Daniel: [00:00:00] Welcome to the supply chain dialogue, season three, episode one. I'm Daniel. Helmig. We're already in our third season. If you did not have the chance to check out the other two, I invite you to do so. Season one is focused on topics. We as well covering via our services, but no worries.

There are no sales pitches, just genuine dialogues of how to assess where a company stands on topics such as supply chain procurement. Cash flow. Sustainability digitalization. Process mining, employee satisfaction and organizational design. Well, quite a mouthful. Season two was then already honing in on greenhouse gas, emission reduction in supply chains. With excursions into visions, game theories, surviving and thriving in, and after the first 90 days on the job. And even the dip into the [00:01:00] gaming industry market. And this season. Season three. We will focus even further on the wide aspects of greenhouse gas, emission reductions via supply chain changes. We will discuss recent academic papers that give you the one view.

Most practitioners are missing when making decisions. This is called evidence-based management theory, by the way. And sprinkling interviews with interesting people that have a lot to say about the art of the possible on managing the triple bottom line, which is profit people and planet. As always feel free to send us a note to dialogues@helmigadvisory.com. One word. With recommendations and or critique of past episodes. Now. Let's get on with the show.

So this episode is about the steel market and especially the developments in green steel green steel is as you probably have guessed, not defined by its greenish color. But by a [00:02:00] significant reduction of the greenhouse gas emission produced in this high energy production process. We are lucky to have nearly an hour with Felix Schmitz, CEO of kloeckner metals in Germany. kloeckner metals does not produce, but buy and sell steel.

They have a brilliant overview of the market all over the world. And I can promise you that you will find Felix's insights. Fascinating.

So Felix, first, congratulations. It's a little bit long ago already, but last year you have been appointed CEO of Klocker Metals in Germany. Quite a fascinating job, specifically in today's world. A world in which something which is called iron and carbon that can be tracked back to Damascus steel 900 BCE still is being produced and requires a significant rethinking in terms of how we are going to use steel in the [00:03:00] future.

About 2 billion tons of steel are being produced as far as I know today. And it seems that about 7 to 11 percent of the total greenhouse gas emissions come from that production overall. So it's a, it's a sizable amount of industry, 6 million people being employed globally.

So you're doing good as well for the overall job market . But before we get into the total amount of greenhouse gas emissions and what we can do about it. Why don't you just tell me a little bit in terms of where you come from and why you choose such a job that you have today?

Felix: Yes, of course. First of all, thanks for having me.

And thanks for your congratulations. It's an exciting job an exciting challenge and, more specifically in one of the most exciting sectors of this world, I have to say. I was starting out somewhere else. I was starting in financial services, a few years ago and joined back then in 2017, so [00:04:00] around seven years ago, and worked in the invest relations department, and co the group is a listed company, from, and the headquarters in Western Germany.

And I was. I was heading the investor relation department for quite a while and took on another role three years ago, a second central department for the entire group, which is called or still called this strategic sustainability. So there you can already see, we have a very strategic perspective on sustainability topics.

 We did it with lots of dedication, about myself. Well, I'm a father of three children. I'm not just interested in having lots of excitement on the job, but also of the job and, I'm a sports guy, so I, yeah.

Felix: I was once a referee for football, having to concentrate myself, not calling it soccer, of course. And, besides that, this has never changed. And, so I'm very excited about football and, also [00:05:00] other sports stuff. And now I'm the big, biggest fan of my children who start playing football

Daniel: I couldn't agree more. I mean, besides the excitement of the job, it's always good to have a couple of kids at home to ground yourself in terms of what's important in life.

Just to ground the people a little bit and who, And what Klöckner Metals Germany and Klöckner overall as a group is doing, would you mind giving us a little bit of context about this company that has a sales of about 9. 4 billion as far as I understand in 2022 and about 90, 000 customers worldwide.

Tell us a little bit about the group.

