It is not uncommon for companies to tout their commitment to sustainability, but on closer examination the company’s commitment is far less than advertised. The phrase being used for this is “greenwashing.” Here are a few questions that can be asked to really get at a company’s commitment to sustainability:
- Are the goals significant?
- Is real progress being made?
- Do green projects have a lower hurdle for approval?
- If there is a tradeoff between cost and a sustainable project, is the higher cost/less sustainable project ever selected?
Let’s put a major multinational – Saint-Gobain – under the microscope to illustrate how this kind of analysis
Who is Saint-Gobain?
Compagnie de Saint-Gobain S.A. is a French multinational corporation, founded in 1665 in Paris and headquartered on the outskirts of Paris, at La Défense. The company had sales of more than 38 billion Euros in the last financial year ($43 billion
A worldwide leader in light and sustainable construction, Saint-Gobain is present in 72 countries with more than 167,000 employees. Saint-Gobain designs, manufactures, and distributes materials and solutions for the construction, mobility, healthcare and other industrial application markets.
The company has a continuous innovation process. In 2021, for the tenth consecutive year, Saint-Gobain was named one of the world’s 100 most innovative companies, according to the Clarivate Top 100 Global Innovator™ ranking. Saint-Gobain is also considered one of the leading companies in terms of environmental ambition and transparency; They are listed as being on the CDP’s “Climate Change A List.” CDP is a global non-profit organization whose benchmarks on environmental performance by industry are widely recognized.
Are Saint- Gobain’s Goals Significant?
The company has committed to carbon net neutrality by 2050. The company will attain this goal by having operations that are significantly less carbon intensive and by producing products that are significantly better for the environment. A press release from October of 2021 stated that solutions sold by the Group over the course of one year result in the avoidance of around 1,300 million tons of CO2 emissions over those product’s lifespan. These avoided CO2 emissions from their products, they argue, are around 40 times the Group’s own total carbon footprint.
A new goal, targeted for achievement in the next five years, is to be the world leader in providing light and sustainable construction products. Buildings and building construction is the primary cause of CO2 emissions, accounting for 40% of emissions around the globe. Saint-Gobain’s ambition is to provide solutions that can decrease in at least two thirds these emissions. Light construction – when the only support is a wooden, concrete or metal structure – requires the use of light materials, such as plasterboard. This contributes to the decarbonization of buildings. The use of light construction solutions – which already account for 40% of the company´s sales – has several advantages according to the company. It increases site productivity, reduces the usage of raw materials by up to 50%, but also leads to a more comfortable building.
If a company is serious about achieving their goals, they can’t allow slippage or have a moving target. Saint-Gobain also has a goal for organic growth of 3 – 5% through 2025. However, their carbon reduction goals for their value chain operations for 2030 will not be changed. The 2030 roadmap is targeting a reduction in CO2 emissions of 33% for scopes 1 and 2, and of 16% for scope 3, versus 2017 (definition for scopes 1, 2, and 3). In other words, they aim to reduce carbon by this target by 2030 regardless of company growth. New acquisitions, for example, won’t lead to a prorated calculation that factors out emissions from the acquired company from the carbon target.
Is Saint-Gobain Making Progress on Sustainability?
If you examine the Saint-Gobain website, you will find much material on future goals, but little content on the recent progress they have made in reducing their CO2 emissions. However, progress clearly is being made. Particularly in reducing the carbon footprint associated with getting their goods to market.
Fabricio Saraiva Moreira, Operational Excellence Director for Latin America, was willing to discuss their success in reducing carbon emissions in Latin America. Mr. Moreira is in Brazil where he is also in charge of a Center of Excellence (CoE) for Latin America for supply chain and manufacturing, sustainability, EHS, Industry 4.0, and Data Science.
To support supply chain operations, Saint-Gobain has a Transport Control Tower. This control tower includes a supply chain design solution from Coupa that helps them reduce both freight costs and C02 emissions. To help evaluate opportunities, Mr. Moreira’s team develops projects and presents them to business unit directors with different scenarios for them to evaluate. The business directors pick the option that is best suited to their needs. The scenarios target achieving a specified customer service level in a manner that improves profitability while reducing CO2 emissions.
Brazil, the single largest country in which the company operates in Latin America, has experienced significant benefits by optimizing its transport routes. In Brazil, across 16 business units, they operate 56 factories and 126 distribution centers and outlets. To connect these supply chain sites to each other and customers there are 3,900 transportation lanes covering more than 1.7 million kilometers of highway. Saint-Gobain primarily uses truck transport, but sea shipments are also used.
