Cisco | Natura Cosmeticos | Neste Corporation | Societe Generale | Toyota
Continuing with our curiosity about the Paris accord, team CB wanted to understand how some of the world’s most green and sustainable companies are responding to climate change. What kind of measures have been taken? Are they drastically cutting down emissions? Can business as usual go hand in hand with environmentally conscious practices? We looked at a few case studies of companies across the globe whose work in this area have been commended by all, and tried to glean key learnings that can be applied to corporate India.
Cisco is one of the few IT companies that are regularly listed in the world’s ‘most sustainable companies’ rankings, most recently by Corporate Knights in an enviable third position. Even more impressive was the 2016 Climate Leadership Award for Supply Chain that it received from the US Environmental Protection Agency (US EPA)—no small feat indeed. The award recognised, among others, its efforts in working with its suppliers and business partners to reduce emissions. One of the key indicators to support this is the fact that 100 per cent of its manufacturing partners and logistic providers, and 92 per cent of key component suppliers, have reported their GHG emissions to Carbon Disclosure Project (CDP).
The company puts emphasis on reducing GHG emissions not only from its own operations but also from its supply chain and products. Accordingly, it has invested much time and effort in designing and producing energy-efficient products with optimal lifecycle that have high return rates for reuse and resale (called the ‘circular economy’). Realising that about 90 per cent of product emissions occur during use, it has come up with multiple solutions that require lower energy, such as EnergyWise in buildings, Virtual Office for teleworking, and Nexus in its data centres. In 2016, 12,000–13,000 metric tonnes of used Cisco products were returned by customers for reuse or recycling. The company actively encourages its users to exchange older products for discounts on new equipment.
The efforts on the emissions side has been equally impressive, with 77 per cent of electricity demand being met through renewable sources in FY16 (100 per cent for the US operations), 34 per cent reduction in Scope 1 and 2* GHG emissions worldwide compared to 2007 (the overall target is 40 per cent by the end of FY17), and nearly 400,000 metric tonnes of cumulative supply-chain GHG emissions avoided. Supply chain is a key part of its overall sustainability strategy with numerous supplier audits conducted every year and high focus on ethical sourcing of raw materials. Employee engagement on environmental best practices, especially for those involved in product design, is built through video-on-demand classes, live learning sessions, training to IT staff on reducing energy use within Cisco’s labs and data centres, and multiple projects run by various teams to reduce the company’s carbon footprint.
(*Scope 1: all direct GHG emissions; Scope 2: indirect GHG emissions from consumption of purchased electricity, heat or steam)
Natura Cosmeticos is the biggest cosmetics group in Brazil, with markets in South America, USA and France as well. In 2013, the company had been ranked as the second most committed company to sustainable development by Corporate Knights. When it comes to ethical sourcing, the company has put its money where its mouth is, by sourcing ingredients sustainably without harming biodiversity, including getting one-third of its raw materials from the Amazon regions (currently from 2,000 families) using a fair trade model. Simultaneously, it helps these communities with production techniques that help preserve 256,000 hectares of standing forest whilst receiving traditional knowledge from them. Its end-to-end work (including community-service initiatives) in this region is truly holistic and exemplary. Since 2001 the company has stopped animal testing, and is a founding member of the Union for Bioethical Trade.
The company had launched the 2050 Sustainability Vision with specific goals in areas such as climate change, waste, biodiversity, supply chain and local communities. It is a member of the United Nations Global Compact and committed to the 2030 Agenda for Sustainable Development and the SDGs. It is also the first Latin American company to disclose the results of its EP&L (environmental profit and loss) survey, which is a kind of ‘environmental accounting’ that reveals the true cost of business operations. The company also issues a separate report on GRI indicators which provides all possible data on the company’s workings and environmental impact.
Natura is a carbon-neutral company, receiving its certification first in 2007.
This means that all of its emissions are offset either through its own reductions or through purchase of carbon credits. It aims to achieve a 33 per cent reduction in relative carbon emissions by 2020 against base year 2012 (CO2 emissions have been on a decline in the past few years). It uses sustainable packaging materials, while ingredients of animal or synthetic origin have been replaced with those of plant origin. One great example of how the company ensures minimal impact of its operations is the sourcing of palm oil for its products. This is from a site covering 107 hectares wherein 35 per cent is for palms while the remaining 65 per cent is a forest reserve that helps to preserve the local ecosystem. The company is also working to ensure that there is no waste from its manufacturing processes.
