Speech by Sir Terry Leahy given to invited stakeholders at a joint Forum for the Future and Tesco event in central London on January 18th 2007

Sir Terry Leahy
TESCO, CARBON AND THE CONSUMER
18th January 2007

Good evening ladies and gentlemen.

Peter, thank you for chairing this event. And thank you to Forum for the Future for your help and advice on sustainability issues.

This is my first speech on the implications of climate change. It is a crowded field and I promise not to make a habit of it. I’m an unlikely campaigner – except perhaps a campaigner for the consumer.

Let me make it clear at the outset. I am not today going to focus on other important issues such reducing packaging waste, recycling, local sourcing or ethical trading. I will talk more about these issues on another occasion this year.

So why a speech from me solely on climate change? And why now?

The reason is simple.

We now know that the implications of climate change are huge. I am not a scientist. But I listen when the scientists say that, if we fail to mitigate climate change, the environmental, social and economic consequences will be stark and severe. This has profound implications for all of us, for our children, and for our children’s children.

For each one of us this poses a challenge. What role are we to play? Passive or active? Follower or leader?

There comes a moment when it is clear what you must do.

I am determined that Tesco should be a leader in helping to create a low-carbon economy.

In saying this, I do not underestimate the task. It is to take an economy where human comfort, activity and growth are inextricably linked with emitting carbon. And to transform it into one which can only thrive without depending on carbon. This is a monumental challenge. It requires a revolution in technology and a revolution in thinking.

We are going to have to re-think the way we live and work.

For Tesco this involves something much more than listing a series of environmentally friendly actions, although those do play their part. It demands that we transform our business model so that the reduction of our carbon footprint becomes a central business driver.

Tonight I will explain the contribution I want Tesco to make.

As a growing international business, we must set an example by measuring and reducing our greenhouse gas emissions. By setting targets that stretch our business. And by committing to do this in a public way, so we are transparent and fully accountable for what we achieve.

We must also help to stimulate the development of low-carbon technology, and work with our suppliers and others to deliver significant CO2 reductions throughout our supply chain end to end.

I will explain how these actions will deliver a fundamental shift in our business operations internationally. They are radical plans that match the scale of the challenges set out in the Stern Review.

But first and most importantly, I want to talk to you about how we can use our unique relationship with our customers to help deliver a revolution in green consumption, with the fight against climate change at the very heart of it.

DELIVERING GREEN CONSUMPTION

The last quarter of the twentieth century saw a consumer revolution which improved the lives of millions of people. It was delivered partly by advances in consumer information. But better information alone was not enough. For many people affordability was and remains a bigger barrier.

Tesco’s achievement has been to break down the twin barriers of price and lack of information. We have taken products and services that were out-of-the reach of ordinary people and made them affordable and accessible to millions.

In the early part of this century we must now achieve a new revolution in green consumption.

The barriers are familiar. People talk about green choices, but for millions of people a lack of information and affordability limit this choice. We will not tackle the challenge of climate change by enlisting only the few.

The green movement must become a mass movement in green consumption.

For this to happen we must break down the barriers of information and price. Customers need good information to make the right choices and they need to be able to afford to make these choices.

To achieve a mass movement in green consumption we must empower everyone – not just the enlightened or the affluent.

Tesco cannot do it alone. I welcome the growing number of business voices determined to make their special contribution.

But our size and our reach make a particular responsibility and opportunity. We sell food, clothing, and household goods to every section of society and to markets across the world.

The market is ready. Customers tell us they want our help to do more in the fight against climate change if only we can make it easier and more affordable.

The huge growth in sales of organic food is testimony to the fact that people will make greener choices if we give them the right information, opportunity and incentive. The competitive pricing of organic products means that, for many, they are no longer luxury items. We now sell them alongside the standard ranges, on the same shelves, instead of in a separate section. We have improved the range and this has helped to create a phenomenal 39% year-on-year growth in sales.

In the same way we now have to make sustainability a significant, mainstream driver of consumption. I see this as a tremendous opportunity for Tesco. I believe we can do it better than anyone. We have become Britain’s most successful retailer by serving everyone, not just the few.

THE KNOWLEDGE TO CHOOSE

The Carbon Count

To create a mass movement in green consumption we must provide better information.

