S03E08 - Planet - Net-Zero Made Simple: A Practical Guide for Small to Medium Enterprises (edited transcript)
DANIEL
Hello, and welcome back to the Supply Chain Dialogues. My name is Daniel Helmig, and I'm joined again by my AI co-host AImee.
AIMEE
Hi, everybody.
DANIEL
So, let's assume you work in a medium-sized to small company and know that you need to get started on achieving net-zero GHG emissions. Regulations require it, customers ask for it, and even your family and friends, at least the younger generation, ask what’s happening in your company.
Unlike large corporations, you have few experts to analyse the situation and recommend what to do. And you have a healthy apprehension about using consultants. Are you tired of exhausting conversations about half-truths and just want to get done with it and get to regular business?
We got your back: Today, we give you a full tour de force in exceedingly detailed segments. First, we focus on the different scopes of GHG emissions. In segment two, we give you a general direction on how to get started. In the final segment, we go deep into each category and subcategory to get to net zero. Here, we do not stop at simply listing what can be done but also discuss how to do it.
Call it a free-of-charge DIY guide to getting things done. First, we recommend listening to this episode. Then, if you agree that there is some meaningful help given in this audio format, you can read the written transcript on our website under this episode. And - a tip for all people who struggle a bit with English, especially the one that we speak 🙂: Copy the transcript and translate it via Google Translate or ChatGPT and its AI cousins into your language. You can even ask some of them to read it to you in your language. You will be surprised how good many of the voices are already, listen to AImee.
AIMEE
Thank you.
DANIEL
And: Voila! You have your plan and can get started. You’re welcome.
So, grab coffee, put on the kettle, settle into your car seat - or if you are the active type, slip into your training outfit, and let’s get started.
Segment 1: Understanding GHG Emissions Scopes
DANIEL
"Alright, let's launch into our first of three segments. We start with an overview of GHG emissions scopes. Understanding these scopes helps because they form the backbone of how companies measure, report, and strategise their carbon footprints. The Greenhouse Gas Protocol, a widely used international accounting tool, classifies emissions into three scopes. This classification helps organisations set systematic goals to reduce their environmental impact. Now, let’s break them down.
AIMEE
Scope 1 encompasses direct emissions from sources that a company owns or controls. This includes emissions released from company facilities or vehicles—think of it as the emissions that occur right in your backyard. Examples include emissions from burning fuel in a company's fleet or emissions from industrial processes like chemical production."
DANIEL
"Scope 1 is about direct control and immediate impact—the emissions you can see. What about Scope 2?"
AIMEE
Scope 2 concerns indirect emissions associated with producing via purchased energy, such as electricity, heating, cooling, and steam. While companies don’t directly produce these emissions, the generation of the energy they consume does. It's like drawing on resources from afar—the energy flows into your operations, but the emissions are on another site’s books."
DANIEL
Scope 2 emphasises how energy choices influence overall carbon footprints. And it brings us to the expansive Scope 3.
AIMEE
Scope 3 includes all other indirect emissions in a company’s value chain. This is often the most complex and significant scope, covering everything from purchased goods and services, transportation and distribution, waste disposal, and business travel. It extends beyond your operations to every corner of your business activities. These emissions are generally between 65-90% of a company's total emissions. Unfortunately, legislation and regulations focus more on the minor scopes 1 and 2, which are easier to control but less impactful.
DANIEL
"Scope 3 can initially seem daunting due to its breadth and indirect nature. However, it’s where businesses can have a massive impact through creative solutions and collaboration. Every product bought, every journey taken, and every mile travelled has a footprint. Understanding these nuances is vital as we minimise our environmental impact.
With a clear understanding of these scopes, we can effectively explore strategic initiatives to target emissions reductions. In the next segment, we'll dive deeper into each scope and discuss concrete steps towards a net zero status.
Segment 2: Understanding the culprits and getting started…
So, now let's go to SEGMENT 2, where we deep-dive into each scope to talk about first ways for reduction. In Segment 3, we peel the onion further and provide detailed tips and hacks to get to net zero in each scope.
We start with Scope 1: direct emissions. As mentioned, these are emissions from company-owned or controlled sources representing a business's direct carbon footprint.
Scope 1 emissions are the ones your company has the most immediate control over. Let’s outline some familiar sources of these emissions."
AIMEE
Scope 1 emissions often come from the combustion of fossil fuels in company facilities and vehicles. Think of Natural gas used for heating buildings or powering industrial boilers or Diesel fuel used in emergency generators. In mobile combustion, we look at Gasoline and diesel used in company car fleets and Fuel used in company-owned ships, planes, or industrial trucks. Then, we have process emissions, such as emissions from manufacturing processes or fumes released during on-site industrial activities. There are also other emissions, but I will leave them here for now.
DANIEL
Addressing these emissions is crucial for companies striving for sustainability. Let’s talk about strategies organisations can employ to reduce Scope 1 emissions on their journey towards net zero.
One of the most effective strategies is transitioning to renewable energy sources. For instance, replacing traditional gas boilers with electric alternatives powered by solar or wind can drastically reduce emissions.
AIMEE
Another impactful strategy is enhancing energy efficiency within operations. This can include optimising routes for delivery trucks to reduce fuel usage or implementing energy management systems to monitor and control energy consumption in facilities."
DANIEL
Businesses can invest in new technologies like electric or hybrid vehicles to replace older, more polluting models. This transition can be phased over time but significantly impacts the long run.
