Decarbonization Strategies: Perspectives from Three Tech Leaders

According to data from ENGIE Impact, CDP and Oxford Economics, the technology industry is leading the charge on sustainability, paving the way in global decarbonization strategies and driving practices toward achieving net zero. Often hitting challenges first, the tech sector has seen significant engagement across the value chain, presenting needs for transparency and accountability. But just as technology is a cornerstone to the advancement of any business, so too is the need to integrate sustainability into an organization’s overarching mission.

Sustainability has transitioned from a supporting role to an integrated capability that companies must build into multiple functions of the business (from finance to marketing, engineering to supply chain). As Prakash Arunkundrum from Logitech recently shared, it’s all about weaving this mindset and practices into the fabric of an organization.

Aligning with this trend, Reuters, in partnership ENGIE Impact, recently hosted a virtual workshop, “Driving Decarbonization in Turbulent Times and Beyond: How leading companies are re-energizing their decarbonization programs from the COVID crisis into 2021.” The discussion included dialogue and debate about how 2020 impacted corporate sustainability programs as well as success stories and recommendations from industry experts. The workshop featured a panel of technology experts across the value chain (Page Motes, Director of Sustainability at Dell Technologies; Prakash Arunkundrum, Head of Global Operations and Sustainability at Logitech; and Chris Librie, Director of ESG and Corporate Sustainability at Applied Materials). Each panelist shared their perspectives on risk analysis, ways to engage stakeholders—including the supply chain and employees—and creative financing mechanisms that help accelerate and increase decarbonization and resilience in their respective programs.

Discussing Findings from the Global Executive Survey

The discussion began with highlights from the Global Executive Survey, a survey of 200 executives conducted by ENGIE Impact that dug into how sustainability is prioritized and what levers are used to develop and implement sustainability strategies. The data showed that sustainability will be a much higher priority on the C-level agenda over the next five years and that the execution of those strategies will have a much more significant impact on corporate revenue and profit. But while 85% of large organizations have set sustainability goals, only 24% are on track to hitting those goals. The ambition is there, but the changes required to meet those goals are complex.

Ultimately, the survey displayed how important companies perceive sustainability to be as a part of their business success, but also how far organizations still have to go—75% believe that successful execution of a leading sustainability strategy will provide a competitive advantage, but only 30% consider their efforts successful today. The biggest challenge, perhaps, is taking this perceived importance and putting it into action.

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If not tied to actionable next steps, data is just numbers. An essential part of the survey was to identify the key levers considered most important as leaders look at ways to achieve their sustainability goals, which included:

• Managing Unknowns: Scenario analyses and digital tools and how those are used to model and quantify risks and opportunities from a climate standpoint.
• Engaging Suppliers: The growing trend around companies being more aggressive about engaging their suppliers in terms of decarbonization when they think about what they can do across broader efforts to make the sustainability of their overall value chain better positioned for the future.
• Redefining Finance: Creative financing approaches that companies are using to finance their sustainability investments.

Here are the three ways Dell Technologies, Logitech, and Applied Materials are implementing decarbonization strategies and key sustainability levers in their respective businesses that will carry them into the future.

1. Successful Companies Are Far More Likely to Have Invested in a Range of Measures to Drive Sustainability Outcomes

While the survey identified seven prioritized levers for high maturity companies, scenario analysis to quantify financial risks and opportunities was the leading lever, and over half of respondents also prioritized digital tools. When asked to what extent they are using identified tools to meet current sustainability objectives, the panelists shared interesting insights and best practices currently in place at their organizations.

The Value of Partnerships in Climate Risk & Opportunity Evaluation

A central theme from the workshop was the value of evaluating risk through partnership with a third-party firm. One year ago, Dell Technologies facilitated a TCFD (Task Force on Climate-related Financial Disclosures) assessment, which generated concrete recommendations such as increasing their governance process for climate risk and oversight and facilitating a review of the company’s risk registry. Dell responded to these recommendations by creating a Climate Interlock Team, allowing them to more routinely engage with everyone from sales to finance to supply chain to facilities, ensuring consistent awareness on the aspects and root causes of risk.

Chris Librie from Applied Materials echoed this idea.

Demanding Transparency in Carbon Reduction Practices

Carbon Impact Tables have allowed Logitech to analyze scenarios and provide a transparent picture for customers. “When you go to a grocery store, you buy a bag of chips and see the nutrition label. We need to be at the same place from a carbon perspective,” said Prakash Arunkundrum. This idea came to life in 2020 when Logitech pledged to disclose carbon impact on packaging for every product across its portfolio, a step that would impact the circularity of products over the long term.

It’s clear that organizations understand that climate change is a major risk and that numerous constituency groups, be it customers, regulators, investors, or the broader business community, are not just wanting this focus, they are demanding it. But with such expectations comes significant responsibility on the part of leadership. The need to cross-share perspectives and plans is more important than ever, and it is through collaboration and standardization around how we view risk that we can turn complex ideas into actionable plans.

2. Encouraging Suppliers to Transition to Renewable Energy Was Ranked the Top Priority Supplier Engagement Measure

Many companies are better engaging with suppliers, providing guidance and encouragement to help them transition to renewable energy, and more than half of survey respondents indicated that this step is a top priority for their organization.

