department Weak alignment Strong alignment No env. compliance

20%

40%

% of top performers 0 43 29 29

Of those retailers with environmental compliance in a separate department from sustainability, the environmental compliance team is most often housed under loss prevention, asset protection, legal, or environmental health and safety. The teams, while reporting to separate locations within the organization, frequently coordinate for updates and strategy alignment. Two of every three retailers have an environmental compliance team that is deeply aligned with the companys sustainability initiatives. While compliance is a familiar focus area for retailers, important new issues are always emerging. Increased awareness of chemicals of concern, as well as more comprehensive product safety and risk mitigation, has led to an even broader emphasis on

regulatory compliance for those who sell products with hazardous properties. These teams are responsible for ensuring that all products posing any risk are in compliance with appropriate laws. Social compliance or ethical sourcing can be defined as a continuous process in which companies refine their sourcing policies and practices to ensure the health, safety, well-being, and fundamental rights of all people employed throughout their supply chain. Most often focused on in developing countries, social compliance is driven by ethical considerations, consumer interest, and nongovernmental organizations investigating the working conditions of laborers throughout the supply chain. Suppliers and retailers adhere to social accountability standards, whether self-imposed or legal, within their social compliance objectives. To do so, companies create and implement ethical sourcing policies and practices that extend beyond their own organization into their product supply chains, both domestically and abroad. Consumer product manufacturers with well-recognized brand names will often have their own ethical sourcing policies and practices independent of the retailers they sell to; therefore, retail companies typically PRACTICES OF TOP-PERFORMING COMPANIES DIMENSION Top sustainability leader Size of sustainability team Resident departments for part-time sustainability reports How the sustainability lead spends his or her day

focus their ethical sourcing efforts on their privatelabel products. Over the past few decades, companies have continued to develop new strategies to educate, train, and ensureoften through facility auditsthat their supply chain partners are making products under conditions that meet their standards. Those standards are often documented and codified in supplier codes of conduct, which are written and enforced individually or collectively through industry associations. Nearly two out of three retailers report that their social compliance teams, like environmental compliance teams, are strongly aligned with their sustainability teams. Almost 80 percent manage social compliance operations in a separate department, most commonly with the merchandising, legal, public relations, or supply chain groups. These groups, often with direct visibility to the supply chain, can be most effective in ensuring compliance to vendors codes of conduct. However, in recent years, the convergence of environmental sustainability and social compliance functions has begun to paint a complete picture of suppliers environmental and social impacts.

TOP TRAIT(S) Vice president or above Average of nine team members Public and government relations, supply chain, merchandising, and facilities, real estate, and construction Orchestrating internal efforts, communicating with stakeholder organizations, developing strategy, and interacting with senior managers

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Investing and Benefiting

All companies must rank their priorities based on their strategic importance and business benefits and allot them proper funding and resources. When it comes to sustainability, the costs of certain projects whether efficiency upgrades, process changes, consumer education, employee training, or otherwiseand the direct resource savings are both quite tangible. However, the additional benefits can be even more significant than simply lower costs. Sustainability can increase brand loyalty and employee productivity and retention, mitigate risk, improve community relations, and more. Therefore, investment in sustainability must weigh the direct costs and savings with a host of benefits, even those that are difficult to measure.
KEY FINDINGS Most companies sustainability budgets are remaining the same. Most companies act on sustainability investments that they expect to generate a two- to three-year payback. Companies see the primary benefits of sustainability as reduced costs, brand enhancement, and risk management. Sustainability programs target the management of reputational risks and energy and fuel price risks.

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INVESTMENT MODELS Developing a strong business case for sustainability programs remains an important objective for companies. Retailers most commonly seek a return on investment for sustainability projects that is similar to all other investments. Across the industry, the average minimum payback period for a sustainability project is two to three years. Top performers, however, plan with a longer time horizon, and most often look for paybacks as far out as three to five years. Many companies expressed that projects with environmental and/or social benefits often have a host of ancillary benefits that may difficult to quantify in the direct payback calculations. Programs must also anticipate other factors like shareholder interests, future consumer or regulatory trends, or potential risks to properly finance sustainabilityrelated projects.
Figure 7. Generally, what is the minimum payback a capital improvement project related to sustainability must show before being approved?

Reducing waste is another; it lowers costs and can even generate new revenue streams. Finally, partnering with suppliers may uncover resource efficiencies that also translate to lower costs, whether by reducing energy, water, material, or waste. (Refer to the supply chain operations section for a thorough discussion of supplier collaboration around sustainability.)
Figure 8. In which of the following ways have your sustainability activities proven to be beneficial?

0% Reduced costs Brand enhancement Brand Risk management Employee Employee enthusiasm Stay Stay ahead of regs ahead of New innovations New sources of Satisfy stakeholders Satisfy Increased revenue Increased profits consumer SatisfySatisfy consumer demand Enter new markets

50%

100%

% of top performers 100 100 100 63 88 75 75 88 88 75 50

0% 10% 20% 30% 40% 2-3 years 1-2 years 3-5 years 6 months to a year No minimum No minimum required More than 5 years

% of top performers 13 25 38 0 13 0

Beyond lowered costs, brand enhancement and risk mitigation are also crucial benefits. Seventy-one percent of companies report that they use sustainability activities to benefit their organization in those ways. A retailers corporate brand is among its most valued assets. Retailers invest a significant amount of resources to enhance their brands with consumers, government, and other key stakeholders. Doing so keeps the companys brand at the top of consumers minds when they are deciding where to shop, and it builds trust in the communities in which retailers operate. So, it is not surprising that retailers recognize the corporate reputational rewards that sustainability brings. Risk mitigation, or seeking to protect the brands reputation, is another crucial business objective for retail. Retailers manage risks like brand reputation, energy and fuel dependencies, human rights issues in the supply chain, and commodity price fluctuations through their sustainability programs.

PRIMARY BENEFITS Retailers are reporting five primary benefits of sustainability programs: reduced costs, enhanced reputation, risk management, employee enthusiasm, and proactive regulatory strategies. On average, top-performing companies recognize a wealth of benefits that extend to increased revenues and profits. Nearly 90 percent of respondents mentioned that their sustainability efforts are lowering costs, primarily by improving business and resource efficiency. Increasing the store, distribution center, and trucking fleets energy and fuel efficiency are only a few examples that translate to lower costs. 17

Figure 9. What risks to your business are you explicitly addressing through sustainability initiatives?

0% Reputational risks Energy / fuel Energy dependencies Supply rights chain Factory human Commodity price Commodity fluctuations Drop in employee Employee recruiting Financial instability Weather conditions Weather

50%

100%

% of top performers 100 75 75 75 25 38 38

the burden on local energy and landfill infrastructure. Companies that proactively address these issues will be positioned to succeed when other such regulations emerge. Top performers especially recognize this advantage. SUSTAINABILITY BUDGET Sustainability budgets reflect company priorities. Many retailers report that their most recent budget for sustainability activities will not change for this year. However, more than a quarter of companies expect to grow their budget in the coming year.
Figure 10. Did your sustainability budget increase, decrease, or remain the same for 2012?

