Lessons from the frontline of corporate climate action
There were shouts and whistles, cheers and tears. It was December 2015 and something remarkable had happened. After a tortuous process of negotiation — and against the backdrop of major companies expressing strong support for climate action — almost 200 countries backed a global plan to keep global temperature rises well below 2°C and to pursue efforts to limit them to 1.5°C.
With what’s known as the Paris Agreement in place, countries had committed to nationally-determined plans to meet this goal, from cutting fossil fuel emissions and using more solar or wind power to putting a price on carbon pollution. Everyone celebrated.
Yet the level of emissions reductions required across most of the economy to meet the Paris goals in full — broadly cutting them in half by 2030 and reaching net zero emissions by the middle of the century — look challenging, to say the least.
Meanwhile, experience tells us that solving our biggest global problems won't happen through international treaties alone. Nor will regulation, though important, be sufficient to tackle climate change. And persuading the majority of citizens to commit to carbon reduction through personal austerity will be an uphill battle, if not impossible.
Some say enlightened self-interest is one of humankind’s most powerful motivators. If this is true, our best hope of preventing out-of-control climate change from having a catastrophic impact on lives, livelihoods and the natural world is to demonstrate the upside: to show how tackling carbon emissions can have a positive impact, not only on the planet but also on its people. What if fixing climate change could save money, create jobs and improve our lives?
This is where the private sector comes in. And in fact, it was the strong voice of companies that played one of the most significant roles in securing the Paris Agreement, helping give governments the support they needed to sign up.
In meeting the goals of the Paris Agreement, the private sector has a hugely important part to play. For without business creating products and services that have a lower environmental footprint, an increasingly prosperous global consumer base will have only one way of reducing their carbon footprint: putting a lot less stuff in the shopping cart (which seems unlikely to happen).
Supply chains follow a similar principle. For example, a cement producer or textile manufacturer will only be able to become more environmentally sustainable if the equipment the company needs to purchase has been redesigned to have a lower impact.
“Business will do the heavy lifting in the transition to a sustainable future,” says Tom Delay, chief executive of the Carbon Trust. “Policymakers, regulators, standard setters are all important as they establish the markets in which businesses operate. But at the end of the day, providing the products, services and infrastructure that people want and that is far less environmentally damaging is going to be done by businesses.”
For a corporate chief, this “heavy lifting” might sound daunting and the way forward uncertain. After all, a company in the financial services sector needs to take very different actions to address climate change from those required of a food processing company or a power generator. Then there are the basic questions. Where do you start? How far and fast do you go? How hard will the journey be?
The first question is relatively easy to answer: a journey towards becoming a low carbon business starts at home in a company’s own operations — those that take place within its own four walls. That means looking for energy savings in everything from corporate offices and vehicle fleets to factories and industrial processes, while also finding opportunities to buy or generate clean, renewable energy.
Answering the question, “How far and fast do you go?” is more complex, particularly when looking beyond a company’s own operations and into value chain sustainability. Companies must look upstream in their supply chains at the environmental footprint of the companies from which they purchase goods, services and raw materials. They must also consider what people then do with their products after sale.
The reality is that, for some companies, their biggest environmental impact occurs once their products are in the hands of consumers. This means flexing innovative muscles to come up with new technologies and sustainable business models.
Then there’s the question of how hard all this will be. If the experiences of the companies interviewed for this article are anything to go by, there are certainly challenges, particularly when starting from scratch. Even companies that are now making impressive strides in lowering their carbon footprint had to start somewhere.
Take Verizon. With an ambitious 2025 goal to cut its carbon intensity in half over 2016 levels, by 2017 the telecoms company had already delivered a 28 per cent reduction. Yet at the start of Verizon’s journey, James Gowen, head of its global supply chain operations and chief sustainability officer, remembers his reaction when he was called into the then CEO’s office to discuss creating a sustainability division. “I said, ‘Yes sir’,” he recalls. “It was the opportunity of a lifetime, but at the same time I knew I was taking on an enormous challenge without an easy answer.”