Felix: So first of all, one has to understand that we are not a steel and metal producer. We are distributors. So we procure lots of metal from around 60 main supplies in the Western world. And we sell it to around 60, 000, more than 60, 000 customers. We have around 190, 000.

Products at [00:06:00] stock and sit there. You can already see it's managing complexity. And of course, steel is not that easy to handle like a very small package for Amazon or such things. So it's a different kind of business. Our main markets and core markets are central. Europe and North America.

So, we had a very big divestment just recently. We divested our country organizations in UK, France, Belgium, and the Netherlands. So our core market in Europe remains Germany, Switzerland and Austria. Besides that, we are focusing very much on us, America and Mexico recently. So what, what does a steel and metal distributor do?

We are managing complexity for customers who have barely the chance to get that kind of procurement power into place. And we give them the broad range of metal products that they need to fulfill their [00:07:00] customer's dreams. And, we take lots of metal on stock, so we buy it, bring it into our warehouses.

We have around 120 of them, in the markets. I just called up and, our sales people with lots of know how about the sectors that are serving, bring it then to the customers. Besides that, it's not just storing metal. We are driving down the value chain. Pretty much. So we are not just processing the material.

We are doing higher value added business with the material, which is, in fact, nothing else than pre production and coming very close to assembly. So we welded from time to time. We, we laser it with 3D lasers. So that our customers can save lots of time also lots of money if they focus on what they can do best And leave the rest to others like us

Daniel: and I think specifically for the topic that we are as well getting into This is even more interesting [00:08:00] because you consolidate your focus demand and then with your buying power You can as well change markets or basically drive

Felix: markets. Absolutely Yeah Absolutely. And we source globally. So that means also that we, against the perspective of our customers from time to time, have the entire global steel production market in our focus.

So we believe, and I truly believe, that there is nothing happening in steel out there which we don't know of. Especially in terms of green steel,

Daniel: which will help us for our discussion today, because we have a really knowledgeable person here. Very good. So let's dig a little bit into the subject of the podcast.

I've been personally familiar with steel for the last 30 years. On all continents, as chief procurement officer for different companies as such, or working basically in the automotive industry as well for 20 years, I know it's a fiercely competitive market and, with high CapEx and OpEx cost.

Technology can be a [00:09:00] major differentiator if done right, and you could see that in the past when China basically set up, for example, new steel mills while the rest of the world was still utilizing their old ones. At that point in time, they had an efficiency gap produced, which helped them even that we could ship China steel across the world.

And it was actually profitable. So technology is big. And today everyone seems to be racing towards finding the holy grail, which is now green steel. What is the Kleckner's definition of green steel. How do you define it for yourself?

Felix: Well, that is a good question and I will answer it in a minute, but I would like to start somewhere else.

 So to get everybody on board, how we perceive this topic and why we are perceiving it differently than other players in the market. So first of all, One has to understand, and you described it implicitly to a certain extent at least, the steel industry as such [00:10:00] has gained a somewhat bad reputation over time.

 It's somewhat dusty good. It's a dusty production route that we're following. And in terms of sustainability, everybody knows there's lots of CO2, along the way of production. And then the steel industry gained further, rather. Perception in the market since the financial crisis in 2008, because the markets became under pressure.

You, you already mentioned the Chinese production took up, very sharply. And that said, markets overall in the world under pressure. And, lots of steel companies were struggling since then, but what we forget about is how important steel is. So if everybody just imagines what the world would look like without steel, there are not so many other materials in this world who [00:11:00] are so much key for the production of different goods.

So we wouldn't talk, you wouldn't sit, I wouldn't stand. All these kinds of things wouldn't be happening right now in the surrounding we are, we're talking together. That is the first thing. Second thing, I was talking about the bad reputation in terms of CO2. We did not used to know a lot about CO2 a few years ago.

Everybody just knew, if I want to produce steel, this goes along with lots of CO2 emissions. That is something everybody knows. But nobody really took on comparisons. Nobody really tried to compare steel with other substitutes, for instance. But we are a trader, a distributor. And we really tried to step outside and try to compare different materials.