Furthermore, industrial-process emissions can be tackled by investing in cleaner, more efficient systems or retrofitting existing equipment to reduce energy use and improve performance."
AIMEE
"Lastly, regular maintenance and tuning of equipment are crucial. Ensuring all machinery operates optimally can prevent unnecessary emissions and improve lifespan, reducing overall environmental impact."
DANIEL
"By focusing on these practical steps, companies can lower their Scope 1 emissions and position themselves on the path to net zero. You will have noticed that every solution has as well the opportunity to reduce cost in your shop, so two birds with one stone if done with a bit of upfront thinking..
Now, it’s time to spotlight Scope 2: indirect energy emissions. These emissions come from generating the electricity, heating, cooling, and steam businesses purchase and consume. While not directly produced by the company, they are a significant aspect of the carbon footprint.
Let's discuss how companies can measure and manage their Scope 2 emissions."
AIMEE
Measuring Scope 2 emissions begins with understanding and tracking energy consumption. This involves analysing utility bills and identifying where and how much energy is used. Most organisations utilise energy audits as a critical tool to identify inefficiencies and areas with potential savings."
DANIEL
Once a company has a clear picture of its energy use, the next step is to implement energy management systems. These systems track real-time consumption, and help set benchmarks and targets for energy reduction.
AIMEE
"Transitioning to renewable energy sources like solar, wind, or hydroelectric power can significantly reduce Scope 2 emissions. Companies might consider purchasing green energy from utilities or investing in on-site renewable energy installations. Power Purchase Agreements (PPAs) and Renewable Energy Certificates (RECs) are also popular methods to ensure that the energy consumed is offset by renewable generation."
DANIEL
"And let's not forget energy efficiency, which is crucial alongside renewable transition. Simple measures such as installing LED lighting, optimising HVAC systems, and using energy-efficient appliances can drastically reduce energy demand. For many companies, this is the low-hanging fruit for reducing emissions and operational costs."
AIMEE
Combining renewable energy with robust energy efficiency measures creates a powerful synergy. This approach reduces emissions, boosts resilience against energy price volatility, and enhances energy security. Plus, it presents an opportunity to showcase corporate responsibility and innovation to stakeholders and customers."
DANIEL
So, up to now, if you get the changes we discussed, you already work on complying with the respective laws and regulations. If you break it down, it isn’t that much work. I am always astonished how much time the legislator gives the companies to do this. If you recall the last podcast, where we painstakingly looked at the climate-related events in this year and last year alone, one might think that governments would protect us better by ramping up the timelines for companies.
Well, there is the circle of concern and the circle of influence. We will focus now on Scope 3 to give you tips in our circle of influence. Often the most challenging to tackle, Scope 3 emissions encompass the broader impact of a company’s entire value chain, including upstream and downstream activities.
Why are these emissions so complex, you ask? It’s because they're spread across various stages and involve numerous entities beyond the company's direct control. Let’s unpack what Scope 3 includes."
AIMEE
Scope 3 emissions capture a wide range of activities such as transportation and distribution, both of products you buy from suppliers and those you send to customers. It also includes waste generated in operations, purchased goods and services, employee commuting, business travel, and even the emissions tied to the lifecycle of the products you sell, from production to eventual disposal or recycling."
DANIEL
"As you can see, the interconnected nature of these activities makes Scope 3 particularly complex to measure and manage. It's about understanding your total environmental impact, which ultimately requires collecting data from various external sources. Today, there are enough companies out there that do an excellent job of helping you get this done. I occasionally worked with carbmee, a company in Germany that does this excellently, and no, I am not getting paid to say that. They are just a bunch of excellent, driven people that support some of the best companies in Germany and Europe, many world-renowned brands.
Back to the topic: AIMEE, what are some practical approaches for measuring and reducing Scope 3 emissions?"
AIMEE
"To start, a business must gather detailed data and establish comprehensive reporting frameworks. This often involves working closely with suppliers to collect data on carbon footprints and encouraging transparent reporting. Many companies adopt sustainability software solutions or platforms that facilitate this data collection and reporting, like Daniel pointed out.
Once you have the data, focusing on reduction efforts is critical. One approach is encouraging suppliers to adopt more sustainable practices—by implementing green procurement policies, you can significantly reduce emissions across your supply chain."
DANIEL
Another strategy involves optimising logistics—this could mean improving the efficiency of transportation networks to cut down emissions or adopting more sustainable packaging solutions to reduce waste. Additionally, promoting sustainable behaviour among employees, such as incentivising public transportation or virtual meetings over business travel, can help curb Scope 3 emissions.
AIMEE
Collaboration is crucial here. Forming partnerships and engaging in industry-wide initiatives can amplify efforts exponentially. Consider joining sustainability networks or alliances where best practices and innovations are shared to tackle these emissions collectively."
DANIEL
While Scope 3 may seem overwhelming due to its scope and complexity, it also presents the most significant opportunity for businesses to make long-term, meaningful impacts on sustainability.
So far, we've explored the intricacies of GHG emissions scopes, and now it's time to turn our focus towards the ultimate goal: Achieving net zero emissions. Transitioning to net zero is no small feat; it requires a strategic approach, innovative technology, and collaborative efforts. Let's explore the path forward.
AIMEE
Before we do this, let’s get some grounding on some facts the listeners might not know. I would like to cover the cost and efficiency of solar panels and wind turbines and then provide some info about the size of the cost problem we are trying to solve. All of this will be good news.
DANIEL
Sure, let’s start with solar panels.