Fostering employee enthusiasm for recycling, philanthropy, volunteerism in the community, and team building through meaningful projects are also benefits. Sustainability projects can give employees a sense of personal pride and fulfillment, which improves retention, draws in the best new talent, and promotes interdepartmental collaboration. Companies will often develop individual or industry voluntary programs to reduce the need for government regulations. If a retail company minimizes its waste generation, energy and fuel usage, land-use footprint, and other environmental impacts, and strives to improve the labor conditions of the workers across its product supply chains, it will have a competitive advantage when regulations are developed. Recent federal regulations require companies to track the origin of forest products through their supply chains and to publicly report on the potential for the sourcing of certain conflict minerals in their products. California legislation requires companies to report on certain human rights performance standards in supply chain. And municipalities are updating building codes to reduce PRACTICES OF TOP-PERFORMING COMPANIES DIMENSION Sustainability budget Project payback threshold Benefits of sustainability programs Risk mitigation

0% Increased in 2012 Decreased in 2012 Remained the same No dedicated budget No dedicated

25%

50%

% of top performers 38 0 25 25

Furthermore, most companies report that sustainability continues to become more important to their organization. Nearly three out of every four respondents say so, while no company says that sustainability is becoming less important.
Figure 11. Is the importance of sustainability increasing, decreasing, or remaining the same at your company?

0% Increasing Decreasing Remaining the same

50%

100%

% of top performers 100 0 0

TOP TRAIT(S) Increasing budget Three- to five-year payback Reduced costs, increased risk management, staying ahead of regulations, increased revenues, and increased profits Addresses risks related to reputation, energy and fuel dependency, human rights issues in the supply chain, and commodity price fluctuations

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Prioritizing and Planning

Prioritizing, planning, executing, and evaluating are crucial phases to the success of every companys program. Since the breadth of opportunities for sustainability programs is extensive, it is more important than ever to properly set priorities and plan for the long term. Doing so will ensure that companies are pursuing the opportunities with the greatest impact given the resources. When implemented correctly, these strategies have a significant payoff. The return may be in terms of measured lowered costs like reduced energy usage or intangible benefits like brand enhancement or a more engaged workforce.
KEY FINDINGS Sustainability functions will increase in scope significantly over the next two years. Setting goals is an important component of a sustainability strategy. The typical planning horizon for sustainability strategies is five years.

BROADENING EFFORTS Each companys definition of sustainability reflects its business, customers, and long-term strategy. However, most retailers are pursuing a core set of sustainability functions. More than 90 percent of respondent companies are pursuing waste reduction, energy reduction, and community engagement initiatives. Notably, companies indicate that a number of sustainability priorities will grow significantly over the next two years. Those priorities that are expected to receive attention from 20 percent more companies within two years include water usage; manufacturing environmental and human rights impacts; business model innovation; product design, use, take-back, and lifecycle impact measurement; government affairs; customer education; and investor relations. We defined top-performing companies as those retailers who prioritize over three-quarters of the issues related to their facilities (Figure 12), products and supply chains (Figure 13), employees (Figure 14), and community (Figure 15) in their sustainability strategies. Nearly all of the top-performing companies are engaged in all aspects of facilities
Figure 12. Facilities - what are/will you work on?

improvement. All of them also define sustainability to include ethics and governance issues. Within their supply chains, they are all focusing on improving the environmental performance of their product transportation and on using fewer plastic bags and chemicals of concern. And they all engage their communities, suppliers, and partner NGOs through their sustainability programs. While every company develops its program in a different way, retailers follow a typical progression. They first tackle store, distribution center, and transportation performance, specifically with regard to waste, energy, and fuel reduction. These environmentally beneficial activities generate easily quantifiable financial benefits and quick returns. Next, retailers engage employees and the outside stakeholders necessary for a comprehensive program. The companies that are making the most progress around sustainability are focusing on issue areas like product development and supply chain management. These may include, for example, ecological assessments in cotton mills, sustainability audits in foreign factories, or increased use of recyclable materials in products.

Figure 13. Products - what are/will you work on?

20% 40% 60% 80% 100% Waste and recycling Energy usage Green buildings Greenhouse gas GHG emissions Water usage
use Land Land use and

Now 2 years

% of top performers 100 100 100 100 75 88

20% 40% 60% 80% 100% Transportation Chemicals of Chemicals of concern Packaging design Product take-back Manufacturing Manu. env. impacts Product design Factory Factory labor conditions labor Sourcing locations Product use & disposal Product use and Business innovation Measuring life cycle

% of top performers 100 100 88 88 75 63 75 63 75 50 Now 50 2 years

20

Figure 14. Internal organization - what are/will you work on?

Figure 15. Stakeholder engagement - what are/will you work on?

20% 40% 60% 80% 100% Executive Executive engagement Store employee Store engagement
Health & safety safety Health and

Now 2 years

Ethics and Ethics & governance Diversity programs

% of top performers 100 88 88 100 88

20% 40% 60% 80% 100%

EngagingCommunity communities
Philanthropic donations Philanthropic

Now 2 years

Engaging suppliers NGO engagement Government affairs ConsumerConsumer education Investor relations

% of top performers 100 88 100 100 88 88 88

PLANNING AND SETTING GOALS For any business initiative, companies must plan their activities up to a certain horizon. One third of retailers report that they typically plan their sustainability activities five years in advance, and another third plan for four year or fewer.
Figure 16. What is your sustainability strategic planning horizon?

external stakeholders (those who provide resources, guidance, and services). The areas and rigor for setting goals depend on the retailer. Some are motivated to reduce greenhouse gas emissions, water use, or waste, while others look beyond operations to supplier engagement. Some retailers set their sights on absolute reduction, while others pursue normalized improvements. Some set ambitious and aspirational goals with only minimal up front research on how they might be able to achieve those goals, while others set analytically derived goals, ensuring they have a roadmap to success before launching. Some goals are public promoting awareness and accountabilitywhile others are only announced internally.
Table 1. Types of sustainability goals

0% 1 year 2 years 3 years 4 years 5 years 6+ years

25%

50%

% of top performers 0 0 13 0 50 25

Retailers often see tangible sustainability goals as an integral part of their business and sustainability strategy because the process of setting goals will gain buy-in and alignment throughout their organization. The sustainability team facilitates nearly 60 percent of corporate sustainability goals, and most often the team develops them with a fiveyear horizon in mind.
Figure 17. What is your companys process for formulating your corporate sustainability goals?

GOAL TYPE Ambitious Grounded Normalized

Absolute

EXAMPLE Become carbon neutral Reduce waste by 15 percent by 2015 Reduce packaging by 25 percent per product sold Reduce carbon emissions by 20 million metric tons

PURPOSE Aspirational and inspirational Can develop a roadmap to achieve Achievable and incorporates company growth Makes environmental benefit explicit

0% 20% 40% 60% 80% Sustainability team No sustainability No sustainability goals C suite Functional Functional dept(s)

% of top performers 63 13 38 25

To achieve their goals, retailers must develop strategies to engage both internal functional teams (those who make the business decisions) and 21

Not surprisingly, the most commonly reported type of goal among retailers relate to reducing energy usage and/or greenhouse gas emissions. Those are the focal points of most early sustainability programs because of their tangible, quantifiable savings. Through the process of setting or achieving energy reduction goals, companies realize the potential for goals in other areas like waste reduction, product sourcing, and supply chain management.