What is the competitive and comparative advantage of the production of the product [00:12:00] versus other products? And then we saw, there might be an opportunity in it also considering that the substitution of steel in total is not possible. And that was the day when we started to elaborate. It's dedicated sustainability strategy.

That was in 2020 and 2021. At the same time, we signed up to the science based targets initiative to get our decarbonization targets approved. And all of a sudden, also with good timing, we became the first player globally who had its, SPTI targets under the new regulation approved back then, but this is a process that was very important for us as a group because you get this fine sense of what greenwashing looks like and what real decarbonization initiatives look like.

And that kind of came all together. And then in 2021, there was, a big shift in the industry because for the first time [00:13:00] there was a commercial sense to it, there were bigger producers out there who were not just talking about their own decarbonization initiatives, but also tried to. Put it into products and commercially brought it into the market.

Back then, it was still the case that we were talking about scope one and two emissions when talking about products. Now we know all better, but that was the day it all started. And we as a distributor came to the conclusion that steel is difficult to substitute. It is recyclable. You can decarbonize it.

materially over time. And very importantly, it is relatively cheap. And this was the perfect mix for a business model. And that is what we took on. We perceive this as a business model. [00:14:00] If you do it, If you do the decarbonization by switching off the lights, when you go at home, you might feel better when you fall asleep, but this is not saving our planet.

It is business modelling. It is rationality that is really pushing us forward. And that is what we took on. Basically. Your question was another one. Your question was how we define green steel, but that was the start of the journey. We simply asked ourselves in this. What is green steel? Everybody's talking about.

What is it? There are so many frictions, so many categorizations, so many hierarchies you would have to have in mind. And nobody had a clue. , then people were planning trees in Brazil and said, our steel is carbon negative. That sounds good, doesn't it? And all these kinds of things. were things we try to analyse and the outcome was pretty clear there are already and [00:15:00] have been already back then clear frameworks in place and then we asked ourselves what does a production route look like and of course as a distributor of steel with Decades of know how we know as much about steel as the producers know about steel themselves And we came along with a pretty straightforward definition Of different shades of greenish steel So there is and that is I think the most important thing not the green steel at all.

There are different steps of Decarbonizing your steel product and this is not starting and not ending at zero You There is no zero in this world. And that, that was quite a journey for us. We ruled out, for instance, offsetting tactics, crediting, all the kinds of things that already were implemented in the frameworks of the GHG protocol of the ISO standards, of back then. [00:16:00]

And this sounds like it would have been 20 years ago. Nobody talked about it. Honestly, we had discussions with suppliers who wanted to say that their footprint is scope one and two related, but nothing else. But we all know better now.

Daniel: True to that. Interesting. Thank you as well for doing a little bit of an excursion in terms of explaining the whole situation in total.

 I'm a big proponent of scope three as such 60 to 80 percent of the greenhouse gas emissions happen in the supply chain. And so therefore, if you are able to utilize this and there, I fully agree with you. We should talk more about business solutions and less about governmental, regulations about this, you can, with just the forces of the market competition, get to a pretty good state with regard to greenhouse gas emission reduction, if you want to, fully with you.

Daniel: Let's base a little bit the numbers that we are talking about. What carbon [00:17:00] footprint has one ton of normal steel? And where do you see the tonnage that you would like to see for a, as you call it, greenish steel?

Felix: The best answer to it will be, it depends.

When we started to analyse the carbon load of steel, we concluded that the general normalized number of carbon steel in this world seems to be higher than what you read in the newspapers. It might be related to scope three issues.

We don't know. We don't know. It might be the global footprint, whatever. We concluded that the usual number is at around 2. 5 for carbon steel, not talking about stainless right now and not talking about other metals like aluminium, which is even higher and then. We try to look up what current technologies and technologies that are on the horizon would be able to contribute to the decarbonization of [00:18:00] that very product.

