The long and winding road to decarbonization

Last week, I had a call with the head of planning and logistics at a global food and beverage company. One of the biggest changes she’d noticed in a nearly 30-year career is the broadening of supply chain’s focus from efficiency and sufficiency to one of efficiency, sufficiency and sustainability. What she meant is that it was no longer enough to get things out the door on time and at the lowest cost. Rather, supply chain managers were now tasked with balancing cost and on-time delivery with sustainable operations. “We want to be known as a good company,” she said.

It’s a timely discussion. With the recent passage of the Inflation Reduction Act sustainability is once again front and center.

That was a great lead-in to another conversation I had recently, this one with Jana Gerber, the North America Microgrid President at Schneider Electric. Schneider might not be a household name, like P&G, Unilever or Apple – enterprises that we interact with all the time as consumers – but it is a leader in the energy management and automation space.

Jana Gerber, North America Microgrid President at Schneider Electric is working to decarbonize supply chains.

Schneider is also one of the great global supply chains, consistently placing in the top ranks of Gartner’s list of the Top 25 Supply Chains. Schneider jumped two spots to land at No. 2 on this year’s list, which I’ll publish in the September issue of SCMR. And, like Unilever, Cisco and MilliporeSigma, it is a company that has put sustainability front and center in its business strategy. In 2021, Schneider was ranked the Most Sustainable Company in the world by Corporate Knights Global 100 Index.

In fact, Schneider’s commitment to sustainability was among the achievements cited by Gartner, both in its own supply chain, but also those of its suppliers and customers. “Its STRIVE (2021-2023) program seeks to have 70 net-zero carbon plants and distribution centers by 2025, and the company continues to look for other efficiencies across its remaining manufacturing and warehousing facilities,” the Gartner team wrote. “The company’s demonstrated track record of delivering on ESG commitments points to a high likelihood of meeting these ambitious goals.”

“The market is at a point of inflection,” is the way Gerber describes what appears to be a new and sustained focus in supply chain and corporate management on sustainability.

Schneider is tackling both sides of the sustainability strategy. In addition to the program to have 70 net-zero carbon facilities called out by Gartner, Gerber noted that Schneider’s internal agenda is addressing Scope 1 to Scope 3 emissions.* This year, for instance, “we launched the Zero Carbon Project to help our top 1,000 suppliers who represent 70% of our emissions to find ways to reduce their carbon footprints,” she said. The goal is for the suppliers to reduce their emissions by 50% by 2025.

The other side of the strategy is to provide products and services to enable Schneider’s customers to decarbonize their supply chains and drive their sustainability programs. “We have an internal group with 2,000 people worldwide focused on helping our customers look for ways to enact their sustainability programs,” Gerber said. The company provides advisory services to create an “ambition to action” blueprint for businesses to reach climate and sustainability goals through unique strategic planning and implementation partnership. The company also advises its customers on over $35 billion per year worth of energy spend. They combine this with the company’s expertise as the largest advisor of negotiated corporate Power Purchase Agreements in the world. Power Purchase Agreements, or PPAs, are an agreement developed for utility scale renewable projects. In this model, an industry or an organization with a large supply chain can aggregate the purchase of the power requirements of a large number of their assets. One example is a program Schneider put together for 10 U.S. and European pharmaceutical companies and their shared suppliers to aggregate their demand for renewable energy.

Another example is Walmart’s Project Gigaton. This initiative aims to avoid one billion metric tons of carbon dioxide – a gigaton – from Walmart’s global value chain by 2030. As part of that initiative, Schneider worked with Walmart to develop the Gigaton PPA that enables Walmart suppliers who are not contracting for renewable energy or may not have the scale on their own to take advantage of a PPA, to gain access to a utility-scale PPA. The Walmart initiative is focused on Scope 3 emissions – it’s broader supply chain.

Schneider is also a leading provider of microgrids. They work with partners to develop and install full scale microgrids, which include distributed energy resources such as solar panels to generate renewable power, batteries for storage, plus the controls and the intelligence to manage the grid for Schneider customers and help them disconnect from a traditional power grid.

The second aspect of this approach is called Energy-as-a-Service, which operates much like Software-as-a-Service or Robotics-as-a-Service. “In that model, there is a financial vehicle that allows customers to procure a microgrid without a big capital outlay,” said Gerber. “The customer pays by the kilowatt hour price for a partner to operate and maintain the grid along with a commitment to uptime.”  Schneider formed two joint ventures with other partners, AlphaStruxure and GreenStruxure.

Through the GreenStruxure joint venture, Schneider is working with Grupo Bimbo to develop and build Energy-as-a-Service microgrids for six California bakeries – targeting their Scope 2 emissions. Grupo Bimbo estimates the microgrids “will deliver about 25% carbon reduction and 25% of the electricity needs for the sites.”

One of my questions to Gerber is the question I ask everyone, which is whether the current focus on sustainability is sustainable? Is the energy real, and will it last? “It is sustainable,” Gerber said, pointing to Larry Fink, the CEO of BlackRock, who declared that companies without a sustainability strategy pose an investment risk. “Without getting into tree hugging, the question is what are we doing to make sure that we have companies that can operate over the long term?” Gerber asked.

Fink also once posed an existential question of the corporate world: “As your industry gets transformed by the energy transition, will you go the way of the dodo, or will you be a phoenix?”

Schneider has clearly chosen to be a phoenix.

*If you’re not familiar with them, Scope 1 represents direct emissions within the operational control of an organization. Scope 2 represents indirect emissions generated from purchased electricity, heat, steam or cooling. And, Scope 3 represents all other indirect emissions including business travel, waste management and the value chain. Supplier activities, for instance, represent Scope 3 emissions.

SC
MR