Retail and ESG in 2025: bigger fish to fry?
Are ESG themes set to take a backseat in 2025, or will they become more crucial than ever?
8 minutes to read
Heading into 2025, the topic of ESG (Environmental, Social, and Governance) may not appear to be high on the agenda for the retail sector. Many are still grappling with the potential impacts of the UK budget, which is set to introduce a ‘triple whammy’ of cost pressures in the region of £4bn+. For many, the immediate priority in 2025 is clear: how to maintain profitability, protect margins, and avoid closures of unviable stores.
The Urban Land Institute’s 2025 European outlook echoes this sentiment, noting that ESG in the property sector remains divisive—evoking both passion and scepticism. Property stakeholders it surveyed highlight retailers are often difficult to engage with on ESG issues, being more focused on supply chain emissions than those from their store operations. ESG, they argue, can feel like a distraction from more pressing business concerns.
However, this is not the whole picture. Some retailers and landlords are stepping up to the plate, recognising ESG as a cornerstone of retail’s ‘renaissance’ —a transformational process currently rebuilding a more sustainable and future-proof sector. For these trailblazers, ESG is less a burden and more a strategic opportunity.
Compliance obligation or strategic opportunity?
Take foodstores. Sainsbury’s launched ‘Smart Charge’ at the beginning of 2024, its electric vehicle (EV) charging business, with the ambitious target of installing 750 ultra-rapid chargers in more than 100 of its supermarket car parks by the end of the year. Not only is Sainsbury’s responding to a societal need to nudge consumers toward EVs by easing ‘range anxiety,’ but the grocer has also demonstrated clear benefits for itself, optimising the value of its existing sites.
Sainsbury’s has made significant progress: by November, it had installed 500 charging bays across 62 locations and adjusted its year-end target to 70 sites. The retailer has further capitalised on the initiative by integrating it with its Nectar loyalty programme, allowing customers to collect points when charging their vehicles. This has enabled it to gather valuable customer data and encouraged chargers to shop in-store—over half (60%) of Nectar Smart Charge customers now do so.
Bold decarbonisation pledges
Other major retailers are positioning themselves as part of the environmental solution rather than the problem. The Ingka Group, the holding company behind IKEA, announced plans to invest €1.5bn to end reliance on fossil fuels in its operations by 2030. This investment will target energy efficiency improvements in its stores, particularly in heating and cooling—one of IKEA’s largest sources of emissions.
While 96% of IKEA’s stores already run on renewable energy, the retailer acknowledges there is more to do. It describes the transition as ‘costly and complex’ but points to the longer-term payback. So far, IKEA has reduced emissions by 24.3%, while increasing revenues by 30.9%.
Interestingly, IKEA sees its role not only as a consumer of renewable energy but also as a producer and advocate for global renewable energy expansion. Its investment arm, Ingka Investments, has committed over €7.5bn to offsite renewable energy projects, including a PV solar park in Langeron, central France, which became fully operational in October 2024.
Low disruption improvements
Many retailers are still exploring gains that can be made across their properties, while staying accountable to their ESG pledges. Footasylum, the footwear and sportswear retailer, secured a £35m funding package from HSBC in 2024, linking borrowing costs to its sustainability performance.
The retailer has focused on achievable, low-disruption improvements to date. Its TCFD report reveals that 40% of its store estate has been retrofitted with LED lighting, with plans to upgrade a further 20% by FY25 at a cost of £200k in capex. As outlined in our Sustainability Series, many ‘easy win’ upgrades can be achieved while occupiers are in situ, with stores remaining operational.
Footasylum has also indicated ongoing investment in its logistics operations, exploring transitioning to EVs and hybrid vehicles alongside piloting biofuels. However, these changes are expected to come at a cost—£100k more than traditional vehicles. The company is also addressing ‘easy wins’, such as exploring voltage optimisation in its warehousing and stores, although this is currently deemed viable for only 30% of its sites. Looking ahead to FY25, Footasylum plans to implement overnight shutdowns at warehouses to reduce energy consumption from heating and lighting. While these initiatives represent progress, significant opportunities for further improvement remain.
Preserving the past, securing the future
Even historic and complex sites can achieve meaningful ESG milestones. In 2024, Harrods launched its first ESG report, revealing initiatives taken to decarbonise its 175-year-old, Grade II-listed Knightsbridge flagship store. This highlights the challenge of aligning historic architecture with modern environmental standards and evolving shopper expectations.