Table 2. Stakeholders necessary to engage for each goal type

GOAL TYPE

Reduce energy use Reduce waste Manage supply chain Engage the community

EXAMPLE INTERNAL STAKEHOLDERS Facilities, real estate, and energy procurement Facilities, real estate, and store employees Procurement, sourcing, logistics, and product design Store employees, community affairs, and communications

EXAMPLE EXTERNAL STAKEHOLDERS Landlords, utilities, and service providers Landlords, waste haulers, and distributors Suppliers, transportation services, and wholesalers Local nonprofits and city service departments

PRACTICES OF TOP-PERFORMING COMPANIES DIMENSION Facility focus areas Internal programs Product and supply chain programs Stakeholder engagement programs Goals Strategic planning horizon TOP TRAIT(S) Reducing energy usage, land use and develop impacts from construction, and waste creation, and promoting green-building design Senior management engagement, ethics and governance, store employee engagement, diversity programs, and health and safety programs Transportation efficiency, plastic bag reduction, materials management (including chemicals of concern), packaging design, and product take-back Suppliers, NGOs, and community engagement Set by sustainability team Five-year horizon

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Measuring and Reporting

In order to track and report on the progress of sustainability programs, relevant financial, environmental, and social metrics must be selected. As with all business programs, measurement can be used to hold organizations and individuals accountable. When corporate sustainability goals are set, metrics and milestones are used to track progress in areas like energy or waste reduction or percent of suppliers in compliance with a companys code of conduct. Furthermore, external interest in corporate sustainability performance has fueled the need for more accurate measurement and reporting methods. Doing so allows companies to open dialogues with their customers, communities, investors, and suppliers, making their strategies known and strengthening trust in their brand.
KEY FINDINGS Most retailers measure energy, fuel, material usage, and waste generation. More than 25 percent more retailers will begin to measure code of conduct compliance, water usage, suppliers audited for social compliance, renewable energy generation, and chemicals of concern over the next two years. Companies communicate their sustainability plans and performance through websites, intranet sites, and annual sustainability reports.

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MEASURING KEY SUSTAINABILITY METRICS The adage what gets measured gets managed is as true for sustainability as it is for all corporate initiative. And given that retailers focus first on their own operations, it is not surprising that the three most commonly tracked metricsfacility energy consumption, transportation fuel usage for private or third-party fleets, and waste volumesrepresent the impacts of company buildings and trucking fleets. These metrics ensure that operational issues are managed and that company managers are held accountable for their performance. While companies will continue to track these three metrics over time, nearly every company will be tracking the 11 key metrics identified in the survey by 2015. Water usage, suppliers audited, renewable energy generated, and chemicals of concern will see a significant uptick in measurement over the next five yearsfrom 50 percent or fewer of companies tracking them now to more than 70 percent by 2015. Notably, most top-performing companies are already tracking the majority of these metrics. Retailers use this breadth of data to trace improvements in their operations and examine the effectiveness of their operational and supply chain strategies.
Figure 18. What sustainability metrics does or will your company measure?

progression of their programs, they are able to make adjustments to their strategies to ensure success. ACTIVE SPEAKERS FOR ACTIVE LISTENERS As retailers continue to integrate sustainability measures into operations, they are also more creative in their communication strategies. Achievements in sustainability can engage consumers and other stakeholders, driving demand for products that are healthier, safer, and more environmentally friendly, as well as interest in companies that have strong sustainability programs. In turn, that demand can drive sales and investment, simultaneously elevating the value of internal sustainability efforts and creating a need for even more stakeholder communicationsfueling a virtuous cycle.
Figure 19. Growth cycle for sustainability messaging

Sustainability messaging

Sustainability activities

Stakeholder interest and demand

0% Energy usage Fuel usage Waste generation Material recycled Greenhouse gas GHG emissions Plastic bag usage Code of conduct Supplier CoC compliance Water usage Social compliance audits Suppliers audited Renewable energy Chemicals in Chemicals of concern

50%

% of top performers 100 88 88 100 88 100 88 75 88 75 Now 25 2 years 100%

Sales of sustainable products

Internal measurements are most often reported across an organization on an annual basis and are reviewed by the sustainability team and other relevant functional departments. As teams track the

Retailers access a variety of channels to reach their customers, employees, and other stakeholders. Many choose to highlight their efforts publicly on websites and privately through employee-only intranet sites. Sustainability reports and social media are also common information outlets. Nearly half of companies report to investor groups through mechanisms like the Carbon Disclosure Project (CDP) and Dow Jones Sustainability Index (DJSI). Few companies are communicating sustainability through television or radio, though the use of those

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channels is expected to rise more than threefold over the next five years.
Figure 20. How do/will you communicate your sustainability efforts?

0% Company website Intranet site Report Social media Store signage Print media Product labels Reporting (CDP) Reports to investors Answering surveys TV or radio

50%

100%

Now 2 years

% of top performers 100 100 63 100 88 75 75 88 75 13

While about two-thirds of companies currently produce reports, by 2015 nearly 95 percent are expected to be reporting on sustainability issues. Most retailers reporting now, including the top performers, are publishing reports on an annual basis. Reports can be a point of pride for retailers, prompting key stakeholders like employees, executives, investors, customers, and suppliers to join in the conversation. They typically cover relevant financial information extracted from investor reports, as well as the companys environmental and social objectives and performance. These reports, often using the Global Reporting Initiatives (GRI) reporting guidelines as a framework, also provide an organizational profile, governance indicators, management approaches, and more. Currently, the data reported in a sustainability report can be difficult to gather, since it resides in many parts of a business and lacks a common system to account for it. Therefore, most companies focus on gathering the data internally in a format that they can use for consistent reporting. As internal accounting systems become more sophisticated and industries develop and adopt data standards, data accuracy will become increasingly important. While more than 60 percent of companies currently assure the accuracy of sustainability reports internally, external assurance will double in the next two years.
Figure 22. How does/will your company seek assurance on sustainability metrics?

THE EMERGENCE OF THE REPORT Investors, consumers, and other stakeholders are becoming more sophisticated at evaluating companies efforts. To respond to the need for increased transparency, companies publicly share goals, strategies, milestones, and progress updates with stakeholders in the form of an annual report and on their website. These reports go by a variety of names, including corporate social responsibility (CSR) report, corporate sustainability report, or a separately branded document.
Figure 21. How often does/will your company produce or update your Sustainability Report?

0% Monthly Quarterly Annually Every two years Not producing report Not producing

50%

% of top performers 0 0 50 0 Now 2 years 50 100%

0% Internal assurance External assurance

50%

% of top performers 88 Now 2 years 50 100%

PRACTICES OF TOP-PERFORMING COMPANIES DIMENSION Metrics being tracked internally TOP TRAIT(S) Energy use, volume of materials used, plastic bag use, fuel use, waste generation, greenhouse gas emissions, and supplier code of conduct compliance Website, intranet site, social media outlets, store signage, and CDP report Mainly internal assurance with a trend to external assurance

Communication methods Reporting assurance 25

Chapter Two: Implementing Sustainability

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Building Operations
Retail stores and distribution centers vary significantly in size, design, and location, but they all have one thing in common: there are significant opportunities to cut expenses by reducing energy and carbon use and waste production. New technologies promote energy management and accurate tracking of energy use. Store employees and consumers are becoming ever more conscious about sustainability, especially as it relates to recycling. Implementing recycling, energy management, and other sustainability initiatives in retail facilities have benefits beyond cutting costswhen done well, they also generate profits and improve the comfort, indoor air quality, employee productivity, and customer experience in the store.
KEY FINDINGS Waste and energy reduction are the top facility-related improvements retailers are undertaking. Green-building practices and management of greenhouse gas emissions and water use will grow significantly over the next two years. Green leases can unlock wastereduction and energy-saving opportunities. The highest impact energy-efficient upgrades include lighting, HVAC (heating, ventilation, and airconditioning) systems, and refrigeration units. Waste and energy reduction initiatives in stores and distribution centers energize retail employees.

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RECYCLING AND WASTE MANAGEMENT

Figure 23. Facilities - what are/will you work on?