AIMEE
The cost of solar panels, including commercial installations, has decreased substantially over the past decade. Since 2014, there has been a 70% reduction in the cost of commercial-rooftop PV systems. A large portion of the cost decline can be attributed to a dramatic decrease in solar module prices. In 2014, the price per watt for a solar panel was around £2.50. By 2024, this figure had dropped to approximately £1.50 per watt, representing a decrease of about 40% over this period. The installed price of solar systems, including commercial ones, also dropped by 26% from 2013 to 2022. This reduction applies to the entire system, not just the panels themselves.
By 2024, solar PV had become an attractive proposition for commercial users partly due to these cost reductions and partly due to high energy prices.
DANIEL¨
What happened on the cost and efficiency side of wind energy?
Aimee
Wind energy costs have decreased dramatically since 1980, from over 55 cents per kilowatt-hour (kWh) to under 3 cents per kWh in the United States for example.
The cost reduction trend has continued in recent years, making wind energy increasingly competitive with traditional energy sources. Let's look at some facts: The average capacity factor, which measures power plant productivity, has risen from 22% for turbines installed before 1998 to nearly 35% today. Since 1999, the average turbine generating capacity has increased significantly. Turbines installed in the last few years averaged 2.15 MW in capacity. The future also looks bright: A recent study suggests that near-commercial wind turbine innovations could unlock an additional 80% economically viable wind energy capacity as soon as 2025. Technological advancements like longer blades, taller towers, and low-specific power turbines are expected to make wind power feasible in regions previously considered unsuitable.
All these developments demonstrate significant progress in reducing costs and improving efficiency in wind energy technology over the past decade, with promising innovations on the horizon for continued advancements. Nothing stays the same, and more innovation is highly probable with the investment poured into these renewable energies.
DANIEL
You also mentioned the size of the problem we are trying to solve. What did you mean?
AIMEE
Many people see net-zero in Scope 1 or 2 as a significant cost problem. This is fascinating since it has nothing to do with facts. Companies' reluctance to engage does not compute.
DANIEL
So, what are the facts?
AIMEE
You know about product cost estimation and cost breakdowns, right? For those who are not familiar with it, here is a short explanation: Cost estimating is the process of forecasting the financial and other resources needed to complete a project or a product within a defined scope and schedule. A cost breakdown structure allows companies to itemise different product or project costs for each life cycle stage, often using methods such as analogy, parametric, engineering, or actual cost estimation, depending on the project's maturity and available data.
DANIEL
I know cost estimating and cost breakdowns well. We used them mainly in the automotive industry to understand the probable cost of the products and services we were buying. They were also helpful in tear-down workshops, where you took competitors' products apart and estimated the cost for each part. We were pretty good with them and could get down to 1-3% of the actual cost of a product.
AIMEE
Now, when you were cost estimating products, what was the average percentage that energy cost played in a discretely manufactured product?
DANIEL
Negligible: The energy cost, except for steel or aluminium as an end product, was in the range of 1-3%
AIMEE
Now, what would you say if a supplier came to you to tell you that they needed to increase their prices since they moved to renewable energies, and the cost went up overall?
DANIEL
Firstly, I would be annoyed that the supplier would think that little of our competence in this matter. Next, I would ask them what the increase in cost (OPEX and CAPEX) is in their mind. Then, we would look at the overall cost of their energy in the product. In the end we would come to a delta of maybe 0.3 to 1%, although if done right, the cost should be the same or lower in most countries. Maybe, except in China, where all energy is so strongly subsidised. In any case, I then would look at them and would give them three measures that any good company could take to compensate for these cost increases. First, I would be astonished if they did not have internal efficiency targets of 3-5% yearly. Next, I would recommend optimising their layers and ask them finally, in today's world, how they used AI to streamline processes in their back offices. All of this should give them more than enough opportunity to compensate for this slight cost increase, which can be avoided if managed from the beginning effectively.
AIMEE
Thank you, Daniel. You provided precisely the facts that I think many companies do not fully comprehend when discussing Scope 1 and 2 net zero achievements. The cost, as you say so often, is chicken manure.
DANIEL
Well, I use a different word with chicken, but let’s keep this podcast clean. There is another factor to reduce the potential cost increase for investments into GHG neutral equipment or processes: Subsidies. More and more governments see it as necessary, to provide tax credits or hardcore subsidies to companies that move to sustainable production. In Germany as an example, the government provides in under their CLIMATE Protection Contracts act currently 15 companies subsidies up to 2.8 Billion Euro. So, don’t be shy to look out for yourself. From a taxpayer perspective it is at least a subsidy that tries to secure a liveable future for the next generations / much different than some of the shenanigans our governments pay for with our taxes.
Segment 3: Getting to net zero - for real
So, equipped with all these facts, let’s tackle each scope net zero item by item.
Where do we start?
AIMEE
We start at Scope 1 and here with the Electrification of Manufacturing Processes. Companies can replace fossil fuel-powered equipment with electric alternatives, especially for low and medium-heat processes. As mentioned, efficiency has increased, and cost has decreased significantly.
DANIEL
Depending on the local electricity mix, this can reduce operational emissions by up to 90%. Examples include switching to electric furnaces, boilers, and heat pumps for space and water heating.
AIMEE
Next we look for Energy Efficiency Improvements: Upgrading or replacing existing manufacturing equipment with more energy-efficient models can help a lot on the road to net zero. Additionally, implementing advanced process control systems and energy management systems to optimize energy use, while conducting regular maintenance and repairs to ensure equipment operates at peak efficiency.
