Exploring the Road to a Low Carbon Economy

26 Apr 2012

Lucy Neville-Rolfe, CMG, Executive Director, Corporate & Legal Affairs speaks at the second Retail Sustainable Development Forum in China.

Lucy Neville-Rolfe, CMG, Executive Director, Corporate & Legal Affairs speaks at the second Retail Sustainable Development Forum in China.

Welcome everyone. And in particular, I’d like to thank the Department of Circulation Industry Development of MOFCOM for supporting this forum and also Director General Mr. Guohua Wu and Madam Geping Guo, Chairperson of the China Chain Store and Franchise Association. I’m very pleased to see you.  I am delighted to be here in Suzhou City.  This is the second conference we have held with the support of MOFCOM. The conference was a great success last time and I’m sure it will be this time.

Since the last conference, we are pleased to have signed the Letter of Intent with the Government and developed a workplan to support it. For example with The Department of Commercial Services Administration of MOFCOM, we have published a "China Retailer Green Development Proposal", a call to action by other retailers too.  Today I will remind us why we are here, and talk about our climate change strategy and the challenges along the road to a low-carbon economy. 

Why we are here

The world’s population is growing. Climate change is already a major challenge for us all. So we have to think and act differently if our economies are to grow and prosper. This is not about consuming less, as some may argue, but about consuming differently.

To do that, we need to help consumers cut the carbon they use, and to buy goods and services that consume less carbon in how they are made. This is what we at Tesco call a mass movement in green consumption. And that movement could start here in China.

China is now the world’s largest grocery market, worth £607bn surpassing the US.  In this enormous market, one survey by a British organisation found that those aged between 18 – 24 have high green expectations of business, particularly in the retail sector.  60 per cent of Chinese young adults questioned would stop buying a product if its manufacturer wasn’t taking action to reduce its carbon footprint - higher than the other nations in the survey.  And over 80 per cent said they would be more loyal to brands if they could see the manufacturer or retailer taking action to be green. This is also much higher than in other nations.  So the opportunity to build a mass movement in green consumption here in China is clear. 

This is one of the reasons why China is such an exciting and dynamic place to be for Tesco, full of opportunities.  After 8 years in China we have 110 hypermarkets across 11 provinces, and 14 small trial express stores in Shanghai. We employ over 26,000 people and now serve over 4 million customers a week.  Although we have slowed our rapid expansion a little because of the slowing economy, China is a key longer term engine for growth for our business. And we want that growth, for the business, the country and our customers, to happen in a greener way.  That is why we are here today, to share what we have learnt as we all want to help tackle climate change and create a low-carbon economy.

China’s five year plan

The Chinese Government has already set out  its vision in the current five year plan. This vision is being rolled out rapidly. At least 36 wind turbines are being erected every day. The Jiuquan region alone already has the capacity to generate 6GW of wind energy – roughly equivalent to that of the whole UK.

I am very pleased to see that the five year plan also has specific commitments in it about what the Government will do to help the retail industry to reduce its emissions. We are keen to work with the Government to achieve this because our strategies are aligned as Tim Ashdown, our Tesco CEO in China, will highlight later this morning.

Effective though governments can be, there is no one organisation that can tackle the global challenge of climate change alone. We all have to work together – consumers, businesses across the supply chain and governments.  And we can do this only by sharing knowledge, experience and skills – that is why events like today are so important. We have here today key people from the world’s second largest economy, the world’s third largest retailer and international experts on the road to low carbon. Together, we can make a difference.

Our strategy

At Tesco, we are already making progress towards our target of becoming a zero carbon business by 2050. This means that the emissions associated with our own operations will be net zero after adding in the positive impact of renewable energy for example from solar panels on our store rooves and depots.  With over 5,000 stores in 13 countries, this zero carbon target is obviously a real challenge.

To meet that target, we aim to halve our emissions from stores by 2020 and in our distribution network by 2012, an important intermediate target.  But much more carbon is emitted in our supply chain. So we also aim to work with our suppliers to cut emissions in the supply chain by 30 per cent by 2020.  And this dwarves the carbon released by consumer actions so thirdly, we have committed to finding ways to help our customers to halve their emissions by that date as well.