Clear information about the carbon cost of the products we buy will enable customers to make effective green choices. Customers want us to develop ways to take complicated carbon calculations and present them simply.

We will therefore begin the search for a universally accepted and commonly understood measure of the carbon footprint of every product we sell – looking at its complete lifecycle from production, through distribution to consumption.

It will enable us to label all our products so that customers can compare their carbon footprint as easily as they can currently compare their price or their nutritional profile.

Everyone here can see how this could open up even more exciting avenues. Armed with this information the customer is really in charge. And we can help our customers in so many ways – for example through Tesco Clubcard and Tesco.com we can make it easy for them to measure and reduce their carbon footprint in real time – day-by-day and week-by-week.

A Carbon Currency

Many of those people who talk about the need for a carbon currency say it is too complicated to develop; that it will take years. However, at Tesco, we believe in action, in overcoming hurdles, in making complex problems simple.

So we will take on this challenge with enthusiasm. It will of course require expertise from many quarters, and the widest possible partnership. I see a real need for a new type of academic institution to lead this work – a Sustainable Consumption Institute.

I can announce this evening that Tesco will take the first step towards developing this Institute by commissioning work from the Environmental Change Institute (ECI) at Oxford University, on identifying and overcoming the carbon pressure points in our own operations and supply chain.

This work can best be done in collaboration with our world-class suppliers and distributors, and our retail colleagues. We have already begun to work with Unilever and are looking to collaborate with many others around the world.

In the Meantime

While we work hard to meet these commitments we can take some other steps. Inevitably, some are incremental but nonetheless worthwhile.

If we are to tell our customers the carbon cost of every product, we owe it to them too to minimise that cost.

We must provide more efficient, and better value, products. And we must show customers how their individual choices will make a difference.

Last year we made a start by giving customers Green Clubcard points for re-using carrier bags. We have already reduced the number of new bags we have given away since the launch by nearly 300 million – that is 14 million fewer plastic bags every week. Initiatives like this build confidence that individuals, acting together, can bring about change. It helps to break down another barrier - the thought that "I can’t make a difference"” – and replace it with a new belief that "Together, we can make a difference".

Tonight I can announce a number of new Tesco initiatives that I hope will excite customers and stimulate more green consumption:

  • One of the first of our new initiatives will be to bring down the cost of being green. Energy-efficient light bulbs can use less than a fifth of the energy of conventional bulbs. They can last ten times as long. But they can cost up to ten times as much as conventional bulbs. So price is a barrier for many customers. We will take a big step towards removing that barrier by halving the price of energy-efficient light bulbs. And we will do this as part of a campaign to be co-ordinated by The Climate Group this Spring. This will shift the balance of economics in favour of ordinary families.
  • There is not currently an energy-efficient equivalent for every standard light bulb. We will work with our suppliers towards making sure that, for every light bulb, there is an energy-efficient alternative that provides an equivalent performance.
  • We will also offer more energy-efficient products throughout our Value range at value prices. We hope this will help to make green choices a real option for the less affluent and those living on tight budgets.
  • We know that customers make the right choices if they are given clear information. Our GDA nutritional labelling scheme demonstrates this. We will work over the coming months with the Energy Savings Trust to develop stronger energy-efficiency labelling for our electricals products – from light bulbs to TVs.
  • We will promote and incentivise energy efficient products through our Green Clubcard scheme – televisions which use less energy both when they are on and in standby; energy-saving kettles and set-top boxes; energy-efficient power adapters and intelligent plugs that switch off appliances when they are not being used. We will also use our Green Clubcard scheme to encourage re-use and recycling as well as organic, Fairtrade, biodegradable and other green products. We will write to all our Clubcard customers in February to set out our Green Clubcard plans.
  • It is important that we equip the next generation with as good an understanding as we can of why a low-carbon economy is important, and how it can be achieved. That is why we are launching the Kids Carbon Calculator with DEFRA and the Royal Society of Arts. It will show children how simple everyday choices, like sharing a car for the school run, or buying seasonal fruit, can make a big difference.
  • Tesco is the UK market leader in the sale of biofuels to customers. We offer a 5% bioethanol mix at 185 petrol stations at the same prices as standard unleaded. All 181 of our filling stations in the South East and North West of England have been converted to biodiesel. Over the next twelve months we aim to double the proportion of biofuels we sell, and increase the number of petrol stations in which we sell them to over 300.