DANIEL
We then have renewable Energy Integration. For example, you can install on-site renewable energy systems like solar panels or wind turbines to power manufacturing operations. This can significantly reduce reliance on fossil fuels for stationary combustion. And why not consider combined heat and power (CHP) systems using renewable fuels for both electricity and heat generation?
Transitioning to Low-Carbon Fuels can also help if you use a lot here. So, for processes that cannot be easily electrified, switch to lower-carbon alternatives like biomass, biogas, or green hydrogen. You can as well implement biodiesel or other biofuels for any company-owned vehicles or machinery. I am pretty sure that locally you have providers who would love to have a corporate client in their portfolio.
AIMEE
Next is the topic of Fugitive Emissions Reduction: Try to minimise leakages from refrigeration systems and other equipment that use high global warming potential gases. Replace high-GWP refrigerants with lower-emission alternatives like CO2-based or propane-based gases.
Finally, rigorous maintenance and monitoring programs should be implemented to detect and repair leaks quickly. A leak in your production process or your products can attract unwelcome media attention that no one needs these days.
DANIEL
Not so difficult if you take it one by one. Let’s use the same approach as Scope 2 to get to net-zero. So, AIMEE, what shall we do for Scope 2?
AIMEE
Five main topics can get Scope 2 to net zero:
First: Switch to Low-Carbon Energy Suppliers: Choose energy suppliers that invest in and provide renewable energy sources. This can quickly reduce Scope 2 emissions without changing business practices or improving energy efficiency. If your local provider is not there yet, use Power Purchase Agreements, also called P.P.A’s. Sign contracts with power producers to purchase renewable electricity at agreed prices for set periods. This can provide access to renewable energy even when on-site or near-site generation is not feasible. PPAs can produce up to 90% less CO2 per kWh generated compared to conventional sources.
DANIEL
Beside these two measures, look at Energy Efficiency Measures: Upgrade to energy-efficient equipment and lighting systems, optimize heating, ventilation, and air conditioning (HVAC) systems and iImplement energy management systems to monitor and control energy use.Sounds familiar? Sure it does, since while scope 1 and 2 is defined slightly differently, the solutions are often the same. Hence you will not be astonished that as well here On-Site Renewable Energy Production will help you on your way to net-zero: Install solar panels or other renewable energy systems on company premises. This can as well significantly reduce reliance on grid electricity and associated emissions, because, let’s face it, the grids are not longer as stable as our governments try to make us believe. So, consider options like rooftop photovoltaics (PVs) which can result in up to 90% lower CO2 emissions per kWh.
AIMEE
Finally, the fifth dimension to get to net zero in Scope 2 is to improve Building Efficiency:
Check and enhance insulation in manufacturing facilities and offices. Implement smart building technologies to optimize energy use. Daniel’s old employer, ABB, and its competitors have brilliant solutions here. Finally, use passive solar design and natural lighting where possible to reduce energy demand.
DANIEL
Let’s continue our tour de force through all scopes and what we can do to get to net zero in each of them. Now, let’s look in detail into scope 3 and what it takes there.
AIMEE
To achieve net-zero greenhouse gas (GHG) emissions in Scope 3, companies need to address each of the 15 categories defined by the Greenhouse Gas Protocol.
DANIEL
I start with my favorite, and as well the biggest portion in most Scope 3’s in companies: Purchased Goods and Services:
First and foremost, you have to implement sustainable procurement policies. Without a clear plan and actual results, we will say bye-bye by 2030. Clearly, you need to do the homework to find another viable and climate-neutral supplier, but come on, it is still six years until then.
To get the results you want, engage suppliers to reduce their emissions. Studies show that just sending your suppliers a questionnaire does not get them where you want them. Work together—collaborate—but instead of building internal sources, point the suppliers to readily available material on the web and good suppliers to help them (again, a nod to carbmee, the German company that can work with all of your suppliers).
When we look internally, the next one needs some help from other departments beside the customers of the suppliers we talked about: You can switch to low-carbon or recycled materials - an excellent project for your younger R&D personnel to earn their spores. Have them work with their young counterparts in manufacturing, procurement, supply chain and sales. Besides doing the right thing, you will form networks in the company along the value chain that hold for years. Let’s remember: more will happen, you need these networks for agile solutions.
Give R&D and your design departments clear guidance on optimizing product design for sustainability. This sounds more complicated than it is. Have two people in your R&D understand the typical dimensions around design for sustainability. Let them teach the rest of the team, including the design team. Then, do a design competition with prices: gamification will work like a charm—set conditions like cost-effectiveness (maybe even cheaper), innovation, ease of manufacture, etc. Provide time in the respective quality and testing departments.
AIMEE
Let’s talk about the following scope three subcategory: Investments or CAPEX. Invest in energy-efficient equipment and machinery. Be sure to look beyond your current suppliers: evaluate the global markets here. The probability is high that your historic suppliers cling too much to the olden ways. Look for new and fresh yet established companies with reasonable solutions. Taiwan, China, Japan, the USA, and Germany might be alternative locations to consider. Or even better, talk with your equipment and machinery suppliers - ally. They will be thrilled to have continued revenue based on the voice of the customer. And if not, move to other CAPEX providers anyway.
DANIEL
Overall, choose suppliers with lower carbon footprints. We will talk about this more, but the story has to be: here are our goals, meet them by date x, or my way or the highway.