And we found that a critical decarbonization took place. If you reach a mark of around 1 750, so one ton and 750 kilos of CO2. Then you already achieved a lot. But there are different other techniques to decarbonize the product that you have, and you might find yourself in a position one day, if you produce steel with H2, and with fully renewable energy, that you make it below the 400 level.

Kilos per ton of steel. And that is already a lot. And if you now reconcile to what we said earlier, steel is everywhere. And steel has lots of CO2 now. That means for the bill of material, so the sum of [00:19:00] CO2 that is in a product, it will be always material. That sounds like a burden. You're coming from steel procurement.

You know what I want to talk about? So if you turn it around, if you turn it around, and if you're able to decarbonize this big bulk of supply chain related CO2 content, you will decarbonize the end product. And that is what it is all about. The product that is at the end of the cycle, you will decarbonize it substantially way more than with focusing on other materials.

And to be honest, if we talk about decarbonization, if we talk about climate change, we are talking also about focus and we are also talking about timing and we should not lose time. And if you want. To not waste time, everybody should start if possible, at the highest carbon load immediately.

[00:20:00] And in very often, this is basically steel. I'm with you on

that.

Daniel: As you mentioned, my, my former profession and passion to some extent as well, My point as a supply chain officer or chief procurement officer was always, okay, when we had a certain target that we wanted to achieve, whether it was cost, quality, whatever, okay, let's look at the total amount of categories that we buy, and if we have an issue on one, because it might be a long term change that we have to do.

And we must focus on other categories in the meantime and get there. What we will talk about is how long it will take to change steel production towards the maybe 400 kilograms that you were talking about. And that's a long journey. It doesn't mean that we shouldn't start on that, as you said, and we should start right now, so that by 2050, we get to a point that we are somewhere.

One has to as well see that, as it looks like right now, in the next 10, 15 years, [00:21:00] there is still a significant increase in terms of steel production overall globally. So therefore, there are other forces that are working against this. So, we have to start now. I'm fully with you on

Felix: that. Absolutely. And what you must consider is that if we learned something in the last years, we know that there is no zero anymore.

We have this greenwashing directive, at least on European level. I think everybody also in private life learned a lot about decarbonization and climate change throughout the last years. And we all know now, especially in companies around the fields, that. Double digit decarbonization rates are already a lot.

And the good thing, this is achievable today. This is not a question of tomorrow or 10 years or so. There is something achievable today and , it is not about a company itself. So if you simply have to restrict [00:22:00] yourself and maybe have to take the money from your shareholders, for instance, it, it makes your way more difficult.

The good thing is, and that is something I mentioned earlier is there are business models. You can earn something from it and you can finance your way if you do it smartly. And that is something we know now. True to

Daniel: that. Now you mentioned as well that you were and that's part of your business. So therefore, you analysed all the different ways of how steel production can be done, in detail.

So if you look at the different ways that, green steel can be produced, what do you think has the best chance of long term survival to actually take over? Do you have a preference on that?

Felix: As of today, and we're talking about the year, 2024,, The answer will certainly point to a mix of all technologies that are out there. But we have seen so many [00:23:00] developments in this field throughout the last years. It might be something fully different in 10 years’ time arising in the market.

 And I would not rule it out. In the end, there is one target producing the same quality of steel. with less carbon. And you talked about the holy grail, green steel, the holy grail, green steel was in the last year is very much linked with H2 produce or by H2 produce steel. But there are so many multiple high technology solutions out there.

So the electronic arc furnace that is in the current surrounding already able to produce very high quality steels, with way less, CO2 footprint. One should not rule it out and one should not fight against it. If somebody is not from steel and listening to our conversation right now, and saying, there is demand for a [00:24:00] decarbonized product, which you can sell with a margin and the decarbonization potential is already something you can carry away today.

