Costco

As the sixth-largest retailer in the world, Costco holds an influential position in the market to direct resources and expertise toward portfolio diversification. Disappointingly, the company is significantly behind its competitors in utilising protein diversification as a climate mitigation tool and is still heavily exposed to high-risk animal protein. Approximately 54% of the total company revenue is still derived from food products which are partially or wholly exposed to animal-based ingredients. In its 2020 10-K, Costco identified climate change as a threat to business and acknowledged that a failure to respond to changing consumer demands (i.e. towards expanding plant-based options) presented a material risk. Despite this, Costco has not set out a strategy for protein diversification, nor disclosed a statement that discusses the company’s current and anticipated exposure to animal proteins as well as the climate and business risks associated with that exposure. In FY21, Costco conducted an initial climate change scenario analysis in accordance with the guidance of the TCFD; the company intends to extend its public disclosures in alignment with the TCFD recommendations in its 2022 Sustainability Commitment, which will be published in December 2022. Costco also acknowledges the SBTi’s framework and stated its intent to consider the business implications of setting science-based carbon targets in alignment with the new Corporate Net Zero Standard and other sector-based guidance.

Costco has not achieved progress in making its GHG emission targets robust, specifically lacking one for Scope 3 emissions, which are usually more than 90% of total GHG for food retailers. Moreover, the company has no time-bound plan to measure, disclose, or set a reduction target in the near future. Costco plans to spend the next 1-2 years examining Scope 3 best practices, trends and opportunities; in 2-4 years it will develop a methodology to evaluate Scope 3 emissions; in 4-7 years it will track and measure certain scope 3 emissions pursuant to the climate action plan as updated over time. This timeline is exceptionally slow and places Costco well below competitors, highlighting the company’s passive approach to climate action. Investors have already shown their disappointment with this timeline as seen by the Costco Shareholder Resolution led by Green Century, which requests that Costco “adopt short, medium, and long-term science-based greenhouse gas emissions reduction targets, inclusive of emissions from its full value chain, in order to achieve net-zero emissions by 2050 or sooner and to effectuate appropriate emissions reductions prior to 2030”. Costco has taken measures to reduce its contribution to deforestation through its beef supply chain. The company notified its suppliers that Kirkland Signature items containing beef should not be sourced from countries such as Argentina, Brazil, Colombia, and Paraguay until comprehensive tracing and monitoring systems are in place. The company acknowledges the environmental concerns around soy and has made the commitment to source Kirkland Signature soy-based products, such as soy milk, from the U.S. and Canada; the company did not specifically acknowledge the concerns of soy when grown as a monoculture for animal feed. Costco’s sustainable sourcing initiatives continue to be limited to animal welfare. Hence, the reputational risk of the company not addressing the environmental impacts of its animal agriculture supply chains and own poultry farming are high. Furthermore, Costco is facing legal backlash for abusing broiler chickens in its Nebraska processing facility . Two Costco shareholders filed a lawsuit in June 2022 suing company executives and the directors for breach of fiduciary duties. Costco’s inability to align with its animal welfare commitments should be a cause of concern for investors as it could potentially subject the company to significant liability, and it suggests that Costco might be unable to follow through on future targets or commitments. Costco does not have a protein diversification target and does not integrate plant-based expansion as a tool for climate mitigation. The company does not have any targets or commitments focused on the health and nutrition of alternative proteins and plant-based products.

Costco continued to experience an increase in plant-based protein sales in FY21 and publicly disclosed this on its website. It expanded its plant-based range to include the Beyond Meat Burger and Silk’s recently unveiled Bee Better Certified almond milk products which are available exclusively at Costco. FAIRR found no evidence to suggest that Costco is devoting R&D resources to significantly expand its plant-based range. Similarly, there is no indication that the company is looking to reformulate its products to reduce meat and dairy content.

No information found or provided by the company in the engagement.

Costco does not have metrics to track its product portfolio transition and it does not collect data on Scope 3 emissions linked to animal agriculture. In FY21, Costco developed a baseline estimate (using FY2020) for “Waste Generated from Operations” as 147,138 MtCO2e based on the total tonnage to landfill and total tonnage diverted using the DEFRA protocol. While this is a step in the right direction, Costco still does not report on its Scope 3 purchased goods and services emissions. The company disclosed that it is developing an initial Scope 3 inventory for “purchased goods and services” which will include both Kirkland Signature and non-Kirkland Signature brands. Costco will estimate its purchased goods and services emissions –which usually represent the majority of its Scope 3 emissions– and disclose a Scope 3 Action Plan by the end of December 2022; a delay in this plan should be a cause of concern for investors. As disclosed in its Climate Action Plan, Costco will be aligning its Scope 3 plan with the SBTi’s Forest, Land and Agriculture guidelines (FLAG). The final guidance has not been published by the SBTi yet, but FAIRR’s investor coalition is concerned with the draft not being robustly aligned with the Paris Agreement and permitting intensity targets.

For the first time, Costco has acknowledged FAIRR's engagement, however, the company decided not to attend the roundtable nor to engage with the coalition. Costco is the least engaged company in the collaborative engagement. It acknowledged the receipt of the assessment and included additional resources to consult but did not provide specific insights or commentary.