We were talking before about exchanging equipment for lower-energy equipment. This is often the right solution. However, we should not forget that any new machinery has a scope 3 CO2 footprint as well. Instead of buying new, it could be better to extend the lifespan of existing assets through maintenance—I loved well-maintained older equipment in my corporate days. Carbon footprint can be reduced by simply not buying…
As well consider opting for refurbished or second-hand equipment when possible— there are companies in many industries who specialise on used equipment. Let’s be honest: do we always need new furniture in our office buildings? What you can find is amazing when you look at stuff that is available from bankruptcies. And, do not only think about it in your corporate or business life: Before the next trip to IKEA or your expensive big-box furniture store, look online or visit second-hand stores. You will be blown away by the variety of goods you find—at good value.
AIMEE
The next sub-category in scope 3 is Fuel and Energy-Related Activities: Here, you can Improve energy efficiency across operations by installing measurement systems that give you data on the use of energy in every step of the production process. Then, sit together with the teams and let them come up with a reduction of, let’s say, 50%. Let them think out of the box. You have a lot of excellent brains everywhere in your company—use their power.
DANIEL
And again: Switch to renewable energy sources - Now, you know about wind and solar. But, depending on where you produce and what is going on around you, the options that you can either tap into or work on yourself are much more significant: hydroelectric power, geothermal, biomass, tidal and wave, hydrogen, energy storage systems, low impact hydro, wast-to-energy (from your local municipality or diy) ocean thermal energy conversion (OTEC). And really cool and out there are: algae-based biofuels, kinetic energy harvesting, micro wind turbines and solar thermal collectors. And you can also use a bit of a cheat by buying power purchase agreements (PPAs) or renewable energy certificates (RECs) when installation of the mentioned alternatives is not feasible as we discussed already before.
AIMEE
Implement energy management systems - here, everybody thinks about production lines and machines. But these energy management systems (meters connected to intelligent switches and software) can reduce energy consumption in buildings, utility systems, process equipment, energy generation and distribution, data centres and IT infrastructure, waste management systems, transport and logistics, quality control and maintenance systems. There is a whole universe of systems out there that, if smartly used, can quickly get you to net-zero.
DANIEL
Finally, optimise transportation and logistics downstream to customers and warehouses. We cover this in the next point since the solutions are similar, aside from the direction upstream vs. downstream.
AIMEE
The following scope 3 sub-category is Upstream Transportation and Distribution:
DANIEL
Use more efficient transportation modes (e.g., rail instead of road) - modal optimization goes often hand-in-hand with changes with supply chain planning, inventory management, and warehouse storage patterns. The reason why air freight vs. road or sea is used, is only sometimes warranted. With subtle changes in the inventory or supply chain planning parameters, the urgent becomes a relaxed shipping pattern. And yes, manufacturing should not be the only factor to consider when modal patterns are to be established or changed.
Look to optimize routes and load factors - Go into your loading docks and look at how compact your containers are, ready for shipment, and loaded. And then listen to the reason the staff gave, or their frustrations. Fix this, and believe me it is often straightforward to be fixed with a bit of operation or logistics knowledge, and instead of 2 shipments and trucks you just need one: voila, saving 50% GHG emissions and cost. I have not yet encountered an impossible shipment situation in my whole professional life that can not be improved. Why? Because it is the stepchild of any operation…no one spends the time to optimise, unless you are called Amazon or the likes.
AIMEE
Consider implementing fleet electrification: Road Transportation is not a singular activity. Every transport via road is broken down into at least three steps: pick-up and outgoing until entering the highway, highway transport, and delivery from the exit highway to the final destination.
DANIEL
While the FMCG industry knows this in depth, discrete manufacturing is less interested and often just waves goodbye when the diesel-fueled trucks leave their loading docks. At least for the most fuel-guzzling stretches outside of the highways, EV trucks can be used. And who knows when the big truck manufacturers develop efficient EV truck solutions. You can also use it on highways. The electrification of the fleet can also mean rail. Last time I checked, it runs on electricity. Here, the question only is where they get their electricity from. In Germany, for the German national railway, only 60% of the electricity is coming from renewable resources, and today they still use about 250 million litres of diesel per year. If you go by rail, and you like to be GHG neutral, make a point to the respective rail management that you are not impressed and that they, being wholly owned by the respective Government, have as well to help companies comply with the GHG emission legislations, that the government has signed for all of us - thank you very much.
The next activity is to encourage suppliers to use low-emission vehicles. Selecting 3 or 4 PLs that clearly focus on climate neutrality in their fleet or their business overall should be a major step in selecting your transportation company. Only if it hurts their revenue will everyone start to change.
As well the topic of Reshoring or friendshoring to cut long transportation routes belongs in here: If you buy your materials for your production or finished goods from overseas, you ship it via the most inefficient use of diesel engines and with the worst quality of fuel there is. Yes, slow-steaming, shore powering, as well as propeller and hull upgrades made a difference (since 2008, there has been about 30% reduction in carbon intensity - assuming your shipping company is doing it as well. Still, we let stuff being produced thousands of miles away, often in non-democratic, authoritarian countries with less rigid environmental standards. At the same time, in our region, the unemployment rate, especially with youths, is way too high, for crying out loud. Is it time to think bigger about GHG emissions than to do the same thing and hope for a better outcome? The globalisation could be followed by a much more thoughtful, greener regionalisation of the supply lines. It also helps us achieve better resilience overall. Let’s remember: Climate, and with this, the weather on our supply lines, is changing drastically.