20% 40% 60% 80% 100% Waste and recycling Energy usage Green buildings Greenhouse gas GHG emissions Water usage
use Land Land use and

% of top performers 100 100 100 100 75 88

waste are the two types of goals retailers most often set. Specific commitments range from reducing waste by 25 percent by 2015 to aspirational goals like sending no (zero) waste to landfills. ENERGY IMPROVEMENTS Stores mainly use energy for lighting, heating, cooling, and, in the case of grocers, refrigeration. Since each of these functions affects the shopping experience, it is crucial to reflect on the customers perspective when determining how to upgrade energy systems. However, there are significant opportunities for energy reductionand saving costs and mitigating greenhouse gas emissionsthrough efficiency measures and renewable energy development that can also enhance a customers experience.
Figure 24. Energy-saving progression

Now 2 years

Retail stores generate a host of material wastes, mainly from product packaging for transportation. Transportation packaging plays the crucial function of keeping the product safe through transportation and consists of materials including cardboard, shrink-wrap, mixed paper, plastic, scrap metal, aluminum, wood and plastic pallets, organic materials, and more. Minimizing retail waste requires economical recycling or reuse options for these material commodities. Waste reduction efforts begin with analyzing waste streams to identify the most prevalent commodities and then developing an action plan that accounts for regional hauling costs and commodity values. Ultimately, upstream reduction effortsnamely to redesign products and packaging to incorporate fewer materials or less material volumewill further reduce hauling needs, saving truck space and lowering costs related to waste. Nearly all surveyed companies are currently improving their environmental performance by reducing waste and increasing recycling. In fact, more companies have founded recycling initiatives than energy reduction initiatives. Recycling at stores reduces costs and engages the store employees some of its biggest advocates. Most companies measure or estimate the amount of waste they generate and the volume of material they recycle. Setting waste reduction goals is another useful tactic to align the organization and demonstrate the companys commitment to these goals to its business partners and employees alike. Reducing energy use and greenhouse gas emissions and 28

Measurement
Tools: Submeter Smart meter EMS

Opportunity identification
Criteria: Cost-benefit analysis Relevance to stakeholders Benefit to customers

Execution
Internal partners: Facilities Real estate Operations Construction

Reducing energy use begins with measuring it. Most companies are currently measuring or estimating their energy usage. To do so accurately requires direct access to energy meterswhich are occasionally unavailable in leased spacesand systems to track monthly energy use. Companies use an EMS to track and analyze energy consumption, allowing them to compare stores to determine the best- and worst-performing locations. This analysis often requires that the company consider different store designs and local weather profiles. Some EMSs also have the capability to control store lighting, temperature, and other systems. Companies then identify the highest payback opportunities for energy-efficient retrofits. Most retailers focus on high-efficiency lighting systems

like LED (light-emitting diode) bulbs with significantly improved lifetimes and energy performance; motion sensors and other automation systems to control the artificial lighting, depending on the outside conditions; as well as retrofitting HVAC systems. Incorporating daylighting (mainly through skylights) saves energy and improves the customer experience in stores. Retailers with grocery operations have upgraded food refrigeration systems to improve efficiency while recognizing customer and employee usage trends. Beyond efficiency, a growing trend is to generate renewable electricity onsite or purchase green power from a third-party generator. Solar power is the most common form of onsite renewable power, mainly because retailers operate stores and distribution centers with large rooftops. Some companies are testing onsite wind power, either with microturbines on store roofs or larger turbines located at distribution centers. Sourcing renewable energy allows retailers to offset electricity bills and meet carbon emissions-reduction goals. Similar to reducing waste, companies are setting goals to reduce energy use and greenhouse gas emissions. Some goals are aimed at improving the per-square-foot performance over time, while others seek to obtain absolute reductions. DESIGN AND CONSTRUCTION Selecting a site is the first step toward opening a new store. Sites are selected based on a number of criteria, including proximity to specific customer demographics and related stores, lease cost, building type, availability of parking and alternative transportation, and more. Once they have selected a store location, retailers will either contract with thirdparties or work with their own in-house teams to design and construct stores from the ground up or build out existing spaces. Because new locations are only profitable once their doors are open, it is extremely important that the time to design and build a new space is minimized. Therefore, companies develop store-design prototypes, which they use as a basis for the development or build out of their new spaces.

Interior space build outs require the installation of electrical wiring and lighting fixtures, space heating and cooling, and refrigeration for food products. In addition to these features, new buildings may also require parking spaces and access to transit, stormwater management, and landscaping. When developing a new site, there are numerous opportunities to implement green technologies and processes, such as building on brownfield sites, using recycled, certified-sustainable building materials, or recycling construction wastes. Some companies may choose to install solar panels when they move into the space as well. Depending on their goals, retailers may follow green-building standards like the U.S. Green Building Councils (USGBC) for Leadership in Energy and Environmental Design (LEED) framework. The Commercial Interior (LEED-CI) and LEED for Retail certifications are particularly relevant for retail stores. Also, the LEED Volume Program is especially valuable for retailers, since it allows companies to streamline the certification of numerous building projects. GREEN LEASING While it may seem that retail brands control their waste operations and energy performance, oftentimes changes in these operations require partnerships with landlords, utility companies, waste haulers, and other business partners who manage the retailers buildings and infrastructure. Retailers in leased locations, like malls or shopping centers, must interact with their landlords for certain operational improvements. Green leasing presents an opportunity for retailers and their landlords to make improvements that can reduce operating costs. The definition and implementation of these leases vary across the United States and by company, but lease provisions that foster reduction of energy use and waste creation will become more common as the influence of certifications like LEED or ENERGY STAR (a joint program of the U.S. Environmental Protection Agency and the U.S. Department of Energy) increase in public recognition. While every lease is

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different, leases that incorporate green provisions will typically address the issues shown in Table 3.
Table 3. Components of a retail green lease

IMPROVEMENT DIMENSION 1. Improve base building efficiency

PURPOSE Improve the energy, water, and waste efficiency of the base building, including the common areas. Includes insulation, windows, rooftops, parking lots, etc. Develop financing and payment mechanisms that encourage each party to reduce energy and water use and waste. Support the resource efficiency of a tenants space, consistent with the premises requirements if available. Includes tenant build out and operation. Make energy and water use and waste generation visible to both parties. Define which party(ies) will have access to important spaces like the rooftop and who has the control to implement capital projects such as rooftop solar units in those spaces.

2. Align incentives

3. Improve tenant space

4. Make resource use more transparent 5. Clarify access to and control of key spaces

The most common obstacle that retailers and landlords typically face is that of aligning the financial incentives between the parties to reduce energy use in stores and common spaces. To address that need, New York City and other organizations have developed the Energy Aligned Clause, a publicly available provision that property owners can conveniently insert into leases that allows the developer to recuperate energy-retrofit costs through savings in tenant energy use. Such lease language is immediately beneficial to both the retailer and the developer. Another common obstacle that retailers and landlords face is that of defining who has access to and control of key areas on the premises like the rooftop or parking lots. Defining in which instances the retailer has access to the facilitys roof allows them to more easily install rooftop solar units. Few retail companies are currently addressing green leasing in a holistic way, but many are beginning to focus on one or more of the aspects mentioned above. We expect to see both retailers and landlords integrate more green provisions into their contracts over the next couple years.

PRACTICES OF TOP-PERFORMING COMPANIES DIMENSION Facility improvements TOP TRAIT(S) Reducing waste generation, energy use, greenhouse gas emissions, and land use and designing facilities according to green-building standards Redesigning products and packaging and developing recycling programs, occasionally with backhauling capabilities Retrofitting lighting, HVAC, and refrigeration systems to make them more efficient

Programs to reduce waste generation

Programs to reduce energy use

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Supply Chain Operations

The consumer product supply chain is an extensive and complex global network. Supply chains span countries and cultures. And retails greatest environmental impacts and social performance challenges are in its supply chain. Therefore, true sustainability is achieved by integrating it throughout the product supply chain. Retailers have many opportunities to improve business performance in the supply chain. Through incentives, training programs, and collaborative projects, suppliers and retailers have begun to integrate sustainability into the supply chain, leading to benefits like stronger retailsupplier relationships, lower transportation costs, greater transparency, and mitigated risks and costs.
KEY FINDINGS Supply chain improvements have focused on transportation, materials including chemicals of concern, and packaging design. Managing all aspects of the product life cycle, from design through use and disposal will become increasingly prevalent practices over the next two years. Transparency into the social and environmental impacts of product supply chains is a growing practice. Risk mitigation is a major benefit of supply chain sustainability programs.

