Decarbonizing Commerce

How regulation, industry action, and innovation

are reshaping retail and consumer products

1
What is Decarbonizing Commerce?

Decarbonizing Commerce
is a new membership-
driven research and
community firm
We help retail, ecommerce,
consumer product, and
technology professionals
grow their companies and
careers at the intersection of
climate and commerce
innovation
Focused on Commercially &
commerce operationally-oriented
Unlike generalist analysts, Our community is composed
Decarbonizing Commerce is of decision-makers, budget-
deeply focused on the retail, holders, and practitioners in
ecommerce, and consumer disciplines like sales,
product industries, where we marketing, product design,
have decades of experience packaging, fulfilment and
logistics, and more
Deeply
researched
Our multi-disciplinary
research and analysis goes
deep to accelerate decisions
and implementation

© 2023 Proprietary and Confidential. All Rights Reserved. 2

Retail and CPG commercial teams have a blind spot

Retail
Media

Artificial
Attention

Intelligence

Decarbonization

Commercial Impact

© 2023 Proprietary and Confidential. All Rights Reserved. 3

Industry action: expectation vs. reality

n n ing
ic pla
rateg
Impact

st
in ess
bus
pical
Ty

How industry action is really happening

You are here

Time

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Not the first exponential driver of industry change in our time

Online Sales as a % of total CO2 emissions vs global temperature

sales over time increase over time

16% 15% 40 Temperature Anomalies 1

14% 35 CO2 Emissions 0.8

12% 30 0.6

Billions of Tons of CO2

Share of total sales

Degrees Celsius
10% 25 0.4

8% 20 0.2

6% 15 0

4% 10 -0.2

2% 5 -0.4

0% - -0.6
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 1880 1900 1920 1940 1960 1980 2000 2020

Sources (1) St Louis Fed; (2) NASA Climate Data © 2023 Proprietary and Confidential. All Rights Reserved. 5
Regulation is proliferating

300+ Unique packaging-focused regulatory instruments in place globally since 2000(1)

By the numbers(2)
50

176
45
Single Use Plastics
40
Regulatory laws that include bans
and restrictions
# Instruments Implemented

35

30

25
69
20 Information-based laws related to
education & outreach
15 Packaging

10

5 Extended Producer Responsibility

Microplastics 53
Economic instruments like taxes,
0 fees, or subsidies for alternatives
2000 2005 2010 2015 2020

Sources: (1) Source: Plastic Policy Inventory, Nicholas Institute for Energy, Environment & Sustainability (2) The future of packaging in the circular economy, Accenture 2023
© 2023 Proprietary and Confidential. All Rights Reserved. 6
CPGs & retailers are moving beyond pledges and plans
Global firms setting science-based targets by year

Consumer Goods Manufacturers Retailers & Grocers

106
57

72

57.3%
96.2% 33
CAGR
CAGR
22 36

9 15
3 7 6
1

2017 2018 2019 2020 2021 2022 2017 2018 2019 2020 2021 2022

Source: Science Based Targets © 2023 Proprietary and Confidential. All Rights Reserved. 7
Retailers’ initiatives are increasingly customer- and
supplier-facing
Initiatives

Private Data Buying Packaging Logistics Fulfillment Store Energy Merch-

Key Programs Label Requirements Criteria Design Efficiency andising

Project Gigaton
Built for Better

Compact By Design
Climate Pledge-Friendly

Zero Hunger, Zero

Waste

Made Mindfully

TargetZero

Carbon88

Rescued Organics

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Action is shifting to ways of working cross-industry
Directly-Controlled Emissions (Scope 1 & 2) Influenceable Value Chain Emissions (Scope 3)

Emissions from power Upstream & downstream

consumed at owned facilities emissions—from suppliers, to
and generated from operations logistics, use, and post-use

Lower-hanging fruit, but only Requires collaboration from

represents: partners and more difficult to
impact, but represent:
~10% of the typical ~90% of the typical
retail or CPG firm’s retail or CPG firm’s
emissions emissions

Retailers are broadening

Offering guidance to Requiring emissions Actively helping
climate initiatives
brands on product design targets and regular consumers make lower-
upstream (supplier-facing) and
and packaging emissions reporting carbon choices
downstream (customer-facing)

© 2023 Proprietary and Confidential. All Rights Reserved. Sources: CDP, McKinsey, Decarbonizing Commerce research & analysis 9
Scope 3 focus means impacts on commercial ways of working

In addition to its own initiatives, Amazon is also taking steps to encourage its Actions to Reduce
suppliers and partners to reduce their environmental impact. Beginning in 2024, Greenhouse Gas Emissions
Amazon will require suppliers to share their carbon emissions data set their own
carbon goals. The company is also working with suppliers to reduce packaging
waste and increase the use of sustainable materials.

