Clean Energy
Transition: RetailA hidden carbon footprintShopping for a greener world. Accounting for greenhousegas emissions in the retail sector is tricky. When we
assess the carbon footprint of a bricks and mortar highstreet store, for example, we can look at the energy
used in heating, cooling and lighting the building.
This may account for a lot compared to a residential
property. But of course, the store’s greenhouse gas
emissions will be nothing compared to heavy industry.
Even stores that blast their air conditioning, or have rows and rows of fridges
and freezers or similar guzzlers of energy, will have a vastly smaller carbon
footprint than a coke-fired steel-producing arc furnace. But is simply looking
at a retailer’s point-of-sale energy consumption a true assessment of theircarbon footprint? What if we factor in the whole supply chain?
According to the World Retail Congress and the World Business Council for
Sustainable Development retail supply chains are responsible for a whopping
25% of the world’s greenhouse gas emissions. But, and this is a big but, theindustry only has direct control over a small percentage of this.
In Europe, for example, according to EuroCommerce only 2% of thegreenhouse gas emissions from Europe’s retail and wholesale industry arewithin the direct control of the sector. This is because the vast majority of
sector’s carbon emissions are derived from Scope 3 emissions. These areindirect emissions that occur in the upstream and downstream activities ofan organisation.

With such a small percentage of greenhouse gas emissions
within the direct control of retailers, reaching their net zerotargets will be challenging. This might be why, when we asked
our retail specialists for their insights into how the clean
energy transition is affecting the sector, most said retailers
would be unlikely to meet net zero targets over the next threeyears. This includes the feedback from our underwriters inlarge markets such as the US and China, as well as smaller
Vietnam and Thailand and European markets such as Austria,Italy, The Netherlands, and Switzerland. Our underwriters in
Poland noted that the local sector would not reach net zerotargets over the next three years.
One way to reduce Scope 3 emissions is to promote a circularapproach to the retail economy. Again, this is a dilemma
for the industry where profit is often generated from ‘sellingmore’. According to the US National Retail Federation 80%of Americans now agree that a waste-free lifestyle is anappealing possibility in the next 20 years. For consumers,
this can mean buying pre-owned goods, often through resale
brands such as eBay, Vinted, ThredUp and ReBuy.
Indeed recommerce (online secondhand market places) are
now thriving in many regions. In Europe, eBay reporteda Gross Merchandise Value (GMV) of USD 30 billion in 2023,
closely followed by Vinted with more than USD 8 billion GMV.

For bricks and mortar retailers, offering part-exchange options
and selling second-hand or refurbished goods is one way toengage with a circular economy. Many retailers already host‘stores’ on recommerce sites such as eBay.
What is clear is that there is an appetite among consumers
for sustainable retailers and products. A recent study by Bain& Company found that a significant majority of consumers
throughout the world are concerned about sustainability, withthe greatest percentages located in Brazil and Asia Pacific.
This was reflected in the information we received fromour retail specialists. Our underwriters in China said there
is significant growing demand for clean energy in the retailsector and this would be likely to promote sector growthin the coming years. Our underwriters in Taiwan said local
retail companies would benefit from green ratings from risk
assessors, even if not yet standardised. And our underwritersin Vietnam, Japan and Taiwan all said that local consumers
are increasingly valuing sustainability and environmentallyfriendly practices.

What do Atradius underwriters see as the primary issues
for the retail sector?
One of the primary issues facing many retailers throughout theworld right now is survival. The pandemic hit many traditional
bricks and mortar retail businesses hard, with high inflationand supply issues compounding a tricky period even further.
As our underwriters covering both Austria and Switzerland
noted: “We saw many insolvencies in the retail sector in 2023
and also this year. I would assume that the transition to clean
energy is currently not on top of the agenda of most retailers.”
They added: “Many retailers have little or no reserves to invest
in the energy transition and most retailers rent their sales
premises and have only limited influence on the choice ofpower source and type of heating and air conditioning.”
Our retail specialists in France and Poland echoed this, andpointed out that meeting climate change goals is much harderfor small businesses. Our underwriters in France said: “ESG
is not the priority for small and mid-sized companies which
already struggle due to the difficult context (in particular, thepressure on household expenses).”
Our underwriters in Poland also acknowledged that local
retailers were unlikely to meet Europe’s climate targets inthe next three years. They explained that the clean energy
transition in the retail sector is not currently a government
priority and said: “‘There’s not enough support and clear
guidance from the government. In the retail sector the focus
is on short-term, with no commitment to the energy transition
and a focus on private gains.”
Outside of Europe the message is similar. Our sector specialistin Thailand said: “There is insufficient capital and investment
for the clean energy transition, especially for small andmedium-sized retailers.” In China, our underwriters noted
how difficult it is to identify the carbon emissions of retailers
and asked: “An important question is how do we set up
scientific and proper ESG/green criteria for retailer players?”
The issues surrounding clean energy transition for theretail sector also include challenges facing all sectors.
For example, as our underwriters in Vietnam said:“The outdated infrastructure is not ready to carry an increasein electricity from renewable sources.” There is also an
uneven global playing field when it comes to resources forrenewables.

