Manufacturing matters: both to the global economy and to our daily lives. As an industry, it produces goods that we depend on, provides a spectrum of jobs around the globe, and drives crucial innovation. Yet manufacturing also has an outsized impact on the environment. For this, it's facing scrutiny from all directions: investors and regulators, customers and employees, and wider communities. In most developed countries, manufacturing is one of the top three sources of greenhouse gas (GHG) emissions, accounting for almost a quarter of direct carbon emissions in the US.
Faced with this footprint, it's critical that manufacturers plan how to respond to the climate crisis. What does an ambitious long-term strategy focused on adapting to and combatting climate change look like for heavy industry?
Digging deeper into the value chain, it becomes clear both how much needs to be done and how much potential the sector has to make a positive impact on creating a net zero world. The tremendous influence manufacturers have over their own operations and along their value chain is an opportunity for significant climate action. The time to act is now.
Heavy industry accounts for over a fifth of corporate energy consumption2: this is due to the high energy cost of producing goods from raw materials, which in turn leads to high GHG emissions. Yet this cost also translates to significant opportunity in the drive to net zero.
|The Russian-Ukrainian military conflict, which is first and foremost causing a global humanitarian crisis, has also led to soaring oil and gas prices, which translates into higher energy costs for manufacturers who are then faced with the challenge of passing these costs on to customers or absorbing them, both of which represent business risk. Companies are increasingly looking for ways to manage energy costs and price volatility and sourcing renewable energy can help. Fossil fuels are unlikely to get cheaper, but solar, wind, and storage will – they're technologies that can scale.|
The first step on the journey to net zero is always to measure. Conduct a comprehensive accounting of your energy usage and the emissions resulting from your business operations. It's crucial to also include your indirect (scope 3) emissions and then set ambitious yet achievable targets for emission reductions and transitioning to renewable energy. The Science-Based Targets Net Zero standard is a reputable framework that focuses on six criteria critical to limiting global warming to 1.5°C by the end of the century: standardisation, ambition, impact, accountability, transparency and credibility.
Next, reduce your emissions. The best way to do this is to invest in energy efficiency measures. These should look at the saving potential from all sides, from changing employee behaviour to investing in modern technology; this way you can start reducing your scope 1 and 2 emissions at the source. You could also look into switching to biogas as a more eco friendly, regional alternative. Biogas is produced from biodegradable sources – including manure and organic waste – in an environmentally-friendly way before being upgraded to biomethane of the same quality as natural gas and injected into the existing gas grid.
When it comes to scope 2 emissions, sourcing renewable energy is one of the most effective ways to achieve reductions quickly and contain rising energy costs. This makes it a powerful place to begin and a cornerstone of an integrated climate strategy.
If you're looking for an easy first step, Energy Attribute Certificates (EACs) are widely available globally and can be transacted in a matter of a few weeks. However, there will always be a cost involved in purchasing EACs and, particularly as manufacturing is energy intensive, you may want to look for cost-saving opportunities in geographies that would be better served by other solutions. The key is to develop a holistic, long-term strategy that can unlock those cost-savings and also provide energy price risk management alongside meeting your sustainability objectives. This can mean considering off-site power purchase agreements (PPAs), on-site generation, or bundled/unbundled EACs.
Companies face costs of up to US$120 billion from environmental risks in their supply chains within the next five years according to CDP. Meanwhile, the emissions from a manufacturer's supply chain are on average 11.4 times higher than those from its operations. Add to this the growing pressure to report scope 3 emissions and it's clear that managing GHG emissions and product impacts throughout your supply chain is crucial to remaining competitive and resilient.
As a manufacturer who wields control as a buyer of goods and services, you are ideally positioned to demand transparency from your suppliers. The 2021 CDP Global Supply Chain Report found this to be a highly effective mechanism in driving disclosure and encouraging suppliers to cut emissions and costs. In 2021, suppliers disclosing through CDP reported emission reductions of 1.8 billion tonnes CO2e and savings of over US $29 billion. How do you address these indirect emissions? One very effective plan of action is to start repowering your supply chain by accelerating your suppliers' transition to renewable electricity. This will be a global effort that fosters collaboration and long-term relationships with your suppliers.
The circular economy has been called the biggest revolution in the global economy in 250 years. The concept is grounded in the closed-loop model of “reduce, reuse, recycle, recover", replacing the linear model of “take, make, waste". Circular systems minimise resource inputs, keeping products, equipment and infrastructure in service longer, while reducing waste, pollution and carbon emissions. Circularity and product design are also key levers for reducing the use of virgin materials and therefore reducing scope 3 emissions.
The Plastics Leadership Journey. Source: South Pole Plastic Solutions
Economic, geo-political and social factors have all deeply affected the cost and availability of resources for manufacturers. Since 2020, the global COVID-19 pandemic has caused major disruptions to global supply chains, touching all corners of the globe. Manufacturers are alert to the urgency of responding to these shifts. Operations must be transformed and products re-designed so they use less energy and more recycled content: such changes are key to future-proofing manufacturing. They can help mitigate the rising price of raw materials, meet stakeholder expectations and enable manufacturers to engage more closely with their suppliers and collaborate on developing innovative solutions.
Investors are looking for greater transparency: they want to know how companies are managing their environmental impact (via ESG metrics) and are willing to fund companies that can demonstrate tangible progress. They're also pushing governments to do more. Last year, 733 investors, representing over USD$52 trillion in assets, signed the 2021 Global Investor Statement to Governments on the Climate Crisis urging governments to implement policies to deliver on net zero emissions targets, incentivise private investment in zero-emissions solutions, and implement mandatory climate risk disclosure aligned with the TCFD1, among other actions.
This is yet another incentive to act on climate now, measuring and reporting your impact under credible frameworks, and working towards reducing your footprint.
At South Pole, we work with manufacturers to transform ambition into action, with measurable, positive impacts on the environment and the bottom line. We design solutions with the big picture in mind, leveraging our expertise in the interrelation of challenges, opportunities, and solutions to help companies take meaningful climate action.
For manufacturers, we know that the strongest levers of change lie in energy strategy, the circular economy, and the supply chain:
1Task Force on Climate-related Financial Disclosures
2South Pole research based on CDP data
Talk to us about getting started on your climate journey.