Companies must work to increase understanding of climate change and its impact on business. “One of the biggest challenges for us internally and with our clients is creating a greater level of awareness around some of these climate issues,” says Daniel Klier, group head of strategy and global head of sustainable finance at HSBC. “Because while we are becoming more familiar with ESG, greenhouse gases and the Paris Agreement, these are not things that every CFO, treasurer or banker is familiar with.”
Three or four years ago it was not so clear to everybody in our group how a changing climate in the second half of this century can impact today’s business and vice versa.
Thomas Fusshöller, thyssenkrupp
Internally, companies can also encounter resistance along the way. “Three or four years ago it was not so clear to everybody in our group how a changing climate in the second half of this century can impact today’s business and vice versa,” says Thomas Fusshöller, head of sustainability, environment and energy management at thyssenkrupp, a diversified German industrial conglomerate. “To get the organisation on board, all climate actions must be closely connected to the corporate strategy, as well as to internal and external stakeholder expectations.”
While low carbon products save money in the long run, companies need to grapple with getting the message out to their customers. “It’s hard to sell anything that’s more expensive up front,” says Mario Abreu, vice-president of sustainability at Tetra Pak, a leading food processing and packaging company. “Our customers are interested in reducing energy and costs, but they’re also interested in reducing initial capital investment.”
Meanwhile, a tricky balance must be struck between carbon-efficiency and growth, says Joan Krajewski, general manager of safety, compliance and sustainability at Microsoft. “We’re on track to meet our emissions reduction, but we really need to continue to make progress on buying more renewable energy, supporting government policies that encourage the development of renewable energy and expanding our R&D efforts in reducing our data centre carbon footprint,” she says. “It’s definitely a multi-headed programme.”
So, given the hurdles, why push on? The answer goes beyond the altruistic instincts of corporate leaders. A desire to behave responsibly is certainly a factor. However, leading companies have discovered that they can do the right thing for the planet and do the right thing for their company’s bottom line.
The potential rewards are manifold — from preparing operations to meet future environmental regulations to fostering innovation, attracting new customers and investors, or increasing appeal among talented recruits who want to work for a company that’s doing the right thing.
Often the rewards are in the form of cash savings. Take BT, the UK-based telecoms giant. In 2018 alone, the company saved £28.7 million on its fuel and energy bill adding to a total saving of £250.7 million since it started its energy-saving programme in 2008/9.
When you put together the emissions savings of thousands of other companies doing similar things, this soon adds up. This is clear from data collected by CDP, the global non-profit whose global disclosure system enables companies, cities, states and regions to measure and manage their environmental impacts.
Through CDP’s supply chain programme, almost 100 of the world’s largest companies, with US$3 trillion in purchasing power, collected data from more than 4,800 of their suppliers in 2017. These suppliers reported emissions reductions equivalent to 551 million tonnes of carbon dioxide — more than Brazil’s total emissions in 2016, with cost savings amounting to US$14 billion.
Then there’s what we see around us — hotter temperatures, more extreme weather events and ecosystems that are being degraded. Something is clearly happening to our climate and we need to address it urgently.
This has helped to inspire around 500 companies to support the implementation of the Paris Agreement by adopting their own science-based targets. These allow companies to set greenhouse gas emission reduction goals that are in line with climate science (the Science-Based Targets initiative helps companies to set the right goals and highlights best practices). And these goals can go beyond the minimum viable level of ambition. For example, BT worked with the Carbon Trust to become one of the world’s first companies to set a science-based target aligned with a 1.5°C pathway.
With many having tied their ambitious climate strategies to the best available climate science, the corporate leaders interviewed for this article demonstrate that while there are challenges in working to reduce the carbon footprint of an enterprise, they are not insurmountable. Addressing climate change helps tackle a number of other environmental challenges and resource constraints, while also uncovering opportunities to make a business more resilient and competitive.
Sustainability starts at home
Before embarking on any journey, people like to make sure their house is in order. It’s no different with the process of setting out to become a low carbon company. Leaders stress that reaching for those low-hanging fruits — an inefficient HVAC system, computers that are not powered down at night — may not seem that exciting but can provide easy wins that then inspire people in the enterprise to do more.
