"Make green easy ... make it desirable": Terry Leahy, CEO Tesco

29th October, 2010 by Martin Wright

Terry Leahy wants to make Tesco a zero-carbon company by 2050. In an exclusive interview, he tells Martin Wright what's behind his ambition.

Mention Tesco to your average environmentalist, and then watch them blow a fuse. In the last few years alone, it's been accused of everything from destroying local shops and stifling diversity to trashing the climate. It even has its very own anti-fan club – Tescopoly – to rail against its power and influence. For some critics, it epitomises everything that's wrong with corporate power in Britain today.

So here I am in the lair of the Prince of Darkness. Though to be honest, sat in a seventies office block in a nondescript business park in the quiet London suburb of Cheshunt, it doesn't exactly feel like Global Megalopolis plc. Some corporate HQs these days – all primary colours and chill-out corners – look like a cross between a daycare nursery and a yoga retreat. Tesco's looks like an office.

It fits well with Sir (not that he calls himself that) Terry. A down-to-earth Scouser – Liverpool born and bred, with accent intact – he's hardly your typical celeb CEO, partying on down with the catwalk models. He's on the board of his beloved Everton FC, but prefers to sit with the fans rather than in the directors' box. One day each week, he turns up unannounced for a low-key visit to a Tesco store (less than 600 of them when he took over, nearly 2,500 now). It's fair to say that for much of his career he enjoyed a reputation for self-effacement.

" Climate change is terrifying... You just can't walk away from that"

Until, that is, he stuck his head way above the parapet at a Forum for the Future event in 2007, when he announced his ambition to makeTescoa zero-carbon company by 2050, with a series of stretch targets en route, starting immediately [see box]. And all without a single tonne of carbon offset.

Ambitious stuff. So what brought this on? "We'd been doing our bit on environmental issues for a while, enough for some, not enough for others. But climate change felt very different. When science showed incontrovertibly that the world was warming up, that it was due to man's activities, and that if it carried on it would have disastrous consequences – well, that was pretty terrifying."

In effect, Leahy says, it put a great big question mark over everything Tesco was about. "Mass consumption, of which I am very proud – because it has made life for ordinary families in the West immeasurably better – is built on fossil fuels… And we used them. Which is fine, until you find out that they have this huge externality which is potentially catastrophic."

For many staff, he goes on, this produced an awkward dissonance. "People come here and work incredibly hard every day, whether it is to fill up the shelves or drive the lorries or serve on the checkouts. And when they help people it puts a smile on their face... But how could you do all that", he continues, putting himself in their shoes, "and then have hanging over you the prospect that your work is actually doing far more harm to those people, or to their children, than all the good that you had ever done? How could you do it? You just can't walk away from that."

"After I made that speech, a lot of people [within Tesco] came up and said, 'My god, you are actually doing something about it!' They were delighted, because [privately] they knew something had to be done… but were waiting for someone to take the lead."

Unsurprisingly, there were some sceptical voices. After all, Tesco wouldn't exactly be the first company to succeed at market domination only to take an embarrassing tumble over some high-profile green ambitions. Leahy acknowledges that achieving total carbon neutrality will need innovation on a massive scale. "Obviously you ask yourself, is this going to distract you completely from the main purpose of the business? Will it just become an unaffordable cost?... But I am a big believer in the audacious goal. It gets the best out of individuals and organisations. As a piece of management, it works."

In an effort to convince any doubters, he brought in Nicholas Stern to talk to senior colleagues. But one of his greatest allies in winning the argument internally was the price of oil. "Most of our [business] model has been built on $20 per barrel", he says. "$20 that was headed for $12." Conveniently enough, the price was rising sharply to around $70 at the time Leahy made his climatic cri de coeur. "This made it much easier", he acknowledges, citing the new zero-carbon store which opened in Cambridgeshire earlier this year. "It cost 30% more to build, but it uses 50% less energy. With oil at $70 a barrel, that's a business case in itself." It's one which will see Tesco become "a big user, buyer and generator" of renewable energy in coming years – and, via its £100 million green fund, an investor in it, too.

Only the most implacable of Tesco's enemies would dismiss its environmental goals out of hand. But anyone hoping that Leahy's Damascene conversion on climate would extend to questioning the environmental impact of consumption itself will be disappointed. "The one thing I have come to understand is that people have this universal desire for a better life, and you are not going to stop that. The only chance we have got is to let people fulfil that desire, but in a sustainable way... You have got to work with the grain of human nature." And that, he says, means using carrots, not sticks. "We must make green easy, fashionable, affordable and desirable."

It's Leahy's running theme. Trust the consumer, educate and incentivise them, take them along with you. In some respects, it makes Leahy himself sound rather unfashionable. Take carbon labelling. Many question whether the average shopper actually bothers to read product labels about anything, let alone carbon. Leahy is adamant that it's the way forward, anticipating the day when every product in the store is labelled, and people automatically consider the carbon footprint of everything they buy, or do. He believes carbon should be seen and eventually used as a currency, and suggests customers could trade in it via their Tesco Clubcards.

