December 7, 2022
And how they can overcome these challenges.
Most retailers either already calculate the carbon footprint of their products or plan to do so. No wonder, as there’s a lot of pressure. Society, the government, employees, and even investors expect more transparency and expedite this development.
While the task can’t remain in the backlog anymore, it’s also difficult to tackle it as there’s no standardized way to calculate the product carbon footprint of thousands of F&B products on scale. The methodologies and solutions are just emerging.
(And as most methodologies offer more than carbon footprint calculations, the term product carbon footprint is restrictive. Therefore, in the article, the more inclusive “product environmental footprint” (PEF) term will be used because that doesn’t exclude other variables such as biodiversity loss, and land-use change. The basis of a PEF is always the carbon footprint)
As a result, retailers face countless obstacles when it comes to calculating their PEFs. At inoqo, we tackle their five biggest challenges as follows:
1. Choosing the underlying methodology PEF methodologies have arrived on the market in the last couple of years. If grocery retailers decide to take up PEF calculations, they don’t have to come up with their own way to do so. They can pick an already existing methodology and rely on it. The Foundation Earth score, the Eco-Score, or the EU’s Product Environmental Footprint Category Rules (PEFCRs) are among the most popular options.
Yet, retailers might rightfully ask themselves questions like: Which methodology should we settle for? What if the regulations and the requirements change over time? Should we invest our resources into technologies that are still in development? Which company should we trust?
inoqo can calculate any scores and can adjust to regulatory changes. If legislative alterations happen, inoqo will adjust the PEF calculations accordingly. As our solution isn’t only a ready-baked product but offered via software as a service, adjustments and future developments are already taken into consideration in the price.
2. Outsourcing or tackling it internally? After grocery retail decision-makers agree on a suitable methodology, a new question arises: Who’s going to calculate the PEFs?
Some retailers opt for doing it internally. They hire experts, rely on research institutions, and assess the carbon footprint of their products in-house. This can be problematic because they’re more likely to be accused of greenwashing, especially if they don’t publicly share the methodology they use. Indeed, sometimes the numbers are massively off. I’ve seen examples where the CO2 footprint of beef was more than 100% lower than it actually is. Once a company is accused of greenwashing, the label is hard to get rid of.
Inoqo’s customers especially value the fact that they can refer to us as an independent and scientifically sound provider whenever their suppliers, lobbyists, and other stakeholders try to challenge the underlying methodology or data.
Yet, a well-established company can argue that their customers trust them and they’re going to be transparent enough.
Even if retailers opt for internal PEF calculations, another problem comes into the shopping basket…
3. What about 3rd party products? Grocery retailers can only calculate the PEF of their private label products. If they want to go one step further and display the climate impact of all their store products, they’ll have - surprise, surprise - another issue.
They lack the data of 3rd party brands.
And brands are usually reluctant to give product data to retailers because if they do so, it will allow retailers to get a better understanding of their cost structure. If retailers know how much brands pay for their products, grocery retailers can take the chance for price negotiations. Obviously, no business would want to be exposed like that.
As a result, it’s a huge challenge for retailers to get more data from 3rd party brands to be able to calculate the PEF.
To overcome the hurdle, inoqo came up with the concept of PEF estimates in addition to calculating the specific PEF. We offer retailers the opportunity to calculate and display the carbon footprint of all their private label and 3rd party brand products as well.
Our AI-based F&B Environmental Footprint solution can accurately calculate the ingredient composition of 3rd party brand products without additional data. The estimates apply the so-called performance class E “realistic worst-case scenario” data, in line with the EU PEFCR.
We also give brands the opportunity to share additional non-public data (e.g., country of origin of ingredients, details on transportation, packaging, etc.). It’s a win-win situation because brands don’t have to expose confidential data to retailers - inoqo is an independent provider, and we keep the information confidential.
And unlike the PEF estimates, the ingredient and process data being used for specific PEF calculations are usually less CO2 intense than the “realistic worst-case” scenarios. As a result, the specific PEF of a product will almost always be lower than the PEF of an estimate - thereby giving the product a competitive advantage over non-transparent products.
4. Data maintenance Some retailers purchase the calculations from LCA experts, who then manually assess the environmental footprint of the products. These costs for the one-off calculations vary from €400 to €1000 per product.
It’s very expensive for retailers with thousands of stock keeping units, and what is even more problematic is when products change. If the ingredients of the product are suddenly sourced from another place, the energy mix of the transportation and storage changes, or more accurate secondary LCA data becomes available; the PEF should be adjusted.
Recalculations cost money as data maintenance is usually not included in the price of a one-off LCA calculation.
Inoqo, on the other hand, is a software-as-a-service solution where data maintenance is included in the annual fee.
5. It’s not just about the carbon To make things even more complicated, retailers have to be aware of other socio- and environmental issues when labeling their products accordingly. Customers don’t only want a PEF but are also interested in health, animal welfare, social standards, and much more.
How to factor all of this into one label or rating? If we take all these aspects into account, the outcome will be a generic score that doesn’t tell us a lot. One product might perform well in terms of climate, but it’s terrible for animals and for human health.
Yet, retailers also don’t want to over-decorate their products with countless stickers, as this would take away the focus from the product itself.
inoqo is currently developing a multidimensional product impact label. Besides its climate impact, we communicate the performance of a product with respect to three additional categories (animal welfare, social issues, and health) all in one label, thereby giving consumers a quick and clear overview.
If customers are interested in finding out more, they can scan the label, which will lead them onto the detail page of the product, where they can find rich insights on climate, animal welfare, social, and health impact.
Before you leave PEF calculations aren’t yet straightforward. But at inoqo, we are working hard to solve all these challenges for grocery retailers and CPGs of food and beverage products.
I believe our solution can contribute to a world where all grocery retailers highly value transparency and display the environmental impact of their products while inspiring their customers to lead more healthy and sustainable lives.