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DRIVING SUPPLY CHAIN EFFICIENCIES Retailers recognize that managing the complete life cycle of the products they sell is a valuable competency to leverage as their sustainability efforts progress. Doing so helps them identify opportunities to cut costs and innovate products as well as potential business and supply risks. Retailers can intervene in their product supply chains to achieve business and environmental benefits. Not surprisingly, transportation and logistics top the list of current activities that retailers have long focused on. Other product lifecycle issues that more than half of companies are addressing include reviewing materials of concern in products, packaging design, product take-back, and manufacturings environmental impacts.
Figure 25. Products - what are/will you work on?

Design is the first stage in any products life. Considerations like product size, ingredients or materials, function, energy usage specifications, packaging, recyclability, etc., influence the future impacts associated with the manufacture, transport, use, and disposal of that product. Therefore, designing products with an eye to environmental efficiencyand cost savings and product innovationis crucial. To do so first requires alignment within the company, including involvement from the merchandising, sourcing, and product design teams and then partnerships with suppliers. While only 48 percent of retailers report that they are currently designing products with the environment in mind, that figure is expected to increase to more than 80 percent in two years. Lifecycle analysis (LCA) is a key tool for assessing the lifecycle impacts of products. LCAs account for the raw materials, manufacturing processes, transportation, and typical use and disposal of products to calculate the impact of products across the full supply chain. Using LCAs uncovers supply chain inefficiencies, innovative design and manufacturing techniques, and potential supply risks. Measuring lifecycle product impacts is expected to grow threefold from 23 percent today to 77 percent in five years. Manufacturing operations are complex and global. Retailers work diligently to partner with suppliers and manufacturers to ensure that products are produced in factories with the highest quality working conditions, proper health and safety features, and ecologically-efficient production capabilities. Components and finished goods are then transported across the globe. Transportation accounts for a small but important component of product cost and greenhouse gas emissions from the burning of fuel. Retailers who pursue transportation sustainability have experienced measurable savings by optimizing fleet efficiency through local sourcing, smart packing methods, route optimization, mode optimization, technology implementation, and setting goals. The recent surge in popularity of online retail shopping makes transportation improvements even more important

20% 40% 60% 80% 100% Transportation Chemicals of Chemicals of concern Packaging design Product take-back Manufacturing Manu. env. impacts Product design Factory Factory labor conditions labor Sourcing locations Product use & disposal Product use and Business innovation Measuring life cycle

% of top performers 100 100 88 88 75 63 75 63 75 50 Now 50 2 years

MANAGING THE FULL PRODUCT LIFE CYCLE Retailers are at different stages on the road to managing the full lifecycle impacts of the products they sell. However, it is important to note that four out of five retailers who responded to our survey intend to engage in nearly all aspects of product supply chain sustainability within the next five years: from product and packaging design (including measuring lifecycle impacts and chemicals of concern) to sourcing, manufacture (environmental and human rights impacts), transportation, sale, and product use and disposal (take-back options).

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as traditional retailers look to streamline costs and maintain store inventory. At some point, consumers determine that they no longer need a product. In any locale, there are often multiple ways to dispose of unwanted products: donating, selling, recycling, and disposing are the most common. Some retailers have voluntarily developed customer recycling centers in stores where their capabilities, store footprint, and staffing allow for it and where the business can benefit from it. Some companies even provide incentives, such as cash or a gift card, for consumers to bring back their used goods for recycling. These incentive programs drive additional traffic and shopping trips to the store and spur sales of new items. Also, some of the products returned are still valuableas fully functioning items or scrap materialsand retailers can reroute these products to offset costs or even open a new revenue stream. INCREASING SUPPLY CHAIN TRANSPARENCY New media sources and increased access to information throughout the world have allowed communication to be easier and faster. Additionally, certain regulations require public disclosure of social and environmental impacts throughout the supply chain, such as conflict minerals, human rights, and logging practices. These changes have led to a global trend toward increased transparency within the supply chain. Questionnaires, scorecards, audits, and LCAs are simply some of the basic tools used to increase visibility within the supply chain. Long-term strategies include certifications, product traceability, supplier management training, data sharing, and more. Transparency efforts pay dividends. From the standpoint of consumers, retailers expand their loyalty base when customers trust retailers and recognize their efforts, even when they make mistakes. And when operations are transparent, retailers and suppliers alike can more easily identify opportunities to improve performance and can develop plans to reduce costs or supply chain risks. However, it is also challenging for retailerswho sell 33

many thousands of products, each with its own unique environmental and social footprintto gather accurate product and sourcing data. Manufacturers energy, water, material, and ingredient usage is often thought of as proprietary information, meaning that they are unwilling to share it. Furthermore, current data systems and processes struggle to reach through the whole supply chain to the farms, mines, raw material sources, and numerous organizations involved, making it difficult to assess the impact of complete product life cycles and effect change. MANAGING SUPPLY CHAIN RISK The global recession has made companies more susceptible to market and supply chain risks. To maintain the health of their brands, retailers are working to manage and mitigate sustainabilityrelated risks such as those related to reputation, agricultural output, commodity prices, resource availability, and the possibility of regulations. Because retailers care about factory labor conditions and because media organizations are quick to identify labor concerns in manufacturing facilities, companies pursue risk management and sustainability efforts in order to ensure positive relations with their suppliers, consumers, and other stakeholders. Sharing success stories about sustainability efforts not only mitigates certain public scrutiny, but it also promotes a positive brand image. However, companies must be careful with their external messages, as public reporting exposes companies to additional accountability. Since much of a retail companys value lies in the value of its brand, retailers recognize the importance of proactively mitigating reputational risks. Agriculture is the foundation of many supply chains, from apparel to food. With the increase in extreme weather events like droughts, fires, and storms, agricultural-based supply chains will become increasingly volatile and difficult to manage. Water conservation, commodity efficiency (for cotton, grain, and fuel, for example), and other measures can be used as a hedge against increasingly severe weather conditions.

And as the public continues to recognize the importance of environmental stewardship and human rights in supply chains, they will advocate for stricter controls on global supply chains. Retailers PRACTICES OF TOP-PERFORMING COMPANIES DIMENSION Supply chain sustainability performance Supply chain goal setting

are proactive about these issues, ensuring that they have a solid understanding, where possible, of the materials they use to make their products, where those materials come from, and how they are made.

TOP TRAITS Focus on transportation, materials including chemicals of concern, packaging design, and product take-back Set goals for supplier engagement, supplier carbon reduction, or other performance improvements

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Stakeholder Engagement
Retail companies connect the global goods marketplace and local communities. While their businesses may operate worldwide and their products are sourced globally, retailers bring employment, economic vitality, and a cultural foundation to the local neighborhoods in which they operate. To weigh these diverse and far-reaching priorities, retailers build bridges to a broad set of stakeholders, beginning with shareholders, employees, and customers and extending to governments, nonprofits, academic institutions, and local community organizations.
KEY FINDINGS Companies are strategically engaging their stakeholders in the ways that are most relevant for each. Pressure for retail sustainability efforts is strongest from employees, competitors, and regulators. Companies can educate consumers through a variety of channels. Collaboration is becoming imperative for effective sustainability action.