But before embarking on energy reduction, companies need to establish what they are currently using. A common pattern can be seen among companies that have developed carbon-reduction strategies, says Sonya Bhonsle, head of supply chain at CDP. “Step one is benchmarking and disclosing — calculating the emissions in their own operations,” she says. “Then they set a soft target, embark on activities to reduce their emissions and then move to something more forward thinking — setting targets that are aligned with science.”
You talk to your own people in your own factories about something they do every day. I’m not saying it’s easy, but it’s probably the most direct and straightforward strategy you can start with.”
Eric Soubeiran, Danone
This approach is something that Eric Soubeiran, global nature and climate director at the food company Danone, recommends. “You talk to your own people in your own factories about something they do every day,” he says. “I’m not saying it’s easy, but it’s probably the most direct and straightforward strategy you can start with.”
Of course, energy efficiency can be laborious — a matter of scouring every corner of factories and workstations, heating and cooling systems, looking for savings here and there. And while LED lighting, motion detection sensor, smart meters and other technologies can help, the human factor is also important to address.
“We’ve had campaigns where someone goes around and puts a sticker on peoples’ screens if they haven’t turned it off,” says Gabrielle Ginér, BT’s head of environmental sustainability. BT, she says, also appoints energy champions with responsibility to look around for savings.
It helps that the payoffs are relatively fast. Energy saved and emissions saved also means money not spent, as thyssenkrupp has found. With annual energy consumption of the continuing operations of more than 70 terawatt hours, energy efficiency makes a lot of business sense for the company. Through measures such as improved use of waste heat, reduction of standby times and replacement of inefficient plant components, it achieved efficiency gains of 330 gigawatt hours in the group’s fiscal year 2016-2017, exceeding its goal of 125 gigawatt hours. This allowed it to avoid more than 100,000 tonnes of greenhouse gas emissions while also saving money.
Yet as Danone’s Soubeiran argues, the benefits of this approach go beyond cost savings. Enabling employees to become energy champions will help once the company starts to work with suppliers when looking outside its own four walls for savings. “You make your own people advocates of the climate trajectory,” he says. “You raise awareness, you have the efficiency discussions and you have the savings. It’s a triple win.”
While many argue that more work can be done to increase energy efficiency, at some point this cannot be the only strategy that companies use. Achieving low or no-carbon operations also means finding clean sources of power — wind power, solar and other forms of renewables. However, companies can only do so if there is enough renewable energy to go around and at a price that makes business sense.
In places where the supply is insufficient or too expensive one solution is to build your own generation plants. This is something Tetra Pak is doing by installing solar panels on the roofs of its plants where possible. As a result, its factories in Sweden, Denmark, Finland and South Africa now use electricity from 100 per cent renewable sources and 17 of its most important sites now run exclusively on renewable electricity.
Where this is not possible, it purchases international renewable energy certificates. “We believe I-RECs are strong mechanisms to guarantee that, in places where we can’t generate renewable energy ourselves because of lack of space or supply, we can buy certificates from other operators who are producing renewable energy that would otherwise not be placed in the market,” says Abreu.
In the end, critical mass may be what solves the problem. For example, a growing number of companies are signing up to RE100, an initiative through which leading companies have committed to making 100 per cent of their power use from renewables. Those behind the initiative — The Climate Group in partnership with CDP — hope that not only will this increase the use of clean energy but that the global appetite of large businesses will create new demand, expanding the supply and bringing down prices. “The capacity for buyers to influence emissions is enormous,” says Bhonsle.
The second step in a low carbon strategy is to work with suppliers to cut their carbon emissions (these are classified as part of a company’s scope 3 emissions under the GHG Protocol Corporate Standard). For many companies — from food manufacturing to civil engineering and pharmaceuticals — this is where their greatest environmental impact takes place. And it often starts with difficult conversations.