We must also face up to the debate about food miles. That will mean a whole series of actions to reduce the carbon footprint of our distribution system and I will speak of those a little later because it is important to remember that food miles are not just about air miles. However, we cannot avoid the fact that transporting a product by air results in far higher carbon emissions than any other form of transport.

We are not willing to avoid the hard fact that there is a conflict between the issue of carbon emissions and the needs of some of the poorest people on earth whose lives are improved by the ability to sell in our markets products which are brought here by air.

There is a strong international development case for trading with developing countries. So, the question is: should we shun Fairtrade horticulture from East Africa to save CO2, or champion it as an important contribution to alleviating poverty?

To try to resolve that conflict, we will seek to reduce our reliance on air transport overall by restricting it to less than 1 per cent of our products, with a bias to the poor countries.

Even so, we believe that judgements on competing priorities like these should ultimately be decided by our customers. We must better inform their decisions.

So we have decided that, as an interim step while we develop a carbon labelling system, we will put an aeroplane symbol on all air-freighted products in our stores – not as we did 20 years ago as a symbol of freshness, but as a basis for informed decision-making. I am pleased that this decision has also been made by M&S.

But It cannot be more than an interim measure. It will not tell the whole carbon story. A product grown outdoors in a warm country and flown to the UK may have no higher a carbon footprint than a product grown out-of-season in Europe in a heated greenhouse.

So our aeroplane symbol will indicate one aspect of the carbon used to bring a product to our stores, but not all. It is a first step on the journey we have begun.

SETTING AN EXAMPLE

I have explained how I see Tesco leading a consumer revolution in green consumption. I now want to talk about the two other roles Tesco will play.

How, as a growing international business, we will set an example by measuring, publishing and reducing our greenhouse gas emissions.

And how we can also stimulate the development of low-carbon technology.

We have a target that, by 2010, we will have halved the average energy use in our buildings compared to what it was in 2000.

I am pleased to say tonight that we will not only meet this target. We will meet it two years early – in 2008.

It is, I accept, a relative not absolute target, and I shall say more about targets in a moment. But let me point out one fact.

This year Tesco in the UK has achieved an absolute reduction in energy use in our buildings, despite growing by more than 8%. We are using less energy this year than last, even taking into account our new stores and extensions.

We have achieved this by making energy reduction a top priority throughout our business – from the boardroom through to our staff working in our stores.

Our staff are crucial. Every Tesco store has an energy champion. All our energy champions will get together for a conference next month – to learn, share knowledge and celebrate what they have achieved so far.

New technology is also crucial.

We have now built three energy-efficient stores in this country to test new equipment and ideas that we intend to roll out across the business. Our first such store in Diss reduced energy consumption by 29% compared to a standard Tesco store of its size. At Swansea we achieved a 36% reduction. Our most recent environmental store, which opened in Wick last November, has a carbon footprint 50% lower than our current standard stores of that size.

Much of the technology first trialled in our environmental stores is now becoming standard in all our stores. For example:

  • More energy-efficient ovens, refrigeration and air-conditioning - the big users of energy in stores.
  • More efficient lighting, and timers and motion detectors that switch off the lights when they are not needed.
  • Redesigned fridges to keep more of the cold air in - cutting energy use by 10%.
  • Equipment that retrieves cold air from our chiller cabinets to use as an energy-efficient alternative to air-conditioning on the sales floor. And heat recovered from our machinery to use as heating when that is needed.

Other innovations at our latest environmental store at Wick may also become mainstream. For example:

  • Reducing embedded carbon by using timber rather than steel for the store.
  • Making our roofs and ceilings lower to reduce the space we need to heat and cool.
  • Using more north-facing windows to compliment artificial light with natural light. And installing photo-voltaic panels on our south-facing roofs to generate renewable energy.

