Companies in the European retail and wholesale sector are uniquely situated to connect hundreds of thousands of producers and manufacturers with millions of consumers to address a significant chunk of the region’s carbon footprint. This report, “Net Zero Game Changer: Tackling The Hidden Carbon Footprint In European Retail And Wholesale Value Chains,” represents our collaboration with EuroCommerce to help the sector prioritize steps that will support the sector value chain in advancing towards net zero.

Products sold through the European retail an wholesale sector emit annually 1.6 gigatonnes (Gt) of carbon dioxide equivalent (CO2e) emissions, equal to one-third of the European total. Only about 2% are Scope 1 and Scope 2 emissions that are produced by individual retailer and wholesaler operations and the energy they consume. The majority, about 98%, is comprised of Scope 3 emissions that originate from the sector’s vast value chains, including the transportation of raw materials and product to market, as well as emissions created when consumers use products. Sitting at the nexus of this ecosystem, the retail and wholesale sector is pivotal in facilitating the kind of lifestyle and business model changes that will cut CO2e emissions.

Because of its frequent interactions with consumers, the retail and wholesale sector can educate them about the impact of choosing products with smaller carbon footprints. It can also reshape value chains by incentivizing producers, manufacturers, and transport providers to adopt more sustainable raw materials and practices. Significant progress has been made along these lines by many leading retailers and wholesalers on their own and in collaboration with other stakeholders in their value chains. The best practices that have started to emerge will offer valuable lessons for smaller companies and many stakeholders on effective strategies.

Still, the sector is likely to fall short of what is required, particularly with Scope 3 emissions. By 2030, the European Union aims to cut its net greenhouse gas (GHG) emissions by 55% from 1990 levels. Yet only a 33% reduction had been achieved by 2022. To meet its target, the EU must accelerate its decarbonization efforts immediately.

How the retail and wholesale sector can conquer Scope 3 emissions

From 2024 onward, the retail and wholesale sector faces significant challenges as new climate-related legislation, including the Corporate Sustainability Reporting Directive (CSRD), take effect in the EU and the United Kingdom. In addition to Scope 1 and 2 emissions, CSRD mandates the disclosure of Scope 3 emissions produced by suppliers upstream and consumers downstream, a requirement that will likely reshape the sector over time.

The core principles of Scope 3 accountability aim to enhance transparency and foster dialogue and collaboration between upstream suppliers and downstream users, so they can move toward the goal of decarbonization. However, the essential frameworks necessary to tackle decarbonization across the sector are still incomplete.

Advanced retail and wholesale companies have begun to implement sophisticated methods for quantifying Scope 3 emissions. However, given the relative newness of Scope 3 measurement, the European sector finds itself applying a variety of methodologies and emission factors, undermining the comparability of products, and diverting focus from reduction activities to measurement methodology.

CSRD will require standardized methods of counting emissions

In addition, we observe significant variations in how well sector operators understand and quantify Scope 3 emissions. While some leading companies demonstrate impressive proficiency in handling Scope 3 emissions, many others, especially small and medium-sized enterprises (SMEs), find it challenging to effectively monitor theirs. Given the new CSRD reporting, providing guidance on the most accurate methodologies is overdue.

Our research indicates that differences between applied methodologies and calculation approaches can at times have a greater impact on selected decarbonization measures than eliminating emissions. This inconsistency could jeopardize the sector’s decarbonization efforts. It highlights the need for further standardization and efforts to ensure that disclosure data is both more comparable and reliable.

Currently, the emerging data practices resemble many of the approaches to product master data deployed decades ago, likely leading to similar problems and inefficiencies. At the same time, there is a growing concern among executives that their companies are focusing more on measuring emissions than on implementing strategies to reduce them.

A plan to accelerate decarbonization in the retail and wholesale sector

Which emissions reduction efforts should the sector prioritize? In this study, we developed a midterm plan for retailers and wholesalers, outlining a list of priorities to accelerate progress. Here are four key considerations:

1. Carbon footprint standardization

The sector must resolve the transparency challenge and need for standardization in quantification efforts, so that carbon footprints of products and activities across the value chain can be compared and effectively reduced. Transparency and standardization need to be consistently achieved by all stakeholders, enabling effective data sharing and management of emissions.

2. Closing decarbonization gaps

Retailers and wholesalers need to close the gaps between their current achievements and their decarbonization commitments, actively promoting and implementing improvements throughout the value chain.

3. High-impact decarbonization leadership

The European retail and wholesale sector could be leading the way by focusing on areas with the highest decarbonization impact, such as value chain players with lower sustainability standards and activities like cattle farming.

4. Consumer empowerment and carbon transparency

If the sector can ensure transparency and standardization, it will empower consumers by providing them information about the carbon implications of their choices. Consumers will then be able to make more informed decisions that could lead eventually to reduced household carbon footprints.

Achieving value chain collaboration on climate change

Building this kind of solid foundation today is of utmost importance — not only because there can be no decarbonization without it, but because timely action is crucial to avoid the worst effects of climate change. The longer it takes, the more severe climate change’s impact will be for companies. In this report, we examine both existing solutions and the need for new approaches.

Above all, this report is a call to action for collaboration on new climate initiatives across companies, countries, sectors, and value chains. Associations at both the EU and national level that bring together peers and companies throughout the sector and along the value chain can play an important role in bridging diverse perspectives and encouraging ongoing alignments.

The European retail and wholesale sector bears a significant responsibility for achieving emission-reduction targets. Although it has demonstrated its commitment to investing in our planet’s future, the sector’s success depends on broader orchestration and mobilization across stakeholder groups. This collective effort is essential to address the persistent emissions in the extensive and complex arms of its value chain and from consumption of its products.