Demands in this space are immeasurable and adding on the expectation of having suppliers themselves step up and alter their own processes may seem daunting. That being said, panelists shared measurable examples of how they have found success in this area.

How Tech Leaders Are Helping the Value Chain Meet Decarbonization Goals

• Engagement: For Logitech, supplier engagement presents a significant opportunity for growth and leadership. The organization looks at impact, both with direct suppliers and in the tiers, and has incorporated new sustainability and renewable energy metrics into supplier quarterly business review processes. These metrics have shifted supplier mindset; a shift that ultimately has resulted in suppliers starting to make sustainability a part of their pledges and invoking that in their own actions.
  
  Traditionally 90% of an organization’s footprint comes from Scope 3, and this realization has narrowed the focus of Applied Materials. “What we have going on here in the technology sector is a very virtuous thing. We’re trying not only do the right things to get our footprint in order but also to be in a position to help others meet their goals,” said Librie.

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• Lead by Example: Before an organization turns its attention and energy toward encouraging suppliers to make changes for the better, they must first take a close look at their own processes and let their actions speak for themselves. Logitech views sustainability from a design lens focusing on designing products from the ground up.

• Financing Options Where Feasible: One of the great debates when it comes to supplier engagement is whether or not instruments like green finance should be provided to suppliers to aid in their own decarbonization efforts. For smaller organizations, supporting suppliers financially may not be feasible, but even for more mature companies, providing suppliers with financial assistance can be a slippery slope.
  
  At Dell Technologies, it isn’t so much about financing suppliers as it is about knowledge share and leading by example. “We own a number of our own manufacturing plants. We do a lot of ‘try it out first’, trying to get costs down and share best practices so that when we offer up ideas, they’re ideas that makes sense to a business,” said Page Motes, Dell Technologies. “We’re lucky that we’ve been engaging with suppliers for long enough that some are already stepping up very powerfully in that space.”

3. Financing Mechanisms Have Been Unevenly Adopted to Accelerate Sustainability Initiatives

It’s no surprise that the level of investment needed to achieve sustainability goals can be extreme and identifying creative and unique ways to approach the financing of sustainability initiatives is no small feat. When sharing perspectives on financing mechanisms, the panelists varied in what they have put into place. But one thing rang true across the board: it takes buy-in and support from all levels of leadership to make this work possible.

Finding Decarbonization Solutions from Unlikely Sources

Seeking input across business units can result in a more comprehensive and robust review of current state and identify ways to make the aspirational possible. Especially when it comes to financing sustainability initiatives, the best ideas can often come from unlikely sources.

Logitech’s Pervasive Sustainability program invites ideas from all levels of the organization, evaluating concepts not just from common elements like schedule and financials, but also the sustainability impact of each new product development process. This change has allowed the organization to fund sustainability initiatives directly through the margin contribution of each product.

Dell Technologies also sees the value in soliciting ideas across the organization and has put pen to paper to see it through. Their new crowdsourcing initiative (formally launching on Earth Day 2021) will enable the entire workforce to share their own ideas of innovation and creativity. “Like many companies that have embedded innovation groups, we have been driving innovation and trying to finance those projects all along,” said Motes. The crowdsourcing opportunity, available to all 150,000+ employees and partially financed through Motes’ own budget, will allow ideas to be gauged and prioritized to identify feasibility and opportunity value. “We’ve already seen exciting items come through in the circular and climate spaces and we haven’t even opened it up to all employees yet. We’re going to continue to aggressively pursue great ideas that are coming from what we originally thought might be unlikely sources; we’re now finding that they’re incredibly good sources,” said Motes.

Creating Sustainability Project Financing Solutions to Meet Investor Demands

Regardless of whether sustainability projects are viewed individually or as a bundle, investors today are paying even closer attention to how financing is allocated. When considering incentives and compensation at the executive level, dedicating resources toward decarbonization strategies and efforts is no longer a nice to have, it’s an imperative.

Applied Materials knows firsthand the influence and demands around goals and commitments directed towards ESG that are coming from their own investors. Much like other organizations, these expectations have resulted in executive pay being linked to ESG.

Financing mechanisms and decisions depend largely on the value companies place on projects critical to their business. The discussion shed light on the fact that some organizations see options like third-party financing solutions as very important and some as not important at all. Ultimately, it is up to the organization to determine the best financing strategy for them going forward.

What Does the Future Hold for Tech Decarbonization Strategies?

There is an inherent need to connect vision to execution when it comes to decarbonization strategies. While several companies have taken initial steps, there are substantial gaps between ideation and action. But the good news is that it is possible to move the needle forward, and Dell Technologies, Logitech, and Applied Materials are testament to that.

Today, sustainability is well integrated into operations, product development, engineering, finance and how companies operate overall. Translating a vision into concrete actions takes time, investment, and buy-in at senior leadership levels. Transparency is going to be more and more important as companies start to think through how they decarbonize their operations and their value chains.

Once an organization identifies the roadmap, the execution may not be as difficult if executive buy-in is present. The challenges are to define the plan and ensure that you have the right capabilities and incentives at the executive level to drive implementation.

Gaps between what is happening today and what is possible tomorrow are certainly present, but with the right vision, leadership buy-in, concrete actions, and investment, the decarbonization strategies that may seem like a lofty idea today can be made real tomorrow.

Learn more from these technology leaders by clicking here to view the recording of the workshop.