What are the biggest sustainability challenges in retail?

Retail's biggest sustainability challenges are supply chain transparency, Scope 3 emissions and consumer trust in green claims. Scope 3 typically makes up 95% or more of a retailer's emissions, spread across tens of thousands of suppliers in dozens of countries, and rising skepticism about greenwashing means environmental claims now need evidence behind them.

What sustainability regulations apply to retailers?

Retailers face rules on reporting, packaging and green claims. In the EU, the CSRD covers companies with more than 1,000 employees and more than €450 million in net turnover, and extended producer responsibility schemes make producers and retailers pay for end-of-life packaging and textiles. In the U.S., the FTC's Green Guides govern environmental marketing claims.

Where should retailers start with sustainability?

Retailers should start with Scope 3, which holds most of their emissions. A spend-based screening with industry-average emission factors identifies the highest-emitting categories, and direct engagement should then focus on the top 50-100 suppliers by emissions. Private label is where retailers control sustainability specifications most directly; U.S. store brands took a record 21.3% dollar share in 2025, per PLMA.

Sustainability in Retail

Industry Overview

Retail sits at the intersection of global supply chains and consumer behavior, giving the sector both outsized environmental impact and unusual leverage to drive change. While retailers' direct operational emissions (stores, distribution centers, corporate offices) are modest relative to their revenue, their Scope 3 emissions—embedded in the products they source, transport, and sell—are enormous. Walmart's Scope 3 emissions, for instance, exceed those of many countries.

Consumer expectations around sustainability continue to evolve, though the relationship between stated preferences and purchasing behavior remains complex. What's unambiguous is the regulatory trajectory: the EU's CSRD, new limits on green claims, and Digital Product Passport requirements are creating a new compliance baseline for retailers operating in European markets. The era of vague sustainability marketing is ending, replaced by demands for verifiable data and transparent supply chains.

The retail sector is also ground zero for the plastics and packaging debate. Retailers are the primary interface between packaged products and consumers, making them targets for EPR legislation and packaging reduction mandates. Simultaneously, the rise of recommerce, rental, and refurbishment models is challenging the linear "sell more stuff" business model that has defined retail for decades. Retailers that adapt their business models to circular principles will capture emerging consumer segments and reduce exposure to resource price volatility.

Key Sustainability Challenges

Supply Chain Complexity and Transparency

Large retailers source from tens of thousands of suppliers across dozens of countries. Mapping environmental and social conditions across these supply chains is a massive data challenge. Modern slavery risks, deforestation linkages, chemical safety, and carbon intensity vary enormously across supply bases. Germany's Supply Chain Act (LkSG) already requires companies with at least 1,000 employees in Germany to identify, prevent, and mitigate human rights and environmental risks in their own operations and with direct suppliers, and deeper in the chain when they learn of possible violations; a government bill introduced in 2025 would drop its annual reporting duty and limit fines to serious violations. The EU Corporate Sustainability Due Diligence Directive, narrowed by the 2026 Omnibus I directive, will require companies with more than 5,000 employees and more than €1.5 billion in net turnover to do the same across their chains of activities from July 2029—moving beyond auditing to active risk management.

Scope 3 Emissions Measurement and Reduction

For retailers, Scope 3 typically represents 95%+ of total emissions. Measuring these emissions accurately requires data from thousands of suppliers, many of which lack the capacity to calculate their own carbon footprints. Retailer-led programs like Walmart's Project Gigaton and Target's sustainability goals push emissions reduction expectations onto suppliers, but the data infrastructure and verification mechanisms remain underdeveloped.

Green Claims and Consumer Trust

Consumer skepticism around sustainability claims is rising, fueled by high-profile greenwashing scandals and confusing label proliferation. From September 27, 2026, the EU's Empowering Consumers for the Green Transition Directive bans generic environmental claims such as "eco-friendly" without proof of recognized excellent environmental performance, sustainability labels not based on a certification scheme or set by public authorities, and product claims of neutral or reduced climate impact based on offsetting. A separate Green Claims Directive, which would have required companies to substantiate claims with scientific evidence and have them verified in advance, has been blocked since the Commission announced in June 2025 that it intended to withdraw it. Retailers must navigate an increasingly complex landscape of certifications, labels, and standards while maintaining credibility with increasingly informed consumers.

Regulatory Landscape

The EU is implementing the most comprehensive set of retail sustainability regulations globally. The CSRD requires detailed sustainability reporting. The Empowering Consumers for the Green Transition Directive, which applies from September 27, 2026, bans generic and offset-based environmental claims that companies can't back up. The Ecodesign for Sustainable Products Regulation will establish sustainability requirements for products sold in the EU, including digital product passports. EPR schemes for packaging, textiles, and electronics impose financial responsibility on producers and retailers for end-of-life management.