AIMEE
The next sub-category in scope three is Waste Generated in Operations:
Here, implementing waste reduction and recycling programs can make a big difference: setting targets and incentives for each organisational area to cut waste and recycle more. But, stay moderate with things that make no difference: if you only pick up the waste baskets in your offices twice a week rather than daily, you just increase the smell, not your sustainability in the buildings. Look at production facilities and have local teams work on big, hairy goals. And why not use the waste to heat your buildings? The regional or local municipality may incinerate and share the electricity or warm water with you.
DANIEL
You can as well adopt circular economy principles: This is one of the holy grails in activities around GHG emission reduction. Many initiatives fail because do-gooders with little to no manufacturing and sales background dream up ideas that are not discussed in the whole company. I recommend again Evidence Based Management: Get all views and knowledge from academia, internal organisations and external stakeholders together to tackle this issue. And pilot test it with customers. Circularity is possible in many distinct products being produced but seldom based on just the initiative of the producer. It takes a village along the upstream value chain to get this done right.
Next, you can compost your organic waste. I have nothing to add here, just do it, or give it to people who can. And while you do: Partner with waste management companies using low-emission technologies: Visit your local waste management companies and check out, how they use low-emission technologies. And if they don’t, partner with two of them to get this done and give back some of the benefits they reap.Either monetary or like-for-like with energy or heat. Why do I say two: because one will be better than the other, and they should get 70% of your waste. The other company will work harder, and you have beautiful competition.
AIMEE:
Let’s get to the exciting topic of Business Travel, which is part of scope 3: Encourage virtual meetings and remote work.
DANIEL
First, the lion's share of air travel is done by private travellers, not business or military. Still, business travel has a miserable carbon footprint. I travelled around the globe for most of my life to visit my teams worldwide. Jet lag, stomach issues, time pressure, sleep issues due to the bed or the inability to open a window, then the time I take away from my direct reports to spend with me the evenings instead of their families…I could go on and on. Look at the newest ways to communicate if you think your people need to connect and understand what is out there: Metaverse, Apple Vision, Telepresence, 3D virtual environments, full-featured virtual event platforms, WebEx. Most straightforward stuff like Zoom, google meet, Skype, Facetime, and WhatsApp video is good enough for quick interactions. And, until you have company secret discussions, relax: there is so much traffic going through the platforms that their encrypted standards will ensure that your competition will not get an inkling of what is discussed. So, since the pandemic, we all know what is possible. Pity if we forget it and increase our carbon footprint due to wrongly stated convenience. Even meeting customers or supplier executives can be done online since the other side is also used to this technology. Who still has a metric about the number of customer visits is living in the 20th century.
Next: Implement a sustainable travel policy - you can download and implement a sustainable travel policy from the web. Just one caution: consider the organisational and unofficial ways your company's culture works. Do not go the full monty directly if a different culture rules. You will cut into the nerve cells of your organisation, and innovation and quality will falter. And, just a word to the wise: a sentence in the travel approval form: Have you considered video calls not to be the bits worth that they are written upon? I recommend data mining of all employees' travel behaviour, including management board members. Give them three strikes if they are working outside the parameters you have set - and then wish them a lovely rest of their life in another company. Just doing this once with a few people and communicating it will have the desired effect for the whole company.
Further, we can talk about low-carbon transportation options: If you offer transportation to your workers, use carbon-neutral buses. If you incentivise people as part of their remuneration packages, incentivise only carbon-neutral transit (rail, tram, bicycle, EV-cars). Suppose you have an executive lease car scheme (which I implore you to get rid of because it just causes unnecessary internal work and is VERY expensive). In that case, it should be clear: no manager drives a transportation device that consumes non-renewable sources - full stop.
Finally, offset unavoidable travel emissions: Be specific here: Make it clear to employees that if they travel, you must invest in carbon offsets, forestry projects, clean energy projects, or blue carbon projects. Make it clear how much it costs and the impact on your margin.
AIMEE
Many struggle with a category under scope 3: Employee Commuting. How should they track it, and how can they get employees to reduce carbon emissions?
Well, it is less complicated than it sounds. Firstly, as discussed before, companies can offer remote work options:
DANIEL
Many firms have asked their employees to return to work since the pandemic. It may be because people need to be in the same offices to be effective (which I doubt after decades of sitting in offices) or whether the firm could not establish an excellent external work environment for their personnel. A bit more work into the technological capabilities to ensure a productive environment could help. People who can not handle these environments should not be employed in the first place. It is a new skill that, among other things, reduces CO2 footprint.
You can provide incentives for public transportation or carpooling. What about sponsoring a carpooling app that is best for your company?
Another way to incentivise your people to communicate climate-neutrally is to install electric vehicle charging stations. Having EV chargers in your parking lots and in front of your buildings is also great marketing to show your sustainability.
Why not implement a cycle-to-work scheme? It will not only reduce CO2 in your scope 3 but also improve the health of your staff. Provide showers in the building and free towels and amenities. Your employees will be even more motivated to work for you.
AIMEE
In scope 3 are as well all Upstream Leased Assets:
DANIEL
You would have guessed energy-efficient leased spaces. For your distribution or shops, only rent or lease GHG-neutral locations or those that will be green by date x.
Engage the landlords to improve building efficiency: Have your audits done for free with the landlords and agree on building efficiency. Ensure you build this into your lease contracts; otherwise, the landlords can play deaf and blind to your suggestions.
Implement energy-saving practices in leased facilities—same here. Bake it into the contracts, maybe align them with your progress in your buildings.
Also, consider relocating to more sustainable buildings or fewer buildings if you can find ways to do your work online.