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MEETING EVOLVING STAKEHOLDER NEEDS Because of the breadth of benefits that sustainability programs provide to companies, it is often difficult to pinpoint a single reason a retailer begins a particular program. However, it is clear that companies often found sustainability programs because of one or more relevant stakeholders evolving needs. Employees, competitors, and government are the top three stakeholders driving retailers to strengthen their sustainability programs.
Figure 26. Order the stakeholders who are applying the pressure to increase sustainability activities (1 = strongest pressure)

suppliers and in philanthropy. And an engaged workforce leads to improved productivity, increased retention, and great new ideas to fuel the business. Numerous companies cite employees both as the biggest driver and as the most important beneficiaries of sustainability programs. Achieving sustainability goals requires collaboration across many departments. Two-thirds of retailers have a corporate green team to engage employees. These headquarters-based teams gather to share ideas, learn about initiatives, propose new projects, and educate decision makers. Sustainability teams with part-time staff members may also spend time in the supply chain; real estate and facilities; environment, health, and safety; or marketing departments.
Figure 27. In what department(s) does your part-time sustainability staff reside?

1.0 2.0 3.0 4.0 5.0 6.0

Employees Competitors Government Customers Investors NGOs Suppliers

Rank - top performers 4.5 4.4 5.1 4.0 5.3 3.9 4.6

0% Supply Chain Facilities / Real Facilities / Real Estate EH&S Marketing Public Relations Human Resources Merchandising Store Operations Government Government Relations Loss Prevention Finance Legal

25%

50%

ENGAGING THE MOST RELEVANT ISSUES Retailers are able to engage their many stakeholders through a variety of channels. An effective stakeholder engagement strategy focuses on the issues most relevantor materialto that stakeholder.
Table 4. Engagement topics for key stakeholders EXAMPLE TYPICAL ENGAGEMENT TOPICS STAKEHOLDER Employees Corporate or store green teams, educational sessions, in-store recycling Competitors Benchmarking against competitors, collaboration on key topics Government Voluntary partnerships and regulatory obligations Customers Green products, product labels, and marketing Investors Sustainability reporting and risk disclosure NGOs Supply chain engagement and chemicals of concern

% of top performers 38 38 25 25 38 25 38 25 38 13 13 25

DEVELOPING EMPLOYEE PROGRAMS Retails own employees are often their toughest critics. Many store employees, especially younger ones, seem enthusiastic about sustainability and are the first to promote the benefits of reducing energy use, creating less waste, and engaging with 36

Leading retailers host lunches or workshops for these groups to feature guest speakers, educate employees, or build a like-minded community. As headquarter and store employees are ultimately the ones who make decisions about store design and construction, product sourcing, and more, nearly 70 percent of retailers plan to expand employee engagement programs over the next two years. Because retail employees are more and more interested in environmental concerns, these voluntary teams are often some of the largest within companies. Connecting employees who share a passion for sustainability promotes internal

networking and collaboration on operational improvements, spurs innovation, and drives employee excitement about their jobs. One-third of retailers have store green teams, a key asset for local consumer education and sustainability recognition beyond the corporate objectives. Store-level green teams or individual green leaders help coordinate community engagement efforts, oversee recycling and waste management, and explain key initiatives to other employees. Educating store-level employees remains a crucial goal for many sustainability programs. These employees play a key role in driving efficiency and ensuring a positive return on sustainability investments since their work habits determine store resource consumption on a day-today basis.
Figure 28. In what ways are you engaging / educating your employees on your sustainability activities?

Figure 29. In what ways are you engaging / educating your consumers on your sustainability activities?

0% 25% 50% 75% 100% Information on Information on labels

Private-label green brand Private-label

% of top performers 63 100 63 75 63 38

Marketing green Mkting green products

Green Green-product product displays

Interactive website Cause marketing

ENGAGING THE LOCAL COMMUNITY Engaging in the community builds brand loyalty that retains customers and positions brick-and-mortar stores as a valuable neighborhood partner. Leading retailers have effectively used store-level employees to communicate the corporate mission to local stakeholders. In some cases, store managers are also community leaders for several area stores. Their success in engaging the communitythrough activities like charity sponsorship or volunteering to help neighborhood organizationsis sometimes even tied to their performance reviews and compensation. These employees receive support from regional or district managers who also provide a budget for community-related activities. INVOLVING NONPROFITS AND GOVERNMENT

0% 25% 50% 75% 100%

Internal communication Communicating

and RecruitRecruiting and orientation Corporate green Corp. green teams Volunteer projects Store training Store trainings

% of top performers 100 63 75 75 38

OPENING A DIALOGUE WITH CONSUMERS There is nothing more important to a retailer than to satisfy its customers needs. As such, retailers are constantly assessing the market, identifying the latest consumer trends, and developing strategies to cater to their customers ever-evolving needs. Most retailers have not developed a comprehensive strategy for engaging consumers in sustainability; however, doing so is an important step on the horizon. In the meantime, they are developing the business-to-business infrastructure to collect product and supplier information, which will ensure that retailers accurately portray product sustainability claims when they promote them to consumers. We currently see the most progress with sustainability messaging on product labels and the development of green private-label products, with 42 percent of retailers working on both. 37

Nonprofits and government agencies support many corporate efforts to be more sustainable. For example, construction engineers may work with the LEED building or interior space certification or the ENERGY STAR program for buildings. NGOs provide resources and expertise that may not exist within a company. Retailers partner with these organizations for training, consultation, strategy building, and more. Other partnerships help ensure that companies adhere to certain regulations, such as the case of the Forest Legality Alliance to promote legal sourcing of forest products as outlined by the Lacey Act.

Figure 30. In what ways are you engaging / educating nonprofit organizations on your sustainability activities?

0% Partnerships Assistance / advisor

50%

100%

% of top performers 100 88

improvement and set goals for their portfolio companies to achieve. As investors continue to value companies sustainability programs, they develop processes to measure and rate company sustainability performance. The CDP is one such example of investors seeking a corporate plan for reducing energy useand now reducing water userealizing that their use of both is directly tied to the organizations cost structure.
Figure 32. In what ways are you engaging / educating your investors on your sustainability activities?

Government agencies also provide useful tools, resources, and credibility for certain sustainability efforts. The U.S. EPA, for instance, organizes voluntary business programs like ENERGY STAR, SmartWay, WasteWise, WaterSense, Green Power Partnership, and more. Companies enter these programs without cost and receive technical training, implementation tools, educational resources, and moreall of which reduce their environmental impacts and build their business value. Some regulations can also drive increased sustainability performance, generally by focusing on particular issues. For instance, recent state and federal legislation has targeted supply chain human rights issues and sourcing of forest products and certain raw minerals.
Figure 31. In what ways are you engaging / educating government organizations on your sustainability activities?

0% CSR report DJSI, CDP, etc. Shareholder events Investor dialogues

20% 40% 60%

% of top performers 75 88 50 50

ENGAGING SUPPLIERS In retail companies, merchandising and sourcing managers typically maintain the relationship with manufacturers; however, every company defines those roles in slightly different ways. Merchants tend to determine the items that consumers see on store shelves and the suppliers from which they buy these products. Sourcing teams often focus on contracting with manufacturers to produce the retail brands private-label products.
Figure 33. In what ways are you engaging / educating your suppliers on your sustainability activities?

