Retail Sector Faces Urgent Push to Decarbonize as Emissions Soar, McKinsey Report Finds

A new McKinsey & Company report reveals that 98% of retail emissions come from complex, sprawling value chains. The report “Retailers’ Climate Roadmap: Charting Paths to Decarbonized Value Chains” calls for aggressive action to curb Scope 3 emissions, which come from suppliers, transportation, and product usage.

Scope 3 emissions, responsible for most of the sector’s carbon footprint, are estimated at 7,755 million metric tons of CO₂ annually. Upstream processes like agriculture, manufacturing, and packaging generate nearly 80% of these emissions, with the remainder from transportation and consumer use.

Specific product categories present major challenges. Beef, for instance, generates 86% of its emissions upstream through cattle farming and feed production. Electronics and apparel face similar issues, with the production of components like printed circuit boards (PCBAs) being the primary emission sources.

The financial cost of decarbonization is steep. McKinsey estimates that $4 trillion in annual investments in clean energy will be needed by 2030 to meet net-zero targets by 2050. Electrifying transportation in key sectors like beef, electronics, and apparel could cost $111 per metric ton of CO₂ abated.

The report sees alternative proteins as a key solution for food sector emissions. By 2030, the market will require $30 to $55 billion in investment, potentially reaching $300 billion by 2050. A shift to plant-based proteins could cut up to five gigatons of CO₂ emissions annually by 2050.

Cost-saving strategies can help, but major investments are still necessary. McKinsey identifies key themes for decarbonization, such as renewable energy, a circular economy, and reducing livestock emissions. To meet 2030 targets, the EU must increase plastic recycling capacity by 122%.

Renewable energy is crucial, especially in regions like Asia, where 85% of electricity is fossil-fueled. The electronics sector is a significant focus, as 90% of emissions in the PCBA production process come from fossil fuel-based energy.

Collaboration is critical to tackling Scope 3 emissions. The report calls for retailers to work with suppliers, governments, NGOs, and consumers to drive innovation and adopt existing solutions. This coordinated approach is essential to meet regulatory demands and consumer expectations.

McKinsey emphasizes that the window for cost-effective solutions is closing. The potential to cut emissions by 55-65% by 2030 exists, but it will require swift innovation and adoption of decarbonization technologies before more expensive options become necessary.

The report urges retailers to take immediate action. The retail sector’s vast supply chains make it a critical player in the global fight against climate change. By embracing decarbonization, retailers can help drive meaningful environmental and economic change.