First, companies that want to address the carbon emissions generated outside their own operations need to shift a mind-set that until recently prevailed — that, beyond cost, quality and efficiency, what happens outside the enterprise does not matter. This involves everything from discussions with leaders to education programmes for staff.
“You have to go out of a purely linear way of looking at things,” says Soubeiran of Danone. “That is, I buy something from a supplier and sell it to a customer. I’m responsible for what happens in between but I don’t know what happens before and I don’t care what happens after—this is changing the way of thinking.”
This means having conversations with suppliers to explain the changes and the rationale behind them. This is something BT had to do when it introduced specific terms on carbon reduction to its supplier contracts. Huawei was the first supplier to pilot this new contract clause and it did not take long before the Chinese telecoms equipment maker saw the benefits of working with BT on environmental efficiencies.
For example, when BT encourages suppliers to reduce the size of their electronic products, this lowers transportation costs for the supplier. Moreover, working with BT on efficiencies gives suppliers a head start when other customers start asking questions about carbon emissions. “And companies tend to become converted when you start to talk about sustainability,” says Gabrielle Ginér, BT’s head of environmental sustainability.
For this reason, BT set up its Better Future Supplier Forum to share best practice with suppliers and offer training and technical support as they make the transition to low-carbon ways of doing business. To put momentum behind the programme, the company assessed each supplier, giving them a rating from bronze to gold. “We wanted this programme to inspire suppliers about sustainability and innovation,” says Ginér.
Verizon also finds the rating system a useful one in bringing suppliers up to speed as they embrace sustainability strategies. The company uses a third-party platform to score its suppliers’ performance in areas such as the environment, as well as fair labour and ethical business practices.
“When it comes to suppliers, particularly outside the US, there can be a lot of opportunities but change can take time, because they’re not governed by the same rules and regulations we have in the US,” says Gowen. “Some have been great, but the conversations aren’t always easy and we need to work with suppliers at all stages of their sustainability journeys to try and move forward together."
When weaknesses are identified, Verizon helps suppliers to create action plans to improve their performance. And in one case, a difficult decision had to be made that resulted in the company walking away from a supplier.
The first step is trying to understand what our operating baseline is and establishing systems to monitor suppliers’ greenhouse gas emissions. That may sound simple but when you’re dealing with thousands of suppliers all over the world, it’s not so easy.”
Joan Krajewski, Microsoft
The other big challenge for companies when working with suppliers on carbon reduction is one of sheer numbers. “The first step is trying to understand what our operating baseline is and establishing systems to monitor suppliers’ greenhouse gas emissions,” says Microsoft's Joan Krajewski. “That may sound simple but when you’re dealing with thousands of suppliers all over the world, it’s not so easy.”
The answer for Microsoft has been to look for help. It asks all its suppliers to report, not to the company itself, but to CDP through its global disclosure system. “This type of information is really valuable to us and provides us with assurance that they’re following best practice with respect to emissions and future opportunity for improvement.”
The company also recognises that many suppliers may need a helping hand, particularly those that have never been through the disclosure process before or that operate in countries where regulatory frameworks on climate change are weak. Microsoft helps them by performing energy audits and helping suggest improvements. “Rather than cutting them off early on, we try to build up their capability and muscle,” says Krajewski.
Abreu says that Tetra Pak has had similar experiences, with different levels of sophistication in the approach of its suppliers to carbon reduction. “Some were active in looking at carbon and some were a bit unaware of what was happening in their value chain,” he says. “But working with them to understand their carbon footprint led them to make decisions they might not have otherwise have made and to set targets.”
For Microsoft, the benefits of working with suppliers have been encouraging so far. Collectively, the company’s supply chain partners have reduced their carbon emissions by more than 5 million tonnes year-on-year, or a 2 per cent reduction.
As Microsoft and others have found, working upstream in the supply chain to address carbon emissions might be challenging, but is an important part of a company’s approach to reduce its impact.
And there is an additional benefit: scrutinising operations for carbon savings turns out to be a good general business discipline, helping identify better ways of doing things. “The lens of carbon impact forces you to analyse your supply chain and ask what can be done better,” says Soubeiran. “It means you look at the business in a different way.”