 This looks like a dream scenario, but that is how you have to perceive it. This is a very good scenario, which other sectors would love to have, but you have to play it like this, and you have to have the confidence to also teach your customers and the entire industry. What it is about greenwashing, about what this makes for you.

For your customers product, what it does to your customers, product, and what it finally does. And these conversations also take place in our business, what it does to the customers, products. And you must talk to all of them. If they understand this is a consulting and a educational test.

If you understand this and make your customers understand it, It is an easy game. I told it before I'm not from sustainability. I'm not from sustainability. [00:25:00] I did something else in the past. And that is something pretty logic. But you have to have the confidence and you have to be willing, to talk about it and to define and to learn over and over again.

Daniel: I'm fully with you. And I think, as you mentioned, you're not from sustainability, but you're a father. And I think everyone who has or looks at the facts that are in front of us and thinks that climate change is real and that there is a correlation towards greenhouse gas emissions, looking at the, this in the next generation and the generation after that.

And when you then look at the scenarios that are being drawn today, that's not going to be a pretty life for these if we are not changing again, it's stating the obvious.

Now, but you mentioned already your clients there is in the press, there is stuff about, okay, who is using green steel right now? And you mentioned as well already H2 and they are providing [00:26:00] for prototypes, which is the smallest amount of steel that you have for prototypes for Volvo. Where do you see, do you have a demand for green steel today already?

Felix: Absolutely. So, we must consider that the substantially decarbonized material is still scarce. We are not talking about the H2 route, one must distinguish between H2 green steel. That is one of the drivers from Sweden. A producer who has made lots of way from scratch.

They are building great things. The H2 route and, the H2 route is still somewhat away, but We're going to get there soon. When it comes to overall, greenish products, there is still scarcity in the market, but this is good to be honest, to tease the market and demand. We, as, Klöckner had already greenish transactions with, construction, automotive, mechanical engineering, ship [00:27:00] building, metal transforming,

basically, all the sectors we are serving and we learned a lot from these transaction transactions. Most importantly, The biggest learning we took from these transactions is how important it is to tell the customer what the benefit of this purchase means for her or for him. If you talk to a metal procurement employee, they are going to tell you, well, this will be very expensive, right? So there are so many billions running, of course, there are so many billions of dollars running into the transformation of facilities.

Yeah. That is the misconception in this overall concept. Of course, the transformation of a steel production site costs a lot of money, but this is not true for the product price increase that is linked to greenish [00:28:00] steel. We had a study and that was Also back in 2021 coming from the Boston consulting group who made the equation and said, what does it mean for the product price?

What does that, does it mean for the customer? What does it mean commercially? If I procure green steel, it will mean, and that is something we already discussed a substantial decarbonization of my overall end product, but does it also mean that I have to pay a lot for this? No, I don't have to. This is why it's so important to understand the very specific, business model of steel.

For instance, if you have an EV. And you buy green steel, and you produce the ev, the electric vehicle with green steel, you will have a estimated end product price increase of less than 1%. Less than 1%. The question, of course is the end customer willing in the times of climate change [00:29:00] to pay more than 1% for this greenish or CO2 reduced ev.

I would say, of course, and the same is true for washing machines, for dryers, for wind energy. If you buy green steel for a wind energy farm, you will be able to decarbonize the offshore wind park by 85%. Yes. The product price increase is 5. 5%. The question Daniel for you is, are you willing to buy greenish power from a greyish offshore wind farm?

Does it make sense? It does not. And a few years later, two years later, there was a new study coming in who was dedicated to the end customer willingness to pay for that price increase that was lower than everybody thought. Not 2 billion per product, but rather a few euros. And the [00:30:00] interesting thing is that most means more than 50 percent of the people are already Today, very much willing, and highly likely buying at a higher price and buying for a higher price.

And that is the impetus that is coming for the leaders of the world in the industries to follow along these tracks because there isn't a business model. There's not a must that you didn't have to restrict yourself. There is A business related commercial, logical impetus.