20% Voluntary Voluntary partnerships Compliance Compliance assistance

40%

60%

80%

% of top performers 100 75

ENGAGING INVESTORS Shareholders are a companys financial lifeline. Large retail chains are typically either publicly held or privately managed by private equity firms. In both cases, investors often recognize the tie between a companys sustainability performance and its financial performance and brand value. Public companies are scrutinized by mainstream investors and socially responsible investment firms (SRIs). Some investors specifically engage retailers through conversations and occasionally shareholder resolutions to increase visibility of sustainability efforts in the companys operations and managementensuring their due diligence for the investments they hold. When retailers are managed privately, those firms often provide resources and technical support for sustainability performance 38
% of top performers 88 63 88 63 13

0%
Social complianceSocial audits

50%

100%

Sustainability Sustainability scorecard Multi-stakeholder Multi- Environmental audits Environmental Supplier training

Sustainability teams are beginning to empower merchant and sourcing teams by providing them with educational tools and resources. These tools will allow companies to integrate sustainability effortssuch as reducing their use of energy, water, materials, and toxic chemicals; emitting less carbon; and improving their performance on human rights

into supplier selection, efficiency improvement strategies, awards recognition programs, supplier risk assessments, and more. Retailers engage suppliers through a variety of techniques: audits for social compliance, scorecarding or surveying, and collaborative projects are the most common. However, techniques for supplier engagement vary significantly depending on the types of products sold. Some companies need to be more concerned with the labor conditions in supplier factories, while others need to consider product safety or waste reduction. UNDERSTANDING THE VALUE OF COLLABORATION Multi-stakeholder collaborations bring together constituents with perspectives that often represent diverse parts of a holistic systemwhether a product supply chain, building construction and operation life cycle, or transportation network. Having diverse perspectives represented allows the participants to draw on a wider base of expertise PRACTICES OF TOP-PERFORMING COMPANIES DIMENSION Stakeholders to engage Employee programs Consumer engagement Nonprofit and government engagement Investor communications Supplier engagement

and resources than they would have in their own organizations alone. And true system-wide innovations can only be found when the whole system is represented. Multi-stakeholder initiatives, which may involve organizations from the business, government, nonprofit, academic, and other sectors, are important to creating long-term value for companies, suppliers, and customers. While effectively managing collaborations can be challenging and time consuming, they represent a holistic approach to sustainability issues. Involvement in multistakeholder collaboration groups helps retailers to identify the most effective opportunities and leverage the best expertise to develop the tools necessary to act on those opportunities. Some examples include the Sustainability Consortium and the Sustainable Apparel Coalition for product improvements, U.S. Green Building Council and EPA and DOE ENERGY STAR for store performance, and EPA SmartWay for trucking efficiency.

TOP TRAIT(S) Investors, regulators, suppliers, and employees Green teams, internal communication, and volunteer projects Private-label green products and aisles devoted to more sustainable products Partnerships for resources, expertise, and credibility Participation in surveys like the CDP and DJSI and development of a CSR report Ethical-sourcing programs and involvement in multistakeholder collaborations

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Conclusion
Like all business activities, programs are fueled by developing systems that promote the expansion of resources, activities, expertise, and benefits of that particular initiative over time. Retail sustainability programs are following this very same dynamic. Once an organization overcomes static friction and forms a sustainability program, its success stories further solidify the business case for sustainability, and executives take note. Senior management warms up to a broader range of potential activities. Increased confidence and commitment expands the programs resources and allows the scope of sustainability efforts to broaden, building momentum for a companys sustainability activities. Top performers take advantage of this development dynamic by leveraging the key ingredients for success, namely engaging executives, investing in people and systems, measuring and tracking progress, setting goals, and storytelling. These top-performing companies define their sustainability program to include the widest breadth of issuesfrom facilities environmental impact reduction to supply chain and stakeholder engagementand recognize the broadest benefits from it. We look forward to continuing to engage retail executives on the sustainability journey and sharing as the industry evolves its programs.

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Appendix: Member Survey

ORGANIZATIONAL STRUCTURE 1. What is your companys gross revenue? a. Annual revenue greater than $20 billion b. Between $10 billion and $20 billion in annual revenue c. Between $1 billion and $10 billion in annual revenue d. Less than $1 billion in annual revenue 2. Which best describes your company? a. Apparel b. Convenience store c. Drug/Pharmacy d. Electronics e. Grocer f. Mass Retailer g. Specialty 3. How is the SUSTAINABILITY staff structured within your company? a. Full-time department with part-time staff in other departments b. Full-time department with NO part-time staff in other departments c. Part-time staff only placed in one or multiple departments d. No full-time or part-time staff 4. To what department does the sustainability leader at your company DIRECTLY report? a. Environmental, Health, and Safety b. Marketing c. Public Relations d. Government Relations e. Legal f. Human Resources g. Supply Chain h. Merchandising i. Facilities / Real Estate / Construction j. Store Operations k. Loss Prevention / Asset Protection 41 l. Finance m. Other (please specify) 5. In 2012, what is the title of the top FULLTIME sustainability leader at your company? a. Chief Sustainability Officer b. EVP / SVP c. Vice President d. Senior Director / Director e. Senior Manager / Manager f. Other (please specify) 6. In 2011, what is the title of the top FULLTIME sustainability leader at your company? a. Chief Sustainability Officer b. EVP / SVP c. Vice President d. Senior Director / Director e. Senior Manager / Manager f. Other (please specify) 7. In 2010, what is the title of the top FULLTIME sustainability leader at your company? a. Chief Sustainability Officer b. EVP / SVP c. Vice President d. Senior Director / Director e. Senior Manager / Manager f. Other (please specify) 8. In 2009, what is the title of the top FULLTIME sustainability leader at your company? a. Chief Sustainability Officer b. EVP / SVP c. Vice President d. Senior Director / Director e. Senior Manager / Manager f. Other (please specify) 9. What functional issues does the FULL-TIME DEDICATED sustainability staff engage?

N/A No full-time dedicated staff Environmental compliance Social compliance / ethical sourcing Energy management Emissions & greenhouse gas reduction Transportation & logistics Waste management Product design / stewardship Product sourcing Supplier / product manufacturing collaboration k. Green product marketing l. Facilities construction / design m. Employee engagement n. External stakeholder engagement o. Community relations / philanthropy / volunteerism p. Sustainability strategy q. Sustainability reporting r. Corporate sustainability goal setting s. Government relations t. Other (please specify) a. b. c. d. e. f. g. h. i. j. 10. How strong is the alignment between your sustainability and environmental compliance functions? a. Same department b. Different departments but STRONG alignment between departments c. Different departments, but WEAK alignments between departments d. There is no environmental compliance function 11. Where does your environmental compliance team sit within the organization? a. Environmental, Health, and Safety b. Marketing c. Public Relations d. Government Relations e. Legal f. Human Resources g. Supply Chain h. Merchandising i. Facilities / Real Estate / Construction j. Store Operations k. Loss Prevention / Asset Protection l. Finance 42

m. Other (please specify) 12. How often does the sustainability function interact with the environmental compliance team? a. Daily b. Weekly c. Monthly d. Other (please specify) 13. How strong is the alignment between your sustainability and social compliance / ethical sourcing functions? ("social compliance" is defined here as the team that ensures compliance with the Supplier Code of Conduct) a. Same department b. Different departments but STRONG alignment between departments c. Different departments, but WEAK alignments between departments d. There is no social compliance function 14. Where does the social compliance team sit within the organization? a. Environmental, Health, and Safety b. Marketing c. Public Relations d. Government Relations e. Legal f. Human Resources g. Supply Chain h. Merchandising i. Facilities / Real Estate / Construction j. Store Operations k. Loss Prevention / Asset Protection l. Finance m. Other (please specify) 15. How often does the sustainability function interact with the social compliance / ethical sourcing team? a. Daily b. Weekly c. Monthly d. Other (please specify)