Again, we are not saying tomorrow. But over time, everything changes. So ensure that your Real estate department looks out for properties that could help you—give them targets and let everyone in the company know so that the poor people in the Real estate do not have the whole company against them if they suggest less-than-prime locations.
AIMEE
The following subcategory of is downstream Transportation and Distribution.
DANIEL
Optimise packaging to reduce weight and volume: a revolution has happened in the packaging space. The world has changed whether it is palettes, packaging materials, or fill material. If you still ship as 5 or 10 years ago, you missed the boat entirely. You need new packaging engineers on your staff who know the art of the possible.
Clearly as well use more efficient transportation modes - we talked about this already Collaborate with logistics partners to reduce emissions - same as downstream and upstream. But here, you must engage with your suppliers and bake it into their contracts.
Then, Implement last-mile delivery optimization. This is all about having great route optimisation, delivery consolidation, and parcel optimisation software. Traffic patterns, pick-up points, and shrinking empty spaces can make a huge difference.
AIMEE
Number 10 in the sub-categories is Processing of Sold Products:
DANIEL
Design products for energy-efficient processing:Here a few examples: Develop compostable audio accessories like the Pela Case, which produces phone and AirPod cases that generate 30% fewer carbon emissions during production than conventional cases. Create products from naturally energy-efficient materials like bamboo. Due to its fast growth and natural properties, bamboo can be processed with minimal energy input.
Provide guidelines for low-emission processing to customers: Offer detailed instructions for eco-friendly use and disposal of products, similar to how VirtueBrush provides information on its bamboo toothbrushes. Also, include information on low-energy cleaning and maintenance processes for products, such as guidelines for washing reusable items like Swedish Stockings' recycled hosiery at lower temperatures.
You can also collaborate with customers to improve their processes: Implement a recycling program like Swedish Stockings' Recycling Club, where customers can return used products for recycling, encouraging a closed-loop system.
Offer more sustainable product alternatives: Provide alternatives made from eco-friendly materials, such as Oakywood's office accessories made using natural materials like wood, cork, and wool. Develop products that reduce waste in customer processes, like EcoFlow's solar energy devices, which allow customers to use renewable energy sources.
AIMEE
Number 11 is the category: Use of Sold Products
Daniel
Start by Improving product energy efficiency: For example, develop energy-efficient appliances like Bosch's home appliances, which are designed to consume less energy during use. For instance, their washing machines use EcoSilence Drive motors that are more efficient and quieter. Create smart home devices that optimise energy use, such as smart thermostats that learn user habits and automatically adjust temperature settings for optimal efficiency. How about genuinely designing products for longevity and repairability? You will need a new pricing policy and marketing for this, but why not?
If not already done, play with modular design principles, like Fairphone's smartphones, which are designed to be easily repaired and upgraded by users, extending the product's lifespan. You can also offer long warranties and repair services, similar to Patagonia's Ironclad Guarantee, which encourages customers to repair rather than replace products.
Like before, this category also provides user guidelines for sustainable product use:To extend the lifespan of products, include detailed care instructions, such as proper washing and drying techniques for clothing. Also, consider developing apps or online resources that guide users on how to use products most efficiently, like smart washing machine apps that suggest optimal wash cycles based on load size and fabric type. Finally, offer low-carbon alternatives or upgrades: Provide energy-efficient upgrades for existing products, such as LED light bulb replacements for older lighting fixtures, and develop product lines that use renewable energy sources, like solar-powered outdoor lighting or USB-rechargeable batteries for electronics.
AIMEE
We are getting to the end of the scope 3 net-zero solutions. Now, let’s talk about End-of-Life Treatment of Sold Products:
DANIEL
We mentioned some of this already, but let’s go deeper: Design products for recyclability or biodegradability by for example developing compostable products or create products from mono-materials to improve recyclability, such as Adidas' Futurecraft. Loop running shoes, made entirely from recyclable thermoplastic polyurethane (TPU) .
Consider to implement take-back programs: Establish a trade-in or buy-back programs for electronics, similar to Apple's Trade-In program, which allows customers to return old devices for recycling or credit towards new purchases.
Partner with recycling facilities: Collaborate with specialized recycling facilities to ensure proper handling of complex products. For example, Dell partners with various recyclers to process e-waste from their take-back program . If you produce and sell more locally start Working with local recycling centers to create collection points for products, making it easier for consumers to recycle items properly.
Educate consumers on proper disposal methods: Here are online resources or apps that guide consumers on proper disposal methods for different product components, such as H&M's in-store recycling program, which educates customers on textile recycling. Having a QR code that customers can just photograph to get to your site can be great. And one small piece of advice: let the website the customer get to not being owned and designed by sustainability or engineering folks. They make things often quite boring. Have some snazzy marketing folks take the content and interpret it your way…
AIMEE
The third to last category in scope 3 is Downstream Leased Assets:
DANIEL
Lease out energy-efficient assets by offering energy-efficient buildings for lease, such as those certified by LEED (Leadership in Energy and Environmental Design) or similar green building standards. Consider providing electric or hybrid vehicles in car leasing programs, as many car rental companies are now doing to reduce emissions from their fleets. Here, as said before, try to avoid owning or leasing vehicles. Other people can do this more efficient than you: Remember: Your backend is other peoples front end.
As well here, provide guidelines for sustainable use to lessees by developing comprehensive user manuals for leased equipment that include best practices for energy-efficient operation, similar to how some companies provide energy-saving tips for home appliances. Create online training modules or webinars for lessees on how to optimize the energy use of leased assets, such as proper temperature settings for HVAC systems in leased office spaces .