When HSBC talks about its internal operations, its carbon reduction programmes — reducing waste, consuming less paper and water, and using more renewable energy — might not seem remarkable compared to those of other companies. After all, the bank’s offices have a tiny environmental footprint by comparison with some industries. But when talking about its clients, the real scale of the bank’s opportunities quickly becomes apparent.
“Financial services has a fundamental role to play because we have the ability to direct financial flows,” says HSBC's Daniel Klier. Provision of finance, he says, will be critical in meeting global carbon reduction targets. “We need the numbers — one often quoted is that it will take US$90-100 trillion of investment into sustainable infrastructure to deliver the Paris Agreement.”
To contribute to this, the bank in November made a commitment to put US$100 billion into the transition to a low carbon economy through a combination of its balance sheet, its asset management, through the bond market and by launching new financial products such as green loans and ESG loans.
It is also taking new models of sustainable finance into new territories. For the Indonesian government, for example, it has issued the world’s first green sukuk bond (the sukuk is the standard format for Islamic finance) and it is working with Chinese banks and other institutions that are going around the world to open markets in green panda bonds (RMB-denominated products from non-Chinese issuers sold in mainland China).
Financial services has a fundamental role to play because we have the ability to direct financial flows
Daniel Klier, Group Head of Strategy and Global Head of Sustainable Finance, HSBC
“Our ambition is to bring the green concept into new markets and establish standards that can be adopted by others,” says Klier. “The green market at the moment is very European and there’s good market development in domestic China. The question is how we can take that to other corners of the world — that’s one of the big roles we can play.”
If HSBC is spreading access to green finance to its clients, others are redesigning their products to help consumers make more sustainable choices. Microsoft, for example is working to design all its devices so that they have a minimal impact on the environment in their use of materials. For all its new products this year, the company has been able to take 20 per cent out of their weight.
Microsoft is also finding ways to make carbon emissions savings in packaging, shrinking the volumes of material used for its new product packaging by 3 per cent. “You might think that doesn’t have a lot of impact, because it’s just material,” says Krajewski. “But year-over-year for all new programmes, the greenhouse gas associated with those programmes has decreased by 29 per cent, so taking what are seemingly small steps makes a really big difference.”
Of course, the challenge is what to do with products at the end of their lives. The problem is that being able to recycle products or reuse their materials relies on consumers returning them.
One solution is to extend the life of products, something Microsoft is doing by making it easy for consumers to fix products, rather than replace them. It offers a free service diagnostic tool to fix common software and settings issues, as well as repair programmes for devices both in warranty and out of warranty.
Meanwhile, Verizon has focused on building an efficient reverse logistics system, enabling it to maximise the number of devices, from mobile phones to routers, that it can recover and reuse or recycle. With RFID tags on more than 24 million devices and 7,000 of the vehicles in its fleet equipped with RFID technology, it can track the number and types of devices being collected and how fast they are recovered and returned into use.
“At any given time I can tell what’s in the technician’s truck down to the firmware and the serial number,” says Gowen. “I can tell when it gets back to the depot, when it gets back to our staging location, where it goes through clean and screen. I have a target of 11 days from customer deactivation to getting it back in the forward logistics.”
This has enabled the company to put thousands of its devices back into use. For example, six out of 10 of its routers have been used at least once before. “Think about the cost avoidance and the reduced impact on the environment,” says Gowen.
As consumers become more interested in the environmental impact of the things they buy, some products can also be used to spread the message.
Danone’s flagship natural mineral water, evian will by 2020 become the first of the company’s brands to achieve carbon neutrality on a global basis. It has already achieved this status for all products sold in North America and communicates this to customers through the use of the Carbon Trust’s footprint label on its packaging. Danone also runs educational online campaigns with the media to help consumers better understand the importance of recycling in support of its ambition for all evian bottles to be made of 100% recycled plastic by 2025.