While the words ‘oil refining’ are not usually associated with anything clean or green, Neste Corporation, a Finnish company, is bucking that trend. Rated A by the Carbon Disclosure Project (CDP), ranked 23rd in the Global 100 list of the world’s most sustainable companies by Corporate Knights, and included in the Dow Jones Sustainability Indices, Neste is touted as a shining example of a sustainable company in the oil and renewable energy business. It is already the world’s largest producer of renewable diesel refined from waste and residues, as well as a leading developer of low-carbon solutions for road and air traffic. Additionally, it is bringing renewable solutions to the aviation and plastics industries. Its proprietary MY Renewable Diesel™ makes it possible to reduce carbon dioxide emissions by 50–90 per cent compared to fossil diesel. In 2015, it refined high-quality renewable fuels which amounted to a cut of 6.4 million tons greenhouse gas emissions (GHG) for its customers. In 2016, these fuels reduced GHGs equivalent to the annual emissions of 2.4 million passenger cars. The company has invested approximately €1.5 billion in the production of renewable fuels. More significantly, this part of its business was responsible for generating almost 50 per cent of Neste’s results in 2016.
While the above figures are highly impressive, what makes Neste stand out from the crop is its commitment towards realising the goals of the Paris accord as well as the UN’s Sustainable Development Goals (SDG). Accordingly, the company’s strategy reflects this – to be the leading provider of low-carbon solutions in the Baltic Sea markets and to grow globally in renewables. Its target of helping cut 7 million tons of GHGs in 2017 is another indication of its quantifiable commitments.
Its crude palm oil supply-chain dashboard is unique in the level of transparency that it accords to any user browsing through its website – there’s a supply-chain map, data on traceability, and information on each of its supplier mills. Its latest sustainability report has details on emissions figures, energy, raw materials and water usage, waste generated, and supply-chain information. Information on the carbon footprint of its products over their entire lifecycle is also provided.
Societe Generale’s climate strategy is noteworthy, not only because of its emphasis on its own proprietary activities but also based on the kind of projects it provides financing for. The latter is an acknowledgement of the fact that by supporting carbon-heavy projects, the bank is indirectly responsible for the resultant emissions. Accordingly it has set itself two objectives, aligned with the COP21 goals: a) to reduce outstanding credit exposure related to coal mining by 14 per cent between 2016 and 2020, and b) limit the proportion of installed capacity for coal-fired power plants in the energy mix financed by the bank to 19 per cent by 2020.
The French banking giant has been using internal carbon pricing since 2011. For the uninitiated, internal carbon pricing is levying a price on carbon, generated through the organisation’s operations and workings. This means that for all business planning, costing and strategy purposes, any carbon emission generated by the company is a cost to the company. This helps in risk assessment, investment decisions and determining potential opportunities. Globally, internal carbon pricing has become a much favoured tool to reduce emissions. For Societe Generale, this internal carbon tax is levied on the basis of each Group entity’s emissions (€10/tonne of CO2) and the same is then redistributed to finance internal environmental-efficiency initiatives.
The bank has stopped all new financing for coal-fired thermal power plant projects since 2016 and committed to doubling its financing for the renewable-energy sector by 2020, including €10 billion funding for such projects. It has also issued green bonds amounting to €6 billion. Societe Generale is one of the pioneers of positive impact finance (PIF), which is ‘financing any activity that produces a verifiably positive impact on the economy, society or the environment whilst ensuring that any potential negative impact has been properly identified and managed.’ This figure was €2,244 million in 2016.
Societe Generale’s CSR performance is subjected to extra-financial reporting – that is, non-financial criteria related to environment, sustainability, social values, etc., – verified by statutory auditors and evaluated by extra-financial ratings agencies. These help in benchmarking its efforts compared to its industry peers. On its sustainability performance, the company has a 2020 target of reducing emissions per occupant by 20 per cent (base year 2014); currently the number is 2.13 tCO2 (total carbon dioxide) per occupant. Through its green initiatives, the company has realised €26 million of annual recurring savings and 58 gigawatt-hours of energy savings per year, and avoided 11,000 tonnes of CO2 each year cumulatively. A detailed breakdown of its per-employee energy consumptions and GHG emission is provided in its CSR-cum-sustainability report. An excel file with data on the company’s many positive impact financing and green financing projects is free to download on the official website.
Unsurprisingly, when it comes to the auto industry, few companies do better on sustainability than Toyota. CDP has given it an overall A rating for its climate performance, acknowledging its work in overall fleet emissions, advanced vehicles, and hybrid technology. Although German automakers like BMW and Daimler do equally well as per multiple rankings of ‘most sustainable auto companies’ (the recent allegations of colluding to illegally hold down prices notwithstanding), Toyota, by virtue of being the world’s largest supplier of green vehicles, is the subject of discussion for this article. Till April 2016, Toyota had sold 9 million hybrids (led by its flagship model Prius) from its offerings of 33 hybrid passenger-car models and one plug-in hybrid (PHV), resulting in approximately 66 million fewer tons of CO₂ emissions.