Naturally, implement maintenance programs to ensure optimal performance: Use IoT (Internet of Things) sensors and predictive maintenance technologies to monitor asset performance and schedule maintenance proactively, reducing downtime and improving energy efficiency.
And why not offer incentives for sustainable practices by lessees: You can implement a green lease program that provides financial incentives or reduced rates for lessees who meet specific sustainability targets, such as energy use reduction or waste minimization. Or how about a recognition program that highlights and rewards lessees who demonstrate exceptional sustainability practices in their use of leased assets, similar to how some property management companies recognise tenants for green initiatives.
AIMEE
We nearly got it: let’s just do Franchises!
DANIEL
Start with setting sustainability standards for franchisees: Implement a comprehensive sustainability program like McDonald's "Scale for Good" initiative, which sets specific targets for franchisees on issues like packaging, recycling, and energy efficiency .Develop a green certification program for franchisees, similar to how some hotel chains have internal sustainability certifications for their properties.
Again, like before provide training on emission reduction strategies and think about a sustainability toolkit for franchisees that includes best practices, case studies, and resources for implementing emission reduction strategies in their operations .
You can offer support for implementing renewable energy solutions: You might wan to establish partnerships with renewable energy providers to offer discounted rates or installation support for franchisees, similar to how some companies have corporate agreements with solar panel installers. Or provide financial incentives or low-interest loans to franchisees for investing in renewable energy infrastructure, such as solar panels or wind turbines.
AIMEE
Last but not least, there is the subcategory of investments. Here, financial institutions will have many opportunities over the following years.
DANIEL
Start with implementing sustainable investment policies that you train your people with like J. Safra Sarasin's, which integrates Environmental, Social, and Governance (ESG) considerations into the investment process across all asset classes. Adopt clear Principles for Responsible Investment (PRI), which offer a menu of possible actions for incorporating ESG issues into investment practice.
Again, look in the news, and out of your window. Realize that the world is changing due to climate change, and man made GHG emissions are the reason for it.
Then breath in three times and start divesting from high-emission industries: You could follow AXA's example of exiting investments in the coal industry (exit by 2030 within the OECD and by 2040 in the rest of the world). Or implement exclusion strategies that avoid investments in companies with high carbon footprints or those involved in controversial activities.
Start engaging with investee companies on their emission reduction strategies:Use active ownership practices, like UBS Asset Management's approach of empowering companies globally through active stewardship and engagement.
Then start increasing investments in low-carbon and climate solution companies:Develop sustainability-focused investment strategies that target companies providing solutions to climate change and other environmental challenges. Again, look at AXA: Align investment portfolios with climate goals, such as AXA's commitment to the Paris Climate Agreement's objective of limiting global warming to less than 1.5 degrees Celsius.
AIMEE
Wow, that was quite a long session. But no one has ever said that you humans getting away from a CO2 culture would be a walk in the park. You must get off the needle that kept you happy for 150 years.
DANIEL
When we discuss this with our clients, I often see their eyes glaze over. I often hear, "Daniel, this is all great, but who on earth in my shop should do all of this?" We also, or foremost, have to make revenue and margins. I can not work all the time on this stuff. I have to run a business.
The good news is that you do not have to do this alone. Each topic we discuss, needs 2-5 smart people in the respective departments linked to the point - not full-time but as a job-enhancing project. They need proper targets, a financial advisor from your controlling team, and project management (here, you need 3-5 people who hold the initiatives together). Then, a monthly jour fixe with the board member in charge, and every quarter report out by the board member in the board meeting. Voila. You will be GHG-neutral until 2030 - I promise you that.
Divide and conquer, as Julius Caesar, Noccolo Machiavellin in “The Prince,” and Napoleon did. Delegate and conquer is probably the better wording here. Use the brilliant minds in your organisations and celebrate their successes openly so that everyone in your firm would like to be part of that winning team.
Conclusion
DANIEL
"As we wrap up today's episode of 'The Supply Chain Dialogues,' let's take a moment to recap some of the key points we've discussed. We began with an overview of the three GHG emissions scopes, highlighting their distinct characteristics and importance in any sustainability strategy. From understanding the direct emissions within Scope 1 to grappling with the broader impact of Scope 3, we aimed to uncover the complexity and opportunities within each."
"We then explored pathways to net zero, including the strategic steps necessary to create effective sustainability plans. We touched on how technological innovations can be leveraged to reduce emissions and shared insights on the importance of collaboration across the supply chain."
AIMEE
"We hope this episode provided valuable insights and actionable strategies you can apply on your journey toward net zero. We’re eager to hear from you, our listeners—your questions, thoughts, and any feedback you might have. Please feel free to reach out or comment on our website or social media.
DANIEL
We covered a lot today, and there are many ideas that you can use. If you would like to reread some more relevant areas, go to our website's podcast area and click on this podcast to the transcript. You will find a cleaned-up version of what AIMEE and I discussed there.
Thank you all for joining us today.
I hope you enjoyed this episode of the supply chain dialogues. Please subscribe on Apple, Spotify, YouTube, or any other central podcast platform if you do. And if you are a subscriber, tell someone in charge to get to net zero (like your CEO). If you're interested in learning more about this or other topics we covered, you can sign up for online or face-to-face training, which is available on our company website. You can book a chat with me to explore the art of the possible for your company.
With that - stay safe, be bold and see you in two weeks. These are the supply chain dialogues produced and copyrighted by helmig advisory in 2024.