The company has made significant reductions in evian’s carbon footprint through transforming its bottling site in France, which is now powered entirely by renewable energy and has a private railway station to enable substantially lower carbon logistics. Remaining emissions are offset by carbon credits purchased through the Livelihoods funds. “This is an important signal about what we want to do as a business, because evian is one of our best-known brands,” says Soubeiran. “The more brands you have like this, the more options you offer to the customer to vote for the world they want to live in.”
In moving to a low carbon economy, companies have plenty of tools at their disposal, from new technologies to alternative sustainable business models. However, there is growing recognition of the importance of a critical element in the climate action journey — the human factor. Thinking about the way an enterprise is organised and how it rewards its workers and executives is an essential part of meeting carbon reduction goals.
Too often, a siloed mentality can be the biggest barrier to progress. A simple example is the fragmentation of accounting where cost structures are not aligned with revenue centres. If the business unit that is investing in energy efficiency or renewable energy does not reap the financial or environmental returns, it will be hard to align organisational goals and effectively manage carbon emissions across the enterprise.
This has been highlighted in the US by Climate Corps, a business student internship programme run by Environmental Defense Fund (EDF), a US environmental group that places students in companies to identify energy efficiency opportunities. As part of the programme students often get to move from department to department taking a holistic picture of an enterprise’s energy footprint. The results are striking. Since 2008, when the programme launched almost 1,000 graduate students in more than 450 organisations have identified more than US$1.5 billion in energy saving projects.
Incentives are important, too. At Verizon, for example, a component of the annual bonus is based on reductions in carbon intensity. Within the sustainability function, performance is tied to specific goals, such as diverting waste or reducing water usage. “Now it’s in everyone’s performance agreement, and all of a sudden I have 140,000 people caring about sustainability,” says Gowen.
Now it’s in everyone’s performance agreement, and all of a sudden I have 140,000 people caring about sustainability.
James Gowen, Verizon
Companies also need to build capacity internally through training programmes and the dissemination of information about climate action. “There’s a big element of creating awareness and equipping people with the right learning materials to be able have these conversations with clients,” says HSBC's Klier.
The good news is that sustainability initiatives can be a way of engaging employees. “When we ask people about pride in BT, we get very positive feedback about sustainability,” says Ginér. “It comes down to people — and people that work on this tend to be personally very passionate about it.”
And if employees represent a powerful cohort driving the sustainability agenda, so do investors. “In the past 12 months, the active participation and involvement of our investors is increasing,” says Fusshöller of thyssenkrupp. “And these investors are really well prepared. They already know what we are doing in energy efficiency, our total carbon footprint and the CDP data we disclose, and on that basis we have a relatively deep discussion with them.”
But whether driven by employees, investors or company goals, with the help of digital technologies, renewable energy, collaborative initiatives and new sources of data, companies have what it takes to make a significant contribution on the road to a low carbon economy.
The sticking point in many places is not the technology or the business case, but a lack of political will. “Businesses want to act, they see the value that’s on the table and they understand the steps they need to take to make the transition,” says the Carbon Trust's Tom Delay. “But for them, one of the biggest barriers is the policy framework. Businesses want to know the rules of the game. What they need is a clear policy direction and a predictable timeframe.”
Looking at the progress made by leading corporations, and how they have tied business success to a low carbon strategy, it becomes clear that business action on climate change can make a real difference.
As the organisations in this article demonstrate, a good corporate sustainability strategy is also one that puts a company on the road to financial success. Yet these are the companies we hear about and just because the leaders are making good progress does not mean the path ahead is clear.
Many others are still not acting, and much more work still needs to be done to transform markets, reinforcing the message that, beyond the immediate benefits, climate action helps companies future-proof their business models and enhance their global competitiveness.
Making this sustainable business case in a compelling way and with the right policy support in place, the private sector can take the front foot in leading countries on their journey to a low carbon economy — one that delivers stability, long-term growth and sustainable livelihoods for all.
Established in 2001, the Carbon Trust works with businesses, governments and institutions around the world, helping them contribute to – and benefit from – a more sustainable future through carbon reduction, resource efficient strategies, and commercialising low carbon businesses, systems and technologies.
Words: Sarah Murray