We need to do this as our business grows. So our entire operation has to focus on cutting carbon and saving energy. Progress towards our targets is therefore one key measure by which we judge how every part of our business performs, from the Board to the store manager.  Small changes make a big difference and make our stores more efficient. For example we are putting doors on our fridges, and using Light Emitting Diodes - LEDs -  which provide us with more efficient lighting. 

But to discover how big a difference we can make, we built the world’s first zero carbon store in the UK. Others in Thailand, Ireland and Czech Republic quickly followed and we now have seven around the world. Professor Geoff Levermore will highlight some of the technologies we have used to make the stores zero-carbon.  We have shown it is possible to have green growth. Although our sales area increased by 9 per cent last year, our global carbon emissions only increased by 5 per cent. And we have reduced carbon emissions from existing stores by 5 per cent on a like for like basis.

To help us work with our suppliers to reduce emissions in our supply chain, we have identified where the hotspots are. This has revealed some interesting facts which show where we need to focus our attention.  For example, agricultural fertilisers are a major source of emissions in fresh food such as mushrooms - 76 per cent of a mushroom’s footprint are from agricultural production. Over 70 per cent of milk’s footprint is associated with the dairy farm. This is mainly due to the methane from cows and the fertilisers used in growing their food. It is interesting to note that only 3 per cent comes from distribution. You will see 66 per cent of a pair of jeans’ footprint comes from washing by the customer. The industrial cooking and canning process is the carbon hotspot for a tin of chickpeas – over 50 per cent of the footprint comes from the manufacturing phase.  The footprint reflects the embodied carbon associated with the steel manufacture.

When you delve into it a large part of the findings are quite surprising, like the fact that cows have a high carbon footprint due to the gastric methane. So Governments have to be wary of regulation and need to encourage business and academia  to work together to find the right conclusions as Tesco does with the famous British Universities of Manchester and Liverpool, which also has a campus here in China.

The next step is to help our suppliers cut carbon at these specific points in the production process.  I am delighted that we will be hearing about one example of how we are doing this from Sustainable Development Capital Limited, specialists in the financing of large scale sustainability projects, later today. Through working with SDCL, manufacturers will have a risk free way of investing in energy efficiency equipment. We will also be hearing from another Tesco supplier, Unarco - a shopping trolley manufacturer - about what they are doing to reduce emissions in the supply chain.

Working with individual companies is important, but to make an impact we need to work with suppliers worldwide to cut carbon. So we have also set up our Knowledge Hub, which is an online forum designed to help our suppliers share knowledge about how to cut carbon. By collaborating about what they know, we can get further more quickly.  We already have over 700 people from 300 different companies, including from China, registered with the Hub. The Chinese suppliers include GMA Shanghai, Shartex International Trading Company, and Yikeng.  

So much for what we and our suppliers are doing. What are we doing with our customers?  Let me give you a couple of examples. We are famous for our loyalty card, Tesco Clubcard, which is valued by 43 million customer cardholders around the world.  We can use this to give free green Clubcard points to reward green behaviours such as installing home insulation through our home energy efficiency service and reusing carrier bags. We offer these points not just in the UK where this has had the effect of halving free carrier bag use without regulation but also in Poland, where these images are from, Slovakia, Turkey, Malaysia, Korea, and Thailand.  In Korea, we run our green leader programme where children learn the importance of saving our environment. We already have over 30,000 ‘green leaders’ and have a target of 100,000 by 2020. Tim will say more about what we are doing in China.

Winning over consumers, to show them that a low-carbon life is a better life, is the great prize. This will drive the mass movement in green consumption that we all know we need. Imagine the impact we could have through changing behaviours of even just 1 per cent of these 43 million loyalty card holders around the world. But it is not just retailers who can encourage behaviour change but also governments. By working together we could show real leadership.  Although we have won many awards for our work in this area, we know that there is much more to do.

Today, I am going to focus on the challenges we face in two areas; reducing our emissions from our stores and in our distribution networks. We will hear from our suppliers on the challenges they face in a later session.