Nothing epitomises his views better, perhaps, than the war on the humble plastic carrier bag. Some retailers discourage use by charging for them; Tesco, by contrast, offers bonus Clubcard points for shoppers who do without. "It's far better to incentivise people", argues Leahy, "because then you've got them actively engaged; it is a decision they have made. Whereas if you tax them they are passive, they have not changed anything out of their own choice, and they're potentially resentful." It seems to be working: carrier bag use has dropped by 50%.

Leahy's also deeply sceptical about choice editing, where retailers act to remove unsustainable options from the shelves. "It's a rather loaded phrase, which at the extreme end means, 'People have got to learn to deal with less'. I fundamentally don't believe that." Take light bulbs. It's fine for Government to set a date for phasing out inefficient varieties, says Leahy: that's its job. But business should work on solutions. "When you look at why people weren't buying low-energy bulbs, you find that it's because they were too expensive, and they didn't actually fit the lights people had in their homes. [For example], every home in Britain had gone through a love affair with spot lamps, but there were no low-energy versions… [So] we worked with suppliers [to develop one], we set a price to make it affordable, provided information to customers. And in that way we made dramatic progress."

Helping consumers be sustainable by choice, rather than imposing it on them, actually does politicians a favour, Leahy argues, because "it mandates Government to take difficult decisions… Politicians are surprisingly tentative at doing so, because they're always worried about the next election." Tesco doesn't have to be elected – and that, says Leahy, has allowed it to be "far more bold than most politicians." The single most thing helpful Government can do, he says, is create certainty by saying: 'This is what we have to do as a society, and we are not going to divert from that'. The more Government can create frameworks to encourage that, such as carbon pricing and [green fiscal reform], the better. Because then everyone can invest against that certainty."]

Meanwhile, Leahy's initiatives are starting to pay dividends in terms of reputation. A recent Brand Green poll listed Tesco alongside Marks and Spencer, the Co-operative and British Gas as the leading UK brands in tackling climate change. He insists that there's no question that successor Philip Clarke will take his foot off the green pedal – the business logic is overwhelming.

For some, though, Tesco will always be seen as environmental enemy number one. So how does it feel to be head of an organisation which draws such flak? "Well, it is inevitable that some people won't like what you do… Even if we keep 95% of people in Britain happy – which is more than any political party achieves – that's still three million who don't like us… But remember, our customers are citizens too, they're members of communities. They want us to do the right thing." Leahy talks of work with councils to introduce stores into 'food deserts' (deprived areas where no one's willing to open a shop) and of other 'good neighbour' initiatives. But he's impatient with the argument that Tesco's relentless expansion epitomises the worst aspects of globalisation.

"We sometimes gets caught up in that, as other successful companies do", he said in an earlier interview. "But you can't get your iPod made in the local village; Toyota don't manufacture their hybrid just down the street. And I'm afraid the IT system wasn't bashed up in the local car mechanic's yard ... You can't have it both ways. You can't have safe little village England where nothing has changed for 50 years, but also expect to be a society that leads the world in science and medicine and everything else."

Leahy steps down in March 2011, after which… well, he's been touted as everything from Chairman of the Football Association to an enterprise 'Tsar'. It's one subject on which he won't be drawn. As far as environmental issues are concerned, Tesco has put £25 million into a new Sustainable Consumption Institute at Manchester University – Leahy's alma mater – and he says he hopes to "make a contribution" to the debate through that.

But couldn't he wield more clout on behalf of sustainability in a higher-profile role? He hesitates, then says: "I don't think I will have a high-profile role in anything, to be honest. I have had a very good career here, and that's high profile enough for me."

Big, Hairy, Audacious

Tesco’s green goals include:

  • Zero-carbon business by 2050
  • Reducing emissions of products sold by 30% by 2020
  • Helping customers reduce their carbon footprint by 50% by 2020
  • Stores built between 2007 and 2020 to have half the average carbon footprint of one built in 2006
  • Reducing use of plastic carrier bags by 70% between 2006 and end-2010

Meanwhile, it’s:

  • Investing £100 million in green businesses
  • Launching domestic solar water heating and electricity offers
  • Replacing ‘Buy One Get One Free’ deals with ‘Buy One Get One Later’

Zero carbon superstore

  • Opened in February 2010 in Ramsey, Cambridgeshire
  • Intended as a model for future stores
  • Powered by CHP plant burning renewable biofuels such as vegetable oil, exporting surplus to the grid
  • Timber framed
  • Sun pipes and roof lights for natural lighting
  • Rainwater harvesting for toilets and car wash
  • Hydrocarbon refrigerants for chill cabinets and air con
  • Solar-powered LED lighting for car park
  • Cost 30% more than standard store to build
  • Consumes 50% less energy

Tesco under Leahy
                                         1997       2010
Stores                               568        2,482
Pre-tax profits                   £750m   £3,176m
Market share (groceries)  20%       30%

Curriculum Vitae

  • Born: Feb 28, 1956
  • Educated: St Edward’s College, Liverpool, and UMIST – the first member of his family to stay at school after 16
  • Stacked shelves at Tesco in his summer holidays, and applied to the company after university, only to be rejected and work for the Co-op instead
  • Finally joined as marketing executive 1979; appointed to the Board 1992; CEO 1997
  • Will hand reins over to Philip Clarke in March 2011.

Martin Wright is Editor in Chief of Green Futures.

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