Climate and Climate-Related Risk in the Retail Industry

ESG Tool Kit: Chapter 5

You are reading part 5 of the 10-part ESG Factsheet Series. Explore all the chapters here.

ESG FAQs  |  What is ESG  |  ESG Ratings  |  ESG Reporting  |  ESG Climate and Risk  |  ESG Human Capital Management  |  Supply Chain and ESG  |  Real Estate and ESG  |  Plastics and Packaging and ESG ESG Glossary of Terms

The Intergovernmental Panel on Climate Change (IPCC) defines climate risk as the potential negative impacts of climate change on an organization or an entity. It includes the potential for adverse effects on lives, livelihoods, health status, economic, social and cultural assets, services (including environmental) and infrastructure due to climate change. The importance of assessing and tracking climate risks is significant. A New York Times article from April 2021 stated that climate change could shave 11-14 percent from global economic output by 2050. The potential economic ramifications of climate risk will impact nearly every sector and the investment community will need to track and account for the risks associated with climate-related events when determining how and where to place investment dollars.

Climate-related risks can be divided into two categories: physical risks, which are economic losses related to the impacts of the changing climate; and transition risks, which are risks related to the process of adjusting to a low-carbon economy. Physical risk can be further divided between acute risks, which are event-driven such as increased severity of extreme weather events, and chronic risks, associated with longer-term shifts in climate patterns.

Retailers Reaching for Net-zero

Learn more about how retailers are setting science-based goals around carbon emissions.

Impact on retail

The retail industry faces a variety of both physical and transition risks. First and foremost, changing weather patterns and the increasing frequency and severity of severe weather events will continue to disrupt global supply chains and distribution. That leads to risks that can impact corporate performance, limit availability and impact pricing for key products and services, disrupt business continuity and endanger employees. Retailers that do nothing to address these risks can potentially face significant losses.

Transition risks to the retail industry are related to shifting policies, business operations and consumer behaviors. ESG reporting requirements will pose risks to companies that don’t comply, as will changing regulations and changing consumer preferences for products they view as sustainable and ethically manufactured. As retailers work to meet these shifting demands, they can face higher costs for materials, equipment, data verification and more.

What can be done?

Retailers are addressing the impact they have on the global environment. The combination of distribution requirements, raw material needs and the disposability of consumer products combined with changing consumer attitudes around sustainable purchasing has led some retailers to take action.

To combat these impacts and reduce climate risks, retailers are accounting for and reducing their environmental footprint. This includes tracking their Scope 1, 2 and 3 carbon emissions.

To learn more about retailer efforts to tackle climate change, see the NRF Retailers Reaching for Net-zero guidance.

Climate risk reporting

In addition to measuring and reducing their greenhouse gas emissions, retailers can conduct climate scenario analyses and report on their exposure to climate-related risks and their associated strategies for managing these risks. The Task Force on Climate Related Financial Disclosures (TCFD) provides a useful framework for analyzing and reporting on climate risk, and this framework is becoming increasingly popular with corporations, government regulators and other stakeholders. Proactive climate risk reporting is beneficial for companies in all industries, especially as the SEC considers implementing mandatory climate and climate risk disclosure in 2022.

What retailers are doing

NRF provides a spotlight on how retailers are working to tackle climate change and reduce their exposure to climate-related risks.

In 2021, retailers H&M, IKEA, Kingfisher and Walmart launched the Race to Zero Breakthroughs: Retail Campaign, a new climate change initiative in partnership with the World Business Council for Sustainable Development (WBCSD) and the COP26 High Level Climate Action Champions. The campaign aims to halve global emissions by 2030 and achieve net-zero carbon emissions by 2050 at the latest.

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Last Updated: 4/15/2022