Daniel: Felix, I did this whole procurement stuff now for nearly 40 years.

And clearly there were a lot of innovations, a lot of changes that were needed. There was a. Yeah. I was still part of an ISO 9000 revolution in terms of the quality, where we started from shitty vehicles to vehicles that you could drive and that last for a while, or that the toasters did not explore in your kitchen.

And the argument is always the same. [00:31:00] it's going to be more expensive. And what I've learned over the four decades is yes, it is starting to be expensive at the beginning because market forces drive a certain number of higher margins for the market entrance that are there beforehand.

But over time, the market forces lead to a reduction to a price that is either at the same mark or at something which is okay in the market setup. So therefore, the product as such doesn't have to be more expensive. And we have done that over and repeatedly. We're good at that as humans, and we will do the same thing as well when it comes to steel and what it will cost.

One additional point. And you mentioned at the beginning, I mean, I read that the investment for this H2 green in Sweden is about 1. 5 billion Euro for a plant like that, just to give as well, listeners who are into this environment and they know a little bit about the [00:32:00] cost. I was in the semiconductor industry for a couple of years, an average semiconductor plant in the front-end cost 2 to 3 billion.

And it leads to the fact that we reduce overall cost because you have much higher volumes and so therefore, the digression in terms of cost effect is as well large. And so when we look at steel and we talk about 1. 5 billion, we think it's so massive. It's not.

Felix: We have to be true to ourselves. There are a lot of investments to be made. There are a lot of steel sites in this world. But. Absolutely. When it comes to prioritizing, when it comes to effectiveness of decarbonizing the industry. It is a core path to take. Absolutely.

Daniel: In one of my last podcasts, I had a game theorist and economist on the show.

He pointed out that the incentive of engaging in green steel for most companies is relatively minor due to the high prices we talked about, and in [00:33:00] combination with the free rider effect and the minimal cost of doing nothing currently, what would it take to bring the price of green steel, if at all possible, to a comparable level at this point?

I

Felix: think the question is the wrong question. So, should we bring it down? You said it a few minutes earlier that of course the transformation of industry is costing money. And this is not going to change. So, this will persist. The question is of course, what is going to happen if we don't do it? Right. I mean, we know, and, um, it is also about, about licenses to operate.

It is about truthfulness in operating. Not so much about ethics it’s pretty logic. Then, rather, it is a question, how much, and carbon is nothing else, carbon is nothing else than money now. How much time do you have till grey steel will be more [00:34:00] expensive than green steel?

And this is going to happen, of course, one day, this is rather sooner than later. This is also something steel purchasers must ask themselves. I said it, it's a scarce material with not so many players being currently able to handle their supply chains also in terms of transparency to make clear what is green and what is not green.

If you want to have a foot in the door when it gets more severe, we believe you should rather act today. And we are perceived as a player of the steel industry. But Daniel, the truth is, we are a steel purchaser ourselves. We have SPTI targets, by the way, just as we talked, we already reached with 2023 numbers for scope one and two, our SPTI 2030 goals of reducing it by 50%.

So we stick to our, to what we want to achieve, but we are still [00:35:00] also a customer of the steel industry. So, we really look at it from the customer point of view. And., I think this is also the sweet spot where we are in currently. We are not producing it, but we know what it is about. And still, we are a customer related and customer close steel purchaser.

And therefore, I simply believe, that we see it a bit earlier and we would like to share this gain, this experience with our customers.

Daniel: Congratulations for achieving your targets already that early. I think this.

Felix: is, this is fantastic. Yes.

Daniel: And you should be clearly. And I announced from every roof that I have the ability to stand that if you put your focus and your mind to it, you are able to much quicker get to your targets.

But it takes as well, people CEOs of the organization to declare that a CO2 target, is equal. to the other targets that one has, like cost, revenue, quality, and what have you. [00:36:00] In a lot of companies, that's not the case. You have the board of directors, the management board declaring, okay, we still go with our normal targets because that's what our board of directors is saying.