We will open our next environmental store in Shrewsbury this Spring. There we want to reduce carbon emissions by 60% compared to a standard store. In Shrewsbury we will run our Tesco.com home delivery fleet on fully electric vans. This will deliver a saving of 100 tonnes of CO2 per year, on top of the 6,000 customer car journeys that each delivery van already saves each year.

We will also open our first Environmental distribution centre at Livingston.

Our international business is another source of innovation. Our Rama 1 store in Thailand, which opened over three years ago, has solar paneling over its whole roof. Our environment store in Turkey will have an earth and grass roof, and will use geothermal power. Our new business in California is also placing a big emphasis on saving energy and carbon emissions: we have announced today that its distribution centre will include California’s largest roof installation of photovoltaic solar power.

Over the next year, we will build new environmental stores in the Czech Republic, Poland, Hungary, Turkey, Korea, Malaysia, Thailand and hopefully in China and Japan too.

This will be a practical and direct way of building on what we have learned as a business, and stimulating low-carbon technology in developing countries around the world.

It is by being focused, working hard and investing more than £65m last year alone in lower-carbon technology that we will achieve our energy reduction target two years early. Over the next five years we will spend more than £500m in reducing our energy use.

The Stern Review explains how important it is to develop new low-carbon technologies.

We have learned from our experience that there is often a frustrating gap between being able to identify the technology that is needed – whether on low-energy lighting or lower-emissions refrigeration – and being able to purchase and apply that technology commercially. We will work with our suppliers to reduce and hopefully eliminate this gap.

Our Sustainable Technology Fund created last May established an additional ring-fenced £100m to help to close that gap. To support low-carbon technologies that are not yet fully economically viable. To improve their application so that they become commercially viable.

We are investing in, or examining seriously, a number of technologies:

  • We have installed 10 wind turbines, and have sought planning permission for many more. We are looking closely at the next generation of vertical axis turbines.
  • We have shown at Swansea that combined heat and power has a practical application in our sector, and plan another 10 plants this year.
  • We are developing a gasification solution to turn our food waste into clean, sustainable power.
  • We are investing in a straw-fired generator at Goole, delivering biomass combustion, steam cycle and steam turbine power.
  • We also made a significant investment in a new biodiesel plant at Immingham.

I am confident that our £100m fund will make a real contribution to developing sustainable low-carbon technology.

Our transport fleet accounts for under a sixth of our CO2 footprint – perhaps less than people might generally think. But it is important to reduce emissions on transport as well. A more efficient distribution system also delivers other benefits, such as less congestion on the roads, less noise and less pollution.

I am pleased that, over the past year, we have cut by 10 per cent the amount of CO2 emitted in our distribution network to deliver a case of goods. Over the next five years we will make this a 50% reduction.

We are improving the way we fill our vehicles. We are working with our suppliers so that their vehicles do not travel empty after making a delivery. And we are investing in double-deck trailers which carry up to 80 per cent more products per load.

We are also investing in alternatives to distribution by road. We have switched to rail for transporting goods from our Daventry depot to Scotland. We want to do more of this, and I urge the Government to build on its commitment to rail as an alternative to road for moving goods around the country.

We want to make road distribution greener too. From this month, three-quarters of our distribution fleet is running on a 50 per cent biodiesel blend. This is the highest percentage biodiesel blend used by any major distribution fleet in the world. It is equivalent to removing over 20,000 medium sized cars off the road. We will extend the use of 50:50 biodiesel to our entire distribution fleet this year.

Future plans

What I have set out is a start. But we can do more, and we will.

We will measure and publish our total carbon footprint as a business. We know that our direct footprint in the UK is around 2m tonnes of CO2 per year. Our buildings – and in particular our refrigeration – account for a significant proportion of these emissions.

But climate change and CO2 emissions are global issues, and Tesco is an international business. So we have commissioned Environmental Resources Management (ERM) to map the total direct carbon footprint of the Tesco business across all the countries in which we operate. This work will give us a clear, independently-verified baseline from which to track our progress. It will also enable us to identify those areas of our business we will need to prioritise in reducing emissions. We will also increase our understanding of our indirect carbon footprint - the emissions created by our suppliers and customers – so we can work with them to reduce our overall impact on the environment.

We want to do this openly. So we will publish our carbon footprint, in a similar way to our price checker, on our Tesco.com website.