Supplier Engagement Guest Offerings

Aim for 80% of Target’s
supplier by spend
(covering all purchased
goods and service) to set
science-based scope 1
and scope 2 targets by
2023
Increase access to
sustainable products and
packaging through
programs like Target
Zero

Source low carbon products, materials and

assortments and increase availability to our guests

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Customer experience and ways of working are already
evolving
Customer-Facing Impacts
Retailers and Consumers:
Retailers
• Store footprint
• Store experience
• Channel mix
• Selection
• Private label emphasis
• Return policies Ways of Working
Retailers and brands
Brand and Consumers: • Data requirements
• Product design & • Buying criteria
formulation • Packaging
• Value proposition • Logistics
• Packaging • Marketing & merchandising
• Repairability vehicles
Consumers Brands
• Extended responsibility

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Tech & solutions to decarbonize commerce are soaking
up capital - $20B+ invested
$8,000 Commerce Emissions-lowering technologies
that exclusively or primarily
Climate target retail, ecommerce, or $6,945
$7,000 Tech consumer brands as clients
$6,035
$6,000
(In Millions USD)

$5,000

$4,000
53%
CAGR
$2,971
$3,000

$1,940
$2,000

$746 $911
$1,000

$228 $339
$155
$-

2014 2015 2016 2017 2018 2019 2020 2021 2022

© 2023 Proprietary and Confidential. All Rights Reserved. Source: Decarbonizing Commerce research and analysis 12
Where the bets are being placed Commerce
Climate
Emissions-lowering technologies
that exclusively or primarily
target retail, ecommerce, or
Tech consumer brands as clients

Capital investment in commerce-oriented climate tech since 2014 (in USD Millions)

Inputs Product, Mfg, & Transportation & Sale, Use, &

(Raw Mat. & Ingredients) Operations Logistics Post-use

New Brands, $2,436

Resale, $1,846

Materials, $2,516 Ingredients, $2,434

Transportation, $3,367 Recycling, $561

Data &
Administration Analyt
Packaging, ics,
Agriculture & Farming, $2,222 Food Waste, $1,959 $990 Carbon Management, $1,380 $213

© 2023 Proprietary and Confidential. All Rights Reserved. Source: Decarbonizing Commerce research and analysis 13
Emerging solutions across Commerce
Climate
Emissions-lowering technologies
that exclusively or primarily
target retail, ecommerce, or

the value chain Tech consumer brands as clients

Product, Mfg, & Transportation &

Inputs Sale, Use, & Post-Use
Operation Logistics

Materials Ingredients New Brands Food Waste Electric Micromobility Resale Recycling
Trucks Delivery
Waste to Raw Alternative Protective Refill/Return
Materials Proteins Climate-Stable Coatings Resale Integration
Substitutes Systems
Autonomous Last Mile-as-a-
Delivery Service
Made-to- Fermentation Waste
Order Tech Management Refurbish & Chemical
Low-Carbon Reusable Pallets & Repairable Recycling
Boxes AI Route Planning
Substitutes
Plastic-free Fibers Sustainable Surplus /Imperfect
& Materials Beauty Mkt
Upcycled Fashion AI Sorting
Reverse Logistics & Electronics Tech
Reuse Value
Plant-based Propositions
Leather Alternative Lipids Household Waste

Agriculture & Farming Packaging

Administration

Regenerative Vertical & Indoor Cold Carbon Management Data & Analytics Advertising & Creative
Agriculture Farming Reuse/Refillable Chain
Labelling Offsets
Carbon Decarb AdTech
Compostable/Biode Rightsizing/ Pricing Insights
AgTech Biofertilizer gradable Lightweighting Footprinting & Reporting

Source: Decarbonizing Commerce research and analysis

© 2023 Proprietary and Confidential. All Rights Reserved. See full taxonomy at Decarbonize.co 14
Example solution providers Commerce
Climate
Emissions-lowering technologies
that exclusively or primarily
target retail, ecommerce, or
Tech consumer brands as clients
Select examples – see full database at Decarbonize.co/profiles
Product, Mfg, & Transportation &
Inputs Sale, Use, & Post-Use
Operation Logistics

Materials Ingredients New Brands Food Waste Resale Recycling

Agriculture & Farming Packaging

Administration

Carbon Management Data & Analytics Advertising & Creative

Source: Decarbonizing Commerce research and analysis

© 2023 Proprietary and Confidential. All Rights Reserved. See full taxonomy at Decarbonize.co 15
Category attributes will influence outcomes

Carbon-Intense Climate-Sensitive
Products Products
Products that contribute Products that are most
heavily to emissions sensitive to increasing
• Will face pressure from low- temperatures and extreme
carbon competitors & weather, especially regarding
alternatives supply chain vulnerability

• Could face risk of delisting or • Potential disruption of supply

divestiture from sales channels including lower crop yields and
quality of commodities

© 2023 Proprietary and Confidential. All Rights Reserved. 16

Carbon-intense categories will see more innovation and
intervention
Grocery share of market vs. share of GHG footprint, 2021