In short, this is a complex network. In fact, there are 13,000+ potential network configurations. The Coupa tool provides a much more efficient way to conduct cost saving/sustainability studies. And the results are more credible when presented to business leaders. Saint-Gobain began working with LLamasoft, now Coupa, in 2019.
The company typically does 25 to 50 studies per year. These efforts led to transport emissions reductions of 40-60% for several Saint-Gobain brands, and a 13% reduction in CO2 across all the transport control tower studies they conducted across Latin America.
There were also freight savings. Over the past five years, the transport control tower projects have led to savings of over $10 million. In short, the gains in sustainability have been much more impressive than the freight savings. “We are only at the beginning of the journey of decarbonization of logistics. There is still much more to be done”, explains Mr. Moreira.
There are three primary ways cost savings and carbon reductions are achieved. Through green field studies, through better transport optimization, and through better collaboration with outside entities or customers.
In a green field study, a company looks for an optimal placement a new factory or warehouse. An optimal placement is one that achieves service level goals while reducing the total number of miles that trucks will need to drive to deliver goods to customers. Fewer miles traveled means less emissions.
Transport optimization is done in several ways. Saint-Gobain looks to see if trucks delivering goods for one brand, and returning empty, can get backloads from other divisions and reduce those empty miles. Saint-Gobain can also look outside their network to work other businesses for opportunities to reduce empty miles on return legs —a collaboration with Heineken led to emissions reductions of 40% for those collaborative routes.
Another way miles can be reduced is by looking at existing routes across the network. It might be that distribution centers (DCs) are delivering goods to customers in a 50-mile radius. Would a 30-mile radius for one DC, and 70-mile radius for a different DC, lead to fewer total miles? Similarly, on what routes should Saint-Gobain use their own trucks versus using outside carriers?
Can service levels still be attained if there is a modal shift? Shipping by sea is less expensive, and has fewer emissions, but takes longer. What routes can be moved from truck to sea without adversely affecting customer service?
Can trucks be filled more fully? A truck has a limit of how much weight it can carry. In one study, it was determined that a truck carrying heavy products, big bags of grain, could also carry insulation, a very light product. This resulted in better utilization of the fleet.
Finally, Saint-Gobain is exploring the use of electric and natural gas trucks in a partnership with its suppliers. However, Mr. Moreira explained, the infrastructure for electric and natural gas trucks is much more limited in Brazil than in Western Europe or North America. The opportunities are limited to metropolitan areas that have charging and refueling stations, but he believes that for the next few years the situation is going to improve.
Do green projects have a lower hurdle for approval?
Companies have a variety of projects they can invest in. If only the projects that create the best financial returns are selected, sustainability will take a back seat. One way to know that a company is serious about sustainability is that sustainability projects have lower hurdles they must clear to get approved.
At Saint-Gobain this is the case. In calculating the payback of a project, a company figures out both the costs and the savings that occur over time. If you do not put a price tag on carbon emissions, you run into the free rider problem. A company can be free rider in terms of the environment in the same way that someone who jumps over the turnstile at a subway without paying is. In the Group’s investment decisions, the internal carbon price has been increased to €75 per ton for capital investment decision (versus €50 previously), and it is €150 per ton for R&D projects.
Saint-Gobain has other measures in place to encourage progress on sustainability as well. Environmental, social, and governance (ESG) policies are embedded into management processes. ESG is taken into account in short-term incentive plans (at 10%) and long-term incentive plans (at 20%, up from 15% previously). The company has established committees focused on corporate social responsibility themes operating at the Executive Committee and Board of Directors level.
If there are tradeoffs between costs and emissions, is the higher cost, lower emission option ever selected?
Most companies are early in their journey and have so much low hanging fruit, that they can select projects that reduce carbon and reduce costs. Saint-Gobain may be further up the maturity curve. In one case, there was a green field site selection project aimed at deciding where a distribution center should be located in the Buenos Aires metro area. They looked at four sites that had the same distribution costs. The site they selected, while not a lower cost network solution, did have the best carbon footprint.
Over a span of years, as Saint-Gobain marches towards carbon net neutrality, the choices will get harder. Mr. Moreira does believe that when Saint-Gobain gets to the stage of their development where there is no more low hanging fruit, they will make the harder choices. The company, he believes, has the right kind of support from the executive suite and the right kind of governance to insure it.
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