And then you have the rest of the organization who's trying to scramble by with all the other targets that are being thrown at them from regulators and from society. It takes a CEO to say, And the buck stops with me. We're not doing it.

Felix: You're right. It starts from the top.

Our group CEO, Guido Kerkhoff, put it into the remuneration scheme two years ago. And, of course at the beginning, everybody was thinking, what is going to happen now? Are we going to achieve this? And now we have. Had the second year since it found entrance into the scheme. And we are moving, and we also see big customers listed, uh, groups who have implemented equal things in their remuneration scheme [00:37:00] of the top management.

And of course it is working. It is not broad based now, but I'm pretty sure it will be very soon. And

Daniel: for every purchaser today, who is listening into the podcast, there is nothing that prevents you of actually taking the first step and putting it into your RFQ documents that this is a order winner.

 It will be at some point in time, an order qualifier, maybe in 10, 15, 20 years, but right now it's an order, should be an order winner. So just go ahead. You can be the hero, not only in your company, but as well at home. You can talk about this probably

Felix: as well. Absolutely. I'm happy to take your calls.

And one more, you going to learn a lot. So, the educational stuff just starts if you ask for it. And secondly, we talked about the potential of steel in this bill of material, the purchases in the steel category will be the superstars of the next years. That is clear. The decarbonization is coming from that [00:38:00] end.

Daniel: Absolutely. Yeah. So , if you want to be superstars, now it's the time to get into that. That's fantastic. Klöckner. Absolutely. Thank you. I talked at some point in time earlier briefly about governments and as well the role and then that markets should drive as much as possible the trend towards decarbonization.

But let's take a step back. The way to increase green materials or reduce carbon is quite different between if you look at Europe or the US. Europe focuses more on carbon trade process and restrictions, in my view. So far during the presidency of Biden, he acts more as an administration that investing, especially in so called brown industries, like for example, steel, to give them the financial wind under the wings, to make investments in new greener technologies.

What is your view on subsidies to build more green steel production facilities and via economies of scale, reducing pricing and make it more affordable for everyone.

Felix: So [00:39:00] you framed it a bit like, the U S is focusing on old dusty industries while Europe is doing it a bit differently. My perception is and covering both continents, and at least have covered them, both.

Europe is very much into the regulation currently. We as a listed group, but also what medium-sized entities will have to fulfil in the very near future, already have to fulfil. Today is massive. We are talking about the CS triple D, the CSRD, Lieferkettengesetz in German. Yeah, so there are lots of things.

That are from a broader perspective, a good thing to have. But if you dive into it, it's a massive blow to the organizations. The U S is investing, especially into what I would say, energy. Very straightforward. [00:40:00] So there's lots of money for the solar energy, wind energy on such things. And I believe that this is smart because we are talking about green steel or greenish steel, CO2 reduced steel, what we call it.

We talk about transformation, climate change and decarbonization. In the end, it's always, that is something we already decided about. It's always a question of energy. And I think that Lots of things should go into that direction. And I think the U S is doing it a bit more dedicated. I don't want to talk about nuclear right now, all these kinds of things.

I think, this would go too far, but if you look into the direction and the focus, Of what the different geographies are currently concentrating on. There is a mindset shift and I'm not saying that regulation is not needed. We ourselves, of course, believe if a government wakes up and says, [00:41:00] if you want to build a building, build it.

decarbonized or CO2 reduced or so, this might be certainly also good to tease certain dynamics. But the overall framework couldn't be more different right now. That's as well

Daniel: my perception. And, the question is whether this is going to really help so much more in the future.

If you look at the main 40 countries that Have, the highest CO2 emissions. There are about 250 different regulations already available with regard to CO2 and greenhouse gas emissions. And if you try to supply to these markets, that means that you have to follow 250 slightly different, sometimes massively different standards to get things done.