16. In 2012, how many staff members does your company devote to SUSTAINABILTY? (FULL-TIME is defined here as staff whose primary responsibility and title is "sustainability" or "CSR" / PART-TIME is defined here as staff who have some purview in sustainability/CSR but are housed in functional departments) a. # Full-time dedicated staff members b. # Part-time staff members 17. In 2011, how many staff members does your company devote to sustainability? 18. In 2010, how many staff members does your company devote to sustainability? 19. In 2009, how many staff members does your company devote to sustainability? 20. In what department(s) does your PARTTIME sustainability staff reside? (check all that apply) a. N/A - No part-time staff b. Environmental, Health, and Safety c. Marketing d. Public Relations e. Government Relations f. Legal g. Human Resources h. Supply Chain i. Merchandising j. Facilities / Real Estate / Construction k. Store Operations l. Loss Prevention / Asset Protection m. Finance n. Other (please specify) 21. What is your companys process for formulating your corporate sustainability goals (Check all that apply)? a. Goals are set at the C suite level and communicated to departments b. Goals are set by the sustainability team c. Goals are set by the functional department(s) d. N/A we do not set or have corporate sustainability goals 43

22. What is your sustainability strategic planning horizon? a. 1 year b. 2 years c. 3 years d. 4 years e. 5 years f. 6+ years g. N/A we do not set or have a corporate sustainability planning process 23. Did your sustainability budget increase, decrease, or remain the same for 2012? a. Increased in 2012 b. Decreased in 2012 c. Remained the same in 2012 d. N/A no dedicated sustainability budget 24. Do you have a voluntary green team at your corporate office? If so, how many people are members? a. No b. Creating one c. Yes - how many members? 25. Do you have a voluntary green team for store associates? If so, how many people/stores are members? a. No b. Creating one c. Yes - how many members? 26. Is the importance of sustainability increasing, decreasing, or remaining the same at your company? a. Increasing b. Decreasing c. Remaining the same SUSTAINABILITY AREAS OF FOCUS 27. Facilities - what are/will you work on... a. Energy usage b. Greenhouse gas emissions c. Water usage d. Waste and recycling e. Green buildings (i.e. LEED, EPA EnergyStar) f. Land use and development

g. High-efficiency lighting h. HVAC retrofitting i. Other (please specify) 28. Internal organization - what are/will you work on... a. Store employee engagement b. Senior management engagement c. Health and safety practices d. Diversity programs e. Ethics and governance (i.e. board oversight of sustainability, company ethics policy) f. Other (please specify) 29. Products - what are/will you work on... a. Measuring life cycle impacts b. Product design c. Materials, including chemicals of concern d. Packaging design e. Manufacturing human rights impacts f. Manufacturing environmental impacts g. Sourcing locations (geographic) h. Transportation and logistics i. Product take-back j. Product use and disposal k. Plastic bag usage / reduction l. Business model innovation m. Other (please specify) 30. Stakeholder engagement - what are/will you work on... a. Consumer education b. Engaging suppliers c. Nonprofit / NGO engagement d. Community engagement e. Philanthropic donations f. Investor relations g. Government affairs h. Other (please specify) 31. What percentage of your time is spent on each activity throughout the year? [Enter a percent of time, and sum to 100%] a. Interacting with senior management b. Interacting with suppliers c. Orchestrating internal efforts 44

d. Creating and reviewing environmental performance metrics e. Completing ratings, rankings or other surveys f. Reading or researching trends and best practices g. Developing sustainability strategy h. Creating public sustainability reports i. Creating internal sustainability reports j. Complying with local/city or state regulations k. Complying with federal regulations l. Communicating with stakeholder organizations (NGOs, Government, etc) BENEFITS FROM SUSTAINABILITY INITIATIVES 32. In which of the following ways have your sustainability activities proven to be beneficial? (select all that apply) a. Increased revenue b. Increased profits c. Reduced costs d. New sources of innovation e. Employee enthusiasm driving increased retention f. Brand enhancement / corporate reputation g. Risk management h. New markets for products or services i. Satisfy stakeholder demands for sustainability practices j. Satisfy new consumer demands k. Staying ahead of regulation l. Other (please specify) 33. Generally, what is the minimum payback a capital improvement project related to sustainability must show before being approved? a. Less than 6 months b. 6 months to a year c. 1-2 years d. 2-3 years e. 3-5 years f. More than 5 years g. No minimum required h. Other (please specify)

34. How does that payback threshold compare to capital improvement projects not related to sustainability? a. Same as non-sustainability projects b. Shorter than non-sustainability projects c. Longer than non-sustainability projects d. Other (please specify) 35. What are/were some of the reasons that sustainability became a component of your company's corporate strategy? 36. What risks to your business are you explicitly addressing through sustainability initiatives? (select all that apply) a. Reputation risks b. Drop in employee recruiting c. Energy / fuel dependencies d. Commodity price fluctuations (i.e cotton, mineral, or food commodities) e. Supply chain human rights f. Company financial instability g. Weather conditions (i.e. climate risks to supply chain) h. Other (please specify) 37. How do your sustainability activities help to directly manage the risks mentioned above? MEASURING SUSTAINABILITY 38. What sustainability metrics does or will your company measure? a. Energy usage b. Greenhouse gas emissions c. Fuel usage d. Waste generation e. Water usage f. Utilization of renewable energy g. Volume of material recycled h. Amount of chemicals of concern used in products i. Plastic bag usage j. Suppliers audited for social compliance k. Suppliers in compliance / not in compliance with code of conduct l. Company not recording any metrics. m. Other (please specify) 45

39. How frequently are these metrics recorded? a. Monthly b. Quarterly c. Annually d. Every two years e. Company not recording any metrics. f. Other (please specify) 40. How does/will your company seek assurance on sustainability metrics? a. Internal assurance b. External assurance c. Company not seeking any assurance d. Other (please specify) SUSTAINABILITY GOALS 41. What, if any, are your goals for the following: a. Energy b. GHG emissions c. Waste and recycling d. Water usage e. Chemicals of concern f. Green product sales g. Plastic bags h. Transportation i. Social compliance j. Employee health and wellness k. Employee diversity and inclusion l. Philanthropic donations m. Volunteerism n. Other (please specify) COMMUNICATING SUSTAINABILITY 42. How do/will you communicate your sustainability efforts? a. TV or radio commercial b. Print media c. Social media d. Sustainability report e. Company website f. Store signage g. Product labels and/or packaging h. Intranet site (for employees only) i. Reporting to the Carbon Disclosure Project or another system j. Answer rating and ranking surveys

k. Company not pursuing any of the above activities. l. Other (please specify) 43. How often does/will your company produce or update your Sustainability Report? a. Monthly b. Quarterly c. Annually d. Every two years e. Company not producing a sustainability report. f. Other (please specify) STAKEHOLDER ENGAGEMENT 44. Order the stakeholders who are applying the pressure to increase sustainability activities (1 = strongest pressure). a. Employees b. Customers c. Suppliers d. Investors e. Competitors f. Regulators g. Nonprofits / NGOs 45. Employees a. Telling your "sustainability story" during recruiting / orientation b. Corporate green teams c. Training programs for store employees d. Sustainability related volunteer projects e. Communicating internally f. Other (please specify) 46. Consumers a. Interactive sustainability website b. Information on product labels & packaging c. Green product aisles / displays d. Private label green products e. Marketing / advertising green products f. Cause marketing g. Other (please specify)

47. Suppliers a. Sustainability scorecard / questionnaire / survey b. Audits for environmental compliance c. Audits for social compliance / ethical sourcing d. Supplier management training e. Involvement in multi-stakeholder collaborations (i.e. The Sustainability Consortium, Sustainable Apparel Coalition) f. Other (please specify) 48. Investors a. CSR Report b. Sustainability content presented during shareholder calls / meetings c. One-on-one investor dialogue d. Participation in Dow Jones Sustainability Index, Carbon Disclosure Project, or other investor surveys e. Other (please specify) 49. Nonprofits/NGOs a. Partnerships b. Assistance to company sustainability programs or policies c. Other (please specify) 50. Regulators a. Voluntary partnerships (i.e. EnergyStar, SmartWay, Commercial Building Energy Alliance) b. Compliance assistance / partnerships c. Other (please specify)

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