Following the launch of the Energize pharmaceutical supply chain collaboration at COP26 in Glasgow, Schneider Electric hosted a roundtable with several of the participating pharmaceutical and healthcare companies. During the discussion, we explored the role of supply chain collaboration in addressing the challenge of Scope 3 emissions and how renewable energy education and access for suppliers can help to accelerate decarbonization.
Sustainability leaders from Sanofi, Johnson & Johnson, GSK, AstraZeneca, and Novartis joined Schneider Electric and Carnstone, sharing an inside commentary on the unique challenges their industry faces and how a program like Energize will help to overcome them. Let’s explore some of the most interesting insights.
Why are Scope 3 emissions so challenging to manage and reduce?
Collecting data from many disparate sources and diverse organizations can be a significant barrier to overcome for many companies and industries. Understanding the baseline for Scope 3 requires huge amounts of data from across the value chain and trust that the methodologies and measurement are sound. Focusing on the 80/20 rule - whereby you put most of your effort and time into working with the most impactful supply chain partners - is a great place to start to ensure that your data is directionally correct. Otherwise, perfection can be the enemy of progress.
Gaining the support and collaboration of suppliers in decarbonization initiatives is another challenge that is often seen as something outside of a company’s control. However, as it is absolutely possible to influence your suppliers’ ambition for decarbonization. Taking a collaborative approach and identifying shared goals is critical for efficiency and driving results through a Scope 3 emissions reduction program.
Something that is so unique and exciting about Energize is that it brings together a whole sector with a clear ask for their suppliers to join them in reducing emissions. Not only is it a strong signal to the market that the biggest players in the pharma industry are seriously committed to decarbonization, but also vastly increases the potential for positive impact. Individual companies may struggle to accomplish supply chain engagement at scale, but with collaboration, all companies involved will be able to deliver significant progress on Scope 3.
Why is it a challenge for suppliers to source renewable energy?
When asked, many suppliers respond that sourcing renewables will be expensive. That’s why the educational component of a program like Energize is so crucial. Demonstrating to suppliers that buying renewable energy doesn’t need to come at a premium and can, in fact, potentially create positive revenue streams can result in a completely different mindset about decarbonization.
Removing barriers outside of cost is another key component. For many smaller companies, large-scale procurement of renewable energy is not accessible in a cost-effective manner. Renewable power purchase agreements (PPAs), for example, are often size-prohibitive, excluding companies with smaller electricity load from participating. By bringing together suppliers and aggregating their energy loads, these often smaller companies gain access to a whole new market for renewables.
When one company can have hundreds – if not thousands – of suppliers, what are the best ways to engage suppliers on decarbonization?
Going back to that 80/20 rule: Any company with a deep supply chain needs to focus on addressing emissions of the biggest impact suppliers first. Then, targeting groups of similar suppliers at the same time can help to bring efficiencies.
Education is also key. You can’t come to your entire group of suppliers, ask them to buy renewables, and expect it to happen instantaneously. Once suppliers have the information and resources they need, they will be more open and agile to adopting renewable energy. And, once a few get on board and you start to gain momentum, you’ll reach a point of acceptance where suppliers understand the ‘why’ and the benefits that renewables will bring to them.
Many suppliers will first think of decarbonization activities as a cost or a risk. By showing case studies and demonstrating how, especially during disruption, reducing emissions can bring resilience and greater stability to operations, you become more likely to win over suppliers.
Energy markets around the world are experiencing extreme volatility. Did this create any reservations about launching a renewable energy program for suppliers now?
Although we’re seeing some unprecedented energy price spikes and unpredictable markets today, energy market volatility is nothing new - and it is certainly not going away. When you think of the long-term goal, procuring renewables and bringing more clean sources of energy to the grid will create greater stability at scale, helping to smooth out the peaks and troughs.
Projects like Energize have an eye on the future. What’s happening in the market right now does not change the fact that low-carbon energy is a necessity for a safe and healthy future. The volatility we see today has no bearing on the program’s long-term vision. If anything, it reinforces what we’re trying to do and why we need to do it now. Working with trusted advisors is how we ensure that we navigate the volatility today, and prepare for potential scenarios and risks in the future.
The launch of the Energize program is only the beginning of a period of engagement, learning, action, and impact for participating suppliers. By charting this path for the pharmaceutical industry, the entire collective hopes that it will inspire and set a precedent, not only for the rest of the pharmaceutical industry to take action, but also for other industries to follow suit. Common beliefs can overcome any challenge. This collaborative program has been built to translate to other sectors, and create sustainability impact even beyond energy.