Even in the automotive industry, which normally was the pivoting with regard to having similar kind of standards is right now nowhere near a good setup of common standards. So that is something [00:42:00] that we have to deal with today. And unfortunately as well in the future, I hope, , that we will get to a point that as well, regulators will realize that if you set swim lanes with regulations, which are needed.

You can step back. You don't have to tell the people how they have to swim and then let markets and competitive forces basically do their say.

Felix: And it's happening. So SBDI, for instance, that was something we have not been forced to, to join. Not at all. That is something we simply did because we found ourselves responsible as an international acting company.

And that many, many other big companies are following regulations. This is, of course, a force with all good and bad.

Daniel: Felix, in the pre discussions that we had before the podcast, you talked a lot about transparency. This is a big thing for you, and you have done a lot about creating transparency. Would you mind talking a little bit about this, from the Klöckner Metal perspective?

Felix: Yes, of [00:43:00] course. So one has to understand that there is no CO2 reduced steel in this world if there is no transparency about the greenishness of the material. So if we know that it was CO2 reduced carbon,

produced

Felix: We still don't know what the carbon content looks like. And due to the very sharp dynamic throughout the last years, producers had a very hard stance to come up with the transparency for every single product.

I said earlier in the call that we at Klöckner serve our customers with around 190, 000 products. Products we would have to have the PCF, the product com footprint for every single product and would therefore need a single EPD or such things, it would take us decades before we have this transparency, but the transparency is key for the [00:44:00] decarbonization and the transformation we.

And the industry is undertaking. Therefore, we said around two years ago that it would be very interesting for us to develop, what we call PCF algorithm, something that systematically. Enables us and therefore our customers to gain transparency in a very invisible world. So we of course had no hard try getting the PCF for the greenest materials.

No doubt about that. Every producer has lots of interest in, in, in releasing transparency there, but for the broadness of material, this was a challenge. So what we did is we developed together with the TüV a German third body certifier, and with the help of BCG. a system that enables us to logically and certifiable calculate [00:45:00] the footprint, the product carbon footprint, following the ISO 14067 standards for every single product.

And it took us a while, more than a year to, to bring this to life. The outcome was great because we then do not just have the possibility to offer our customers the transparency for every product piece, they are buying at Klöckner. They are also able to include it in their bill of material and therefore bring visibility and transparency into their production processes.

And at the same time, we are having enough transparency to offer our customers next door. decarbonization or not just the greenest of the greenest material is in reach for them. If they source at Klockner, we can tell them today, you’re sourcing in terms of CO2 content is inefficient. Look at the [00:46:00] data, look at what we have, look at what we can compare.

And then you see that it is easy for you on article level. To switch to a different product, which is the same article and, you're going to achieve already double digit decarbonization potentials. And there, you can see there, this, these are two different pillars. The one is sourcing CO2 reduced steel.

The other is. Transparency, there is a big overlap, but there are two different pillars in it. And there is also, and that is something I would like to highlight. There is a huge opportunity in transparency. And that is something we see, of course, this visibility, this transparency is a value, not just for us, also for our customers.

So we are commercializing it. But there are no hard questions coming from our customers because. Even if they do not want to actively commercialize [00:47:00] decarbonization, they at least want to have transparency.

Daniel: Absolutely. This is huge. And there's this old saying, what you cannot measure, you cannot control. Felix. Thank you very much for being on the show today. It was a pleasure talking with you and I wish you all the best in your new job, but as well for Klöckner on your trail to green steel and reducing carbon emissions in the world.

Thank you very much.

 Thank you.

With that. I hope you enjoyed this episode of the supply chain dialogues. If you did. Please tell a colleague friend and or decision maker. And for this episode specifically, you shared with the steel buyers and procurement heads in your company. Green steel is huge as a carbon emission reduction tool. In your scope three. Where it really matters. To all of us the most.

Stay safe. Be bold. And see you in two weeks. These are the supply chain dialogues produced and [00:48:00] copyrighted by helmig advisory AG in 2024.