15%
Grocery

Sweet grocery Dairy & Meat products are

carbon and resource Home & personal
12% care
Alcoholic beverages intensive across the value
Dairy chain
Beverages
Salted grocery
9%
Share of Sales

Fruits and Vegetables Fresh packaged Fresh foods

Personal care
Soft beverages Meat
6%
Bakery Home

3% Frozen
Fish and seafood

0%
0% 5% 10% 15% 20% 25% 30% 35%
Share of Emissions

Note: Market & revenue shares based on avg revenues of W. European grocers. Share of
© 2023 Proprietary and Confidential. All Rights Reserved. GHG footprint calculated as category volumes * avg GHG emissions per category. 17
Sources: Euromonitor, McKinsey
Lidl supporting low-carbon alternatives with a familiar
playbook

Feb 2023 Oct 2023 “There is no second

planet”
Announces Plant-based meat
intention to cut priced at parity with -Lidl Chief Buyer Christoph Graz
back on meat sales meat

“We all know about the

80/20 rule. In emissions,
it’s like 99/1…you don’t
need to measure every
item to know it’s beef, it’s
Apr 2021 May 2023
dairy, it’s electronics. We
know what they are.”
Introduces private Places plant-based
label plant-based options side by side -Walmart Chief Sustainability Officer
line Venmondo with meat and EVP Kathleen McLaughlin

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Some brands are beginning to play offense in-aisle

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Quantity and quality of supply also a growing challenge

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Category attributes will drive industry action

Mitigation via Navigate Dynamic Change

Decarbonized Alternatives • Brands build or buy
• VC activity and new alternatives to reduce risk of
brands/products in lower decline or divestiture
carbon alternatives • Example categories:
• Example categories: Chocolate & coffee
Carbon Intensity

Meat & dairy

Climate
impact matrix
Conform to New Normal Adaptation via Resiliency
• Adaptation to new market & • Simplification of supply chain
regulatory dynamics and increased flexibility with
• Example categories: inputs (ingredients and
Bakery, shelf-stable goods materials)
• Example categories: Beer
(hops)

Climate Sensitivity

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The future viability zone

Future Viability Zone

Commercial Low-carbon Climate
Viability Surety of supply Viability
Winning value prop

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“Sustainable” products’ growth outpaces conventional
products, but they haven’t won over the mainstream
Products marketed as sustainable:

Grew ~2x faster than the rest… …and despite holding 17.3% …deliver close to ~1/3 of all
market share… CPG growth

5-Year CAGR Sustainable Sustainable

Products Products

Sustainable 17%
Products 9% 30%

Conventional
Products 5%
Conventional Conventional
Products Products

© 2023 Proprietary and Confidential. All Rights Reserved. Source: 2022 NYU Stern and Circana Sustainable Market Share Index Report 23
 *NON-EXHAUSTIVE

Worse and more expensive is a challenging proposition

Climate Viability Consumer Value

Winning Value Prop
Drivers* Drivers*

• Suppliers’ footprints • Quality: Taste, effectiveness, Superior quality

• Supply chain resiliency nutrition, etc. Surety of supply
• Product design & • Convenience Cost-competitive
formulation • Price Low-carbon
• Production process • Health & wellness
• Packaging • Safety
• Distribution • Social benefits
• Product use & disposal

*Not comprehensive

© 2023 Proprietary and Confidential. All Rights Reserved. Source: Decarbonizing Commerce research and analysis 24
Industry action is at an inflection point
You are here
Phase 1 Phase 2 Phase 3

Awareness Action Adaptation

• Material climate impacts

• Subtle climate impacts • Obvious climate impacts
Context • Incentives • Incentives + requirements
• Incentives, requirements,
prohibitions

• Mainstream interest but

• Mainstream interest and
Consumers • Niche but motivated expectations exceed available
increasingly favorable choices
choices

Centerstage: Impacts on store

• Pledges & plans • Targeted “On-stage” action:
counts, size, location, channel
Retailers • “Backstage” action: energy, marketing and merchandising
mix, assortment & buying
efficiency, and transportation initiatives
strategy, private labels, M&A

Impacts on portfolio mix, product

• Climate-forward challenger
• Specialty brands & specialty design & formulation, packaging,
Brands channels
brands emerging
channel strategy, branding &
• Mainstream brands investing
marketing, M&A

© 2023 Proprietary and Confidential. All Rights Reserved. 25

A decisive decade ahead

Almost everything will be

Action is shifting from affected, but opportunities
backstage to centerstage and risks vary by category

Climate-driven regulatory, A growing focus on Scope 3 Now is a good time to get

industry, and investment activity emissions means bigger ahead of implications for
focused on retail and consumer impacts on ways of working your company and career
products has grown and commercial outcomes
exponentially

© 2023 Proprietary and Confidential. All Rights Reserved. 26

Questions or
Feedback?
Keith Anderson,
Founder and Principal Analyst

keith@decarbonize.co

https://www.decarbonize.co

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