The challenges along the road

In our stores, we have invested heavily in technologies to reduce emissions, in particular in energy efficiency as it delivers quick returns. Typically they pay for themselves in three years. Across our global business, we are already saving £200m a year from our investments. But if businesses such as ours are going to make further big leaps forward in terms of carbon reductions, we need help in two areas, refrigeration and renewables.

Refrigeration gases make up around 14 per cent of our global carbon footprint. Last year, we made particular efforts to reduce the leakage of these gases and as a result we were able to hit our target to reduce emissions from our stores built before 2006 by 5 per cent.  We need to move beyond these environmentally-damaging refrigerants used in current refrigeration systems. So our aim, alongside other key consumer goods companies in a powerful network known as the Consumer Goods Forum, is to phase them out from 2015.

There is already a solution - natural refrigeration using CO2. But the additional cost of these systems is very large, even to a global company like Tesco that can benefit from economies of scale. That is why we are working with other retailers through this Consumer Goods Forum to give suppliers a clearer picture of the size of the commitment we are willing to make. But we need action on the supply side too, we need innovative suppliers to increase production and bring down the costs if there is going to widescale adoption of these technologies.

Renewable energy is another sector where the technologies need to be more affordable. We have invested in these technologies to test out what works best for us, for example the photovoltaics on our distribution centre in California in the US is one of the largest in the country.

One way for Governments to drive further uptake is to use financial incentives. This has worked well in Europe where Governments, for example in Germany and Spain, established feed in tariffs for business and importantly for individual householders. These drove a significant increase in installations, in particular in photovoltaics. It will be interesting to see the impact of the feed in tarrifs available here. 

In our distribution network, we have invested in double decker trucks, moved freight from road to rail and filled trucks as efficiently as we can by redesigning the cages and boxes in which goods are carried to eliminate empty space. We are also training our drivers to drive more efficiently, for example to break more smoothly and to use the correct gears.  As a result we expect to have halved our emissions in the UK in just five years and that our double decker trucks will have delivered nearly half of those reductions.

We need to build on that experience globally. And one lesson we have learnt is the need for certainty and stability about government policy for transport. We also need more certainty about what the next technology or technologies will be in the future. Will our trucks be powered by electricity, like this home delivery van, or biofuel? Will the supporting infrastructure deliver? To help us with this, we have become industry members of the Centre for Sustainable Road Freight Transport, developed by two globally renowned universities, Cambridge and Heriot-Watt. They will develop research in this area which we can apply to our operations around the world.

Opportunities of global exchange of technologies

China has so much to offer. Its energy, innovation and scale can all make a huge impact. For example, as a result of the growth and development of the renewables sector in China, the price of wind turbines has dropped by a third since 2007. The cost of solar panels has fallen by 40 per cent in the last year alone. China has been a game changer for prices because of the scale of its investment.

Tesco is able to pass such benefits on to its customers worldwide – partly thanks to our international sourcing hub in Hong Kong.  For example, we will be able to sell the next green lightbulb – the LED – at a lower price than the leading brand. Not only does the LED bulb have emissions one sixth of a normal bulb, but it will save households around 970 yuan during its lifetime – a great benefit for our customers in many economies which have suffered in the recent recession. It is also smaller and more attractive than the existing low energy bulbs.

Conclusion

So I hope that today everyone will feel that they are both teachers and students.  We all have a lot to teach each other – knowledge and expertise thanks to the experience each of you, and your organisations have in cutting carbon. Climate change, unlike most public policy issues, is not susceptible to a single improvement. It requires thousands of actions by millions of businesses and billions of people. As we say at Tesco, every little helps.

We also all have a lot to learn. Only by learning from each other can we tackle a global challenge that respects no borders.

Finally, let me end where I began. By saying thank you. Thank you to all of you for coming. Thank you, in advance, for the contribution that you will make. And thank you for inviting me and Tesco to play a part in such an important event.  The road to low carbon has to be a shared one. And I am delighted that Tesco will be sharing it with the Chinese Government, our suppliers and our customers. 

Thank you for listening.

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Tesco is the UK's largest retailer and one of the world's leading international retailers. Tesco has around 5,000 stores worldwide, employing over 500,000 people in the 14 countries in which it operates. Our core purpose is to create value for customers to earn their lifetime loyalty. Our success depends on people: the people who shop with us and the people who work with us.