Part of the reason why Toyota makes for an interesting study are its ambitious goals or ‘six challenges’ that it has set for itself, to be met by the year 2050. This includes targets such as reducing carbon emissions from its vehicles by 90 per cent from 2010 levels, achieving zero carbon emissions throughout the lifecycle of its manufacturing processes, and aggressive adoption of renewable energy. For instance, the company uses the eco-vehicle assessment system (Eco-VAS) to assess the environmental impact of its vehicles over the entire lifecycle from production to disposal. Other stated goals are reducing the average CO₂ emissions from new vehicles globally by over 22 per cent from the 2010 level (an approximately 28 per cent improvement in terms of fuel efficiency) by the year 2020, and working on multiple initiatives towards a full-fledged hydrogen-based society by the year 2030.
One can browse through its fairly detailed environmental data figures on its website and take a look at the environmental (or sustainability) report, which is separate from its annual sustainable management report that focuses on the hows of their medium- and long-term targets. Data on region-wise CO₂ emissions as well as key indicator of its vehicles (fuel efficiency, exhaust gases, pollutants, etc.) are provided. Supply-chain data isn’t as comprehensive though.
Picking their brains (and practices)
While the companies above are by no means ‘sustainably’ perfect, what separates them from the pretenders are their vision, efforts and investments that are clear, substantial and open to inspection and criticism. When it comes to all things clean and green, there’s not much room to hide – you have either cleaned up or are still spewing dirty gases into the atmosphere. And from the case studies discussed in this article, it becomes clear that data-driven metrics rule.
There are plenty of takeaways for businesses, big and small, from the examples set by these companies. Some of the most noteworthy and replicable ones that we think need to be implemented by any Indian firm serious about doing its business sustainably are listed here.
- Data, data, and more data: Common to any business committed to sustainability is the availability of key data related to emissions, energy and water usage, suppliers, and employees across its entire value chain. That means right from the time the raw materials are sourced (or grown) till the product is discarded or recycled. Supply-chain information becomes even more critical here. Metrics like CO₂ emissions per ton-kilometre (the transport of one ton of goods over a distance of one kilometre), emissions per employee, and business air travel are various ways in which companies can (and some already are) provide a more holistic assessment of their impact. Additionally, companies are placing more emphasis on disclosing information related to their employees. Diversity is considered to be key to the success of any modern business and the best companies are making a concerted effort to move in that inclusive, non-discriminatory direction. Transparency reigns supreme and these companies adhere to global standards such as GRI guidelines, UNEP and other ‘green’ accounting methods to disclose their performance. It goes without saying that such figures have to be necessarily audited by credible external parties. Another important observation – all of this data is easily available on their own websites, which means anyone can peruse it. Compare that to the often labyrinthine process of finding (mostly unavailable) information on Indian companies.
- Lifecycle matters: Many businesses operate under the mistaken assumption that accounting for their direct emissions is enough. But best-in-class (best in green?) companies realise that there are innumerable ways in which their operations can indirectly impact the environment. For instance, every business releases Scope 2 emissions which are the indirect GHG emissions from consumption of purchased electricity, heat or steam – all of this need to be baked into the emission metrics. Hence, the top-rated companies have researched into the entire lifecycle of their operations, including their supply chain, which is a critical component. Scope 1, 2 and 3 emissions are accounted for and accordingly targets are set. Even aspects such as dealing with manufacturing by-products, transportation emissions, packaging, and the process of discarding products have a bearing on the environmental cost of running a business. Scope 3 is a great measure to use here – this standard accounts for indirect GHG emissions from the value chain that occur outside the company (purchased goods and services, transportation, business travel, employee commuting, use of sold products, etc.). For example, emissions that a car produces during its lifetime are the most significant source of emissions (use of sold products) and should be a key metric for car companies. Lifecycle assessment is another popular method to estimate GHG emissions associated with products.
Accordingly, companies need to work closely with their suppliers and partners to ensure that they, too, have practices and standards in place to limit damage to the environment and are committed to combating climate change. Fair trade and equitable practices go a long way here. For example, Natura has established a ‘program for the certification of forest products suppliers’ in order to ensure that the ingredients are harvested with respect for the environment.