Quick wins that don’t interrupt trading are already in evidence, such as replacing its iconic external lighting on Brompton Road with bulbs that are 80% more efficient. Broader efforts include a 10% reduction in gas use, a 2% reduction in electricity consumption, boiler upgrades, and the introduction of hand towel recycling, which has diverted 6.6 tonnes of waste. Looking ahead, Harrods is reviewing its fit-out guides to prioritise sustainable material sourcing in store installations, with plans to trial these changes across concessions by 2025.
Rebuild vs retrofit debate evolves
As the industry increasingly grapples with sustainability and modernisation challenges, M&S has marked a major milestone with its proposed redevelopment of its Marble Arch store finally gaining approval in December from the new Labour government, after four years of protracted decision-making. The final proposal, following consideration of 16 different approaches, and which targets BREEAM and WELL certifications to place it among London’s top 1% most sustainable buildings, is now set to proceed.
The London Property Alliance heralded the decision as bringing much-needed clarity for a property industry that has delayed projects to await the outcome. However, navigating planning policies of this nature is set to remain challenging due to the absence of national guidance, with local authority policies continuing to differ widely. And as our UK Cities Paper explored, retrofitting, refurbishing, or repurposing remains a fraught and complex journey.
For M&S, while Marble Arch has been a headache, it has made good progress elsewhere in revitalising its store footprint. Reopening its Brixton store this winter, M&S revealed that 23% of its estate has now been modernised. Yet, with 75% of shoppers still using older stores, there is much to be done in rejuvenating its ageing stock in 2025 and beyond.
Showcasing social and economic value
On the ‘social’ side of ESG, retailers are increasingly keen to demonstrate the value their stores bring to local communities and the economic benefits they generate. In 2024, Primark published its first Impact Report, underscoring its role as a key high street anchor, drawing over 2 million visitors weekly. The report highlighted that Primark drives more than £1.5bn in annual spending, with every £10 spent in-store generating an additional £3.60 spent elsewhere. It also revealed that Primark supports 54,000 jobs in the UK—more than the entire UK television broadcasting industry—and contributes £2.6bn to the national economy.
In the wake of Labour’s first budget, more retailers are likely to follow suit by commissioning reports or sharing data that highlight their stores' positive impact on communities and the wider economy. Such transparency can play a pivotal role in shaping decisions. For instance, the government’s approval of M&S’s Marble Arch redevelopment proposals underscored the ‘significant employment and regeneration benefits’ the project is expected to deliver, despite concerns over carbon costs. Much of the debate centred on the concept of ‘public benefits,’ weighing the value of a modern, thriving M&S store on Oxford Street against the alternative—a vacant, deteriorating, and unlettable site.
2025: a balancing act
Retailers enter 2025 facing both immense cost pressures and the need for meaningful ESG progress. Leaders like Sainsbury’s, IKEA, and M&S show that embracing ESG can drive innovation and resilience, even in challenging conditions.
The coming year will test the sector's ability to balance immediate demands with the urgent need to create a sustainable future. Retail's renaissance is no longer just about survival— but about reimagining its role in an ever-evolving world.
Six key predictions
- ESG will drive retail transformation in 2025, evolving from a compliance obligation into a strategic opportunity. Retailers will increasingly integrate sustainability into their core operations, using it as a lever for innovation, customer loyalty, and long-term profitability.
- The transition to renewable energy will gain momentum, with retailers committing to bold decarbonisation targets and some even investing directly in renewable energy projects. Energy efficiency upgrades, particularly in heating, cooling, and lighting, will become standard practice as businesses seek to cut emissions and reduce operating costs.
- Low-disruption sustainability improvements will dominate retail ESG strategies. Practical upgrades, such as retrofitting properties with energy-efficient lighting or implementing smarter logistics systems, will be prioritised as retailers balance the need for progress with operational continuity.
- The rebuild vs. retrofit debate to evolve as the industry grapples with the complexities of sustainable redevelopment. Retailers to advocate for clearer and more consistent planning policies to enable them to confidently address environmental challenges without jeopardising commercial viability.
- The social impact of retail will receive growing attention, as brands demonstrate their value as economic and community anchors. With high streets under scrutiny, retailers will highlight their role in creating jobs, supporting local economies, and revitalising urban spaces.
- Innovation will bridge ESG ambitions and operational realities, with retailers using technology, data, and creative solutions to address sustainability goals. From loyalty programmes linked to ESG initiatives to optimising energy use, businesses will find new ways to embed sustainability into their everyday practices.