Our verified carbon footprint will include all our existing stores and distribution centres worldwide. We will reduce emissions from these buildings by at least 50 per cent by 2020.

This is in addition to the 50 per cent reduction in average energy use in our UK buildings that we will have achieved by 2008.

We are determined to play our part responsibly, but to do so as a growing business. We will not achieve our common goal of a sustainable future if reductions in CO2 are achieved by impeding beneficial economic growth. We need growth to create jobs, to raise communities out of poverty, to strengthen opportunity and reduce inequality, and not least to fund the pensions that we will all rely upon. We also need growth to fund the technological innovation and investment that must underpin a low-carbon future.

But we must achieve growth in a way that helps deliver a low-carbon economy. Indeed, we have found that we can become more efficient as we grow.

So we will ensure that all new stores we build between now and 2020 emit on average at least 50 per cent less carbon than an equivalent store in 2006.

Stimulating new technology

We will continue to invest in sustainable technology and roll it out to more and more of our stores. To do this, we need help from government.

Sir Nicholas Stern noted in his recent report that increasing carbon emissions were a potentially catastrophic example of market failure. Governments can successfully use market and trading mechanisms to correct this failure. That is why I welcome in principle the UK Government’s proposals for an Energy Performance Commitment Scheme. Clearly, the details of the EPC need to be worked through, but the principles of emissions caps and trading mechanisms appear sound.

Government is taking steps to stimulate public and private investment in technology. This must increase in pace.

In some cases, however, the speed of investment in technology is being limited by the time taken to secure planning permission – for example for wind turbines.

I therefore urge Ministers to deliver quickly on their assurances that they will make it easier and faster to negotiate planning in this important area.

I also call on Government to reward green buildings. This means supporting investment in low carbon technologies through business rates and other incentives.

As a food retailer, refrigeration currently accounts for over a third of our direct carbon footprint in the UK. The vast majority of large refrigerators in the food industry currently use HFC refrigeration gases. These were introduced as a replacement for the ozone depleting CFCs and HCFCs – but we know that HFCs are extremely potent greenhouse gases.

We are therefore leading a programme to phase out their use. We have so far installed two alternative non-HFC systems – one based on CO2 and one combining CO2 and hydrocarbon refrigerants.

We are sharing what we learn with all interested parties to speed up and promote the use of natural refrigerants.

We also suffer in this country from a shortage of technicians skilled and trained to work on low-carbon technology. We want to work with government and others to remedy this skills gap. We are already beginning to train a new generation of environmental engineers, maintenance technicians and energy champions.

Conclusion

Tesco has a strong history of responding to new challenges in ways that galvanise and empower the customer. In the twentieth century, through self-service shopping, bulk buying, bar coding, and centralised distribution, we helped deliver a consumer revolution that turned luxury products for the few into everyday products for the many. Each of these changes required leadership and new ways of thinking and doing things.

The challenge of creating a low-carbon society will require another revolution in thought and action – a revolution in green consumption.

I admire the work of our great environmental NGOs. Over many years they have created and nurtured this idea of green consumption.

But it must now grow into a mass movement. This is where business and Tesco can make a huge contribution.

Too often on issues like sustainability, Tesco has come to be portrayed as part of the problem. This could not be more wrong. When you want to reach and empower the many, Tesco is a big part of the solution, not the problem.

Consumers have a new need: to live more sustainably, and to consume products and services which are more sustainable. Our role as a business is to give them the information and the means to achieve this change. If we satisfy this need we will be rewarded with custom and loyalty. Other businesses will respond to this new competitive challenge by devoting more resources and more creativity to the task. Society and the economy will move ever faster down the road of sustainability.

When I set out our plan for Tesco in the Community last May, I said that the battle to win customers in the 21st century would increasingly be fought not just on value for money, range and convenience, but on being good neighbours, behaving responsibly and seizing the environmental challenges. I am even more convinced of this today.

I believe in the power of the consumer. And I believe Tesco has a unique relationship with consumers.

Together with our customers, suppliers and other partners we can transform green consumption from a minority to the mainstream.

It will be a revolution in sustainability. And it will be our contribution to the fight against climate change.

Thank you.

Back to Climate Change page