Our underwriters in South Korea said: “Renewable energy
is expensive in Korea where we have a small area ofmountainous land that causes natural limitations.”
That said, renewable electricity sources are increasingly
creating cheaper energy for several markets. This wasacknowledged by our underwriters in the US, Austria,Germany, Hong Kong, Switzerland, Thailand and Vietnam whosaid that a reduction in energy bills and improved efficiency
presents an opportunity for the sector.
Challenges: What are the most urgent challenges
for the retail sector over the next three years?
1. Economic pressures
The bricks-and-mortar retail sector is facing many economic
challenges including competition from ecommerce, higher
rents, and a lack of consumer confidence amid high inflationand interest rates. As our underwriters in Italy said: “Thegreen transition has high costs that will impact on a sector
that is already coping with high pressures.”2. Complex supply chains
To reduce greenhouse gas emissions, retailers need to workwith suppliers and customers to account for Scope 2 and 3
emissions. In France, our underwriters said: “It is necessary
to work with suppliers to ensure sustainable practices along
the supply chain.”
3. Financial support
Investing in clean energy transition is costly and manyretailers are unable to access finance due to the sector’s recent
uptick in insolvencies and problematic outlook. Difficulty
gaining access to capital (especially for smaller players) is an
issue listed by our underwriters in Austria, Germany, Hungary,
Ireland, Italy, Switzerland, Thailand and the UK.
Opportunities: What are the greatest opportunities
for the retail sector over the next three years?
1. Cost savings
In some markets, renewables present lower prices forenergy in the longer term. Our underwriters in Germany
said: “retailers may save costs through green energy.”
2. Improved reputations
The majority of our underwriters acknowledged that
consumers are increasingly valuing sustainability anddemonstrating this through their purchasing power andbuying choices. Our underwriters in Poland noted thisappears to be less important in their local market. The
opposite is true of Vietnam, Taiwan, Japan, as well as
the US, UK and several European markets who felt
green retailers can benefit from a solid customer base.
3. Operational efficiency
The act of clean energy transition can also deliver enhanced
operational efficiency. This is because businesses thatinvest in clean energy, often also seek energy-saving
solutions. As our underwriters in Hong Kong said: “This,in turn, improves operating revenues.”

Where next?
We are likely to see a more circular economy in theretail sector in the coming years. This will include more
examples of recommerce (with retailers using thirdparty resellers as well as reselling their own ‘lightlyused’ products), in addition to the manufacture and saleof items that are designed to be repaired rather thanreplaced.
As our underwriters in the Czech Republic said: “Theeconomy has to become more renewable than it is now.
Platforms such as Vinted will become more important.
Consumers’ behaviour will change accordingly.
Deglobalisation will also provide space for growth ofretail subsectors under pressure from abroad (including
clothes, medicines, electronics, toys etc).”
Stores that can access cheaper green electricity will
benefit from lower operating costs, especially for theirlighting and air conditioning bills. Bricks and mortar
stores could also benefit from the fact that they tend
to consume less energy than online retailers, especially
if they can market their greener credentials to consumers
seeking sustainable alternatives.

However, these changes may also come about as a resultof the post-pandemic waves of insolvencies (whereretailers have been forced to find new suppliers andvice-versa) and even the increase seen in re-shoring insome markets.
As manufacturers increasingly move towards clean
energy transitions, retailers will also see an increasein the volume of ‘green’ products they can stock. For
example, although most green steel is currently directed
at the automotive market, there will be an increase in
the percentage used for items such as washing machines
and fridges. Likewise, a factory that runs entirely on
renewable energy will supply goods to retailers witha much lower carbon footprint than a factory run on coalor gas fired energy production.
For EuroCommerce, the role of retailer is pivotal
in the world’s journey to net zero. In the report,“Net Zero Game Changer” the organisation asserts thatthe sector “can drive change by incentivising producers,
manufacturers, and transport providers to adopt moresustainable practices, including in their sourcing ofraw materials.”

As brands start to look more closely at their Scope 2 and3 emissions, we may also see changes in supply chains.

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