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How climate change legislation will impact on supplier engagement

Lidl GB’s announcement that their business will be carbon neutral by 2022 is illuminating on a number of levels due to:

  1. The time frame in which this will be delivered
  2. The fact this statement comes from a discounter challenges the widely held belief that acting sustainably is cost prohibitive
  3. That for their strategy to be successful - all products must be sustainable. This communication simplifies the choices for consumers and draws attention to the sustainability virtue of shopping at Lidl generally.

Offsetting projects are involved in delivering these carbon neutral claims, and the nature of their smaller product and store portfolios play an important role in their agility. However, both Lidl and Aldi (who has been carbon neutral since 2019 in their operations) have made clear the importance of working closely with their suppliers to successfully deliver on these plans. Lidl are employing “a comprehensive supplier engagement and learning programme” which reflects the fact that 98% of their scope 3 carbon emissions come from their supply chain.

In simple terms, Lidl cannot achieve their strategy by acting alone. No one can.

The contrast in their target carbon neutral timeframes to the rest of the big UK grocery players is also significant. Given the highly competitive market, I suspect we will see further announcements coming from the big four in due course.

And these responses will no doubt be considering two key legislative events happening later this year.

  1. Extended Producer Responsibility

The first event is the draft Extended Producer Responsibility (E.P.R.) legislation, expected to be published this autumn following industry consultation earlier this year. If the consultation is anything to go by, this legislation will be a complete game changer.

Through this legislation, government is seeking to move the growing cost burden of waste recycling from local governments or councils to the brand owners of the products whose packaging makes up the majority of the waste. At the same time, government is seeking to move to a full-net cost model where 100% of the cost of packaging waste operations are covered.

Let’s put this into a financial perspective to see what this means practically.

The combined total value of all Packaging Waste PRN’s collected through existing compliance schemes in 2019 was £366m, which was estimated to represent 7% of the overall cost to the nation to handle waste.

In the consultation, the government’s latest estimate for the introduction of full-net cost is £2.7b, with many industry commentators expecting the final figure to be significantly higher.

Conservatively, brand owners should expect to see a tenfold increase in packaging waste costs coming into effect in 2 years’ time.

And by the way, the consultation also includes an option to remove all the existing compliance schemes and replace with one single scheme administrator. The landscape will be changing radically.

2. UN Climate Change Conference COP26

The second event, COP26 held in Glasgow in November, is the largest ever summit to be held in the UK.

Nearly 200 countries will be attending and all eyes will be on Alok Sharma, appointed Conference President by Boris Johnson with the sole focus on driving forward coordinated global action to tackle climate change.

Johnson is not known for being shy on the big stage, and so it is probably a good bet that there will be more legislative surprise announcements contained within his 10 point plan for a Green Revolution.

At S4RB we will be watching developments closely. What we do know is that these developments will impact retailers, brand owners and their suppliers. In our webinar on Data-Driven People-Centric Sustainability, we will explain how you can plan for and manage these changes within your sustainability strategy.

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Darren Heathcote

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