In the U.S., the FTC's Green Guides, last revised in 2012, govern environmental marketing claims; a review the FTC opened in December 2022, which sought comment on carbon offset and recyclability claims, has not yet produced updated guides. California's Plastic Pollution Prevention and Packaging Producer Responsibility Act (SB 54) requires all covered single-use packaging and plastic food service ware to be recyclable or compostable by 2032, and requires producers to cut plastic covered material 25% from 2023 levels and reach a 65% recycling rate for it by 2032; CalRecycle's implementing regulations were approved in May 2026. California's Responsible Textile Recovery Act (SB 707) of 2024 created the first state textile EPR program, with producers required to join its producer responsibility organization by July 1, 2026, and other states, including New York and Washington, have considered similar bills.

Globally, the Textile Exchange, Cascale (formerly the Sustainable Apparel Coalition), and Consumer Goods Forum provide industry-level frameworks for sustainability measurement and reporting.

Opportunities

Circular business models represent the most significant strategic opportunity. Recommerce (resale of used products), rental, repair, and refurbishment programs extend product lifetimes, create new revenue streams, and build customer loyalty. ThredUp's 2026 Resale Report, based on GlobalData research, projects that the global secondhand apparel market will reach $393 billion by 2030. Retailers including Patagonia, REI, IKEA, and Lululemon have demonstrated that circular offerings can be commercially successful.

Supply chain sustainability programs create competitive advantages through risk reduction and innovation. Retailers with robust supplier engagement programs identify risks earlier, build stronger supplier relationships, and access preferential financing. The Higg Index, CDP Supply Chain, and similar tools enable standardized measurement and benchmarking across supply bases.

Private label sustainability leadership allows retailers to differentiate their owned brands with credible sustainability attributes—certified organic, Fair Trade, recycled content, low-carbon—without depending on national brands to lead. U.S. store brands reached a record 21.3% dollar share in 2025, according to the Private Label Manufacturers Association and Circana, and private label offers the greatest control over sustainability specifications.

How Council Fire Can Help

Council Fire works with retailers to build sustainability programs that span operations, supply chains, and consumer engagement. We develop Scope 3 measurement and reduction strategies, design supplier engagement programs, and support compliance with emerging regulations including CSRD, CSDDD, and green claims requirements. Our team helps retailers evaluate and implement circular business models with credible financial projections.

For consumer-facing sustainability communications, we provide green claims substantiation review, certification strategy, and messaging frameworks that build trust without overpromising. Our retail experience spans grocery, apparel, home goods, and specialty retail—we understand the margin pressures and competitive dynamics that shape what's possible.

Frequently Asked Questions

How do we start measuring Scope 3 emissions across a massive supplier base?

Begin with a spend-based screening using industry-average emission factors to identify your highest-emitting product categories and suppliers. Then prioritize direct engagement with the top 50-100 suppliers by emissions. Use standardized platforms—CDP Supply Chain, Higg Index, or custom data collection tools—to gather primary emissions data from priority suppliers. Set year-over-year improvement expectations and provide technical assistance to suppliers who need help measuring their footprints. Accept that precision will improve over time; the goal in year one is a directionally accurate baseline.

What is the EU Digital Product Passport and when does it take effect?

The Digital Product Passport (DPP) is a digital record that will accompany products sold in the EU, containing information about origin, composition, repairability, recyclability, and environmental impact. It will be accessible via QR code or digital link. DPPs will roll out in phases starting with batteries (February 2027, under the EU Batteries Regulation), followed by textiles, electronics, and other product categories as the Commission adopts product rules; its April 2025 working plan targets 2027 for textile rules. For products other than batteries, the DPP is part of the Ecodesign for Sustainable Products Regulation and represents a fundamental shift toward product-level transparency. Retailers should begin preparing by auditing product data availability, engaging suppliers on data collection, and evaluating IT infrastructure for managing digital product information at scale.

How do we substantiate sustainability claims under EU rules?

The EU Green Claims Directive, which would have required scientific substantiation and independent verification of claims before use, was never adopted: the Commission announced in June 2025 that it intended to withdraw the proposal, and negotiations have been blocked since. What applies now is the Empowering Consumers for the Green Transition Directive. From September 27, 2026, it bans generic claims like "eco-friendly" or "green" without proof of recognized excellent environmental performance, claims that a product has a neutral, reduced or positive climate impact based on offsetting, and sustainability labels not based on a certification scheme or set by public authorities. Claims about future environmental performance need clear, public commitments set out in an implementation plan that an independent expert regularly verifies. Retailers should audit all current environmental marketing claims, map them to supporting evidence, and identify gaps where substantiation is insufficient.