- Source local, even if global: Transporting goods from one place to another is a carbon-heavy process that can dent the ecofriendly aspirations of even the most eco-conscious business. If alternatives are available, it makes complete sense to switch to sourcing raw materials and ingredients locally. This has the twin benefit of lower emissions as well as helping local communities who are then active, enthusiastic stakeholders of the company’s endeavours. Again, Natura is a great example here with their steadfast commitment towards collaborating with communities in the Amazon region, helping maintain the fragile ecosystem, improving the lives of people, and doing much-lauded CSR work as well.
- Long-term vision: Most companies ranking high in any green survey have a clear, long-term vision of where they want to be – this can be in the form of a vision document or a set of goals. Either way, specific, measurable targets are set which support the long-term ambitions of the company. However, these targets have a firm basis on thorough studies conducted on the business’ own operations, risks, opportunities and aspirations. There’s little value in fantastical goals that are simply unachievable (no one entity can singlehandedly solve global warming) or are too modest to make any tangible difference. All of these companies will have aggressive green targets that directly work towards mitigating the ill-effects of climate change, thereby ensuring the survival and sustainability of the company’s own existence (after all, if the worst of global warming comes to pass, there will be no need for business because there will be no customers left). A win-win for both.
- Engage your employees: Clean energy and environment-friendly practices can only help to an (admittedly not insignificant) extent. Human resource is possibly the most important resource and companies need to identify it as such. Educating, engaging and encouraging employees to adopt and innovate ecofriendly practices is key to a company’s success in becoming a truly sustainable entity. This can take the form of several complementary approaches – regular awareness sessions on the company’s own green initiatives and targets, educating employees on how they can minimise their own carbon footprint, encouraging remote work and low-carbon commute, incentivising them to work on projects and ideas to lower emissions, facilitating a culture of debate and discussions on green products and innovations, etc. For instance, Cisco has more than 54 sustainability ‘champions’ across 16 business groups who are involved in an average of 60 active projects at any given time, such as finding ways to reduce Cisco’s carbon footprint with sustainable packaging ideas. Toyota had instituted the Global ECO Award in 2006 to promote ecofriendly improvement activities of its overseas affiliates. Employees are rewarded for coming up with new, innovative green ideas and practices.
- Take the plunge and commit: While almost every country has ratified the Paris accord (we will ignore the US for now), companies can pledge their own commitment towards its goals (namely, limiting global temperature rise to 2 °C) and design their medium- and long-term policies accordingly. Doing so provides a solid foundation in formulating a strategy for the business’ environmental objectives while signalling to the market and customers that it is serious in realising those targets. There are numerous forums, organisations and treaties that are working with companies across the globe to unite them against climate change. The Carbon Disclosure Project, multiple UN forums, We Mean Business coalition, etc., are some examples. Industry-specific organisations are also cropping up to help businesses collaborate on measures to become sustainable sustainably. Knowledge and technology transfer and partnerships are going to be critical if companies want to remain successful whilst transitioning to a carbon-neutral future.
- Make innovations, big and small: While usually major, groundbreaking innovations are what garners the kind of publicity PR gurus dream of, companies should not discount the smaller, incremental benefits that result from less glamorous improvements. Going completely electric a la Tesla or Volvo is great, but so is Societe Generale’s less applauded commitment to divest from coal-powered projects. Large-scale transformations and pioneering inventions can’t happen every day, but measures and strategies to constantly reduce fossil-fuel dependency and environmental damage can.
- Set your price for carbon: Internal carbon pricing is a must-do for every responsible business. As explained earlier, an internal carbon price ensures that green projects that on a traditional, pure monetary cost-benefit analysis fail to pass muster, become far more palatable when costs are imposed on the carbon emitted. It makes the case for clean energy while revealing the true cost of fossil fuel-driven, high carbon-dependent investments. And why not? After all, there are enormous economic, environmental, societal and, not to forget, moral costs to polluting the air and the ecosystem, none of which are less valuable than money or the company’s share price. Several top companies (Walt Disney, Google, Microsoft, ExxonMobil, LG, BP, Renault, BMW, E&Y, etc.) have started adopting carbon pricing as a way to construct a more holistic picture of the costs of their proposed and ongoing investments and incentivise themselves to move away from high carbon usage.
While not exhaustive, the above learnings are relevant to all Indian companies looking to become truly best in class. It is no longer sufficient to pay lip service to green causes (if they did that in the first place). Climate change is a scientific phenomenon that has the potential to wipe out our planet as we know it. That’s enough reason for corporate India to stand up and become active champions of the fight against it. There are more than enough peers whose lead they can follow. Though some Indian companies are taking steps in the right direction, the numbers are too few and need to urgently go up. There is no shortage of reason, incentive, or plain logic to go green. If the nations of the world can say yes to it, so can business. Some already are doing that.