Challenge
With up and downstream emissions accounting for 57% of the average company’s environmental impact, according to Procurement Leaders research, improving supply chain sustainability is becoming an ever-greater priority for business leaders.
Schneider Electric, the leader in the digital transformation of energy management and automation, embarked on a massive transformation in 2021, which includes deploying services and solutions to deliver energy efficiency and sustainability while guiding customers, partners, and suppliers on rapidly reducing their emissions.
Having already decreased its Scope 1 and 2 emissions by 59% between 2017 and 2020, Schneider Electric launched a new sustainable procurement strategy focusing on three areas between 2021 and 2025, as the first step on its journey to 2050:
- Climate action: Launching The Zero Carbon Project, which involves reducing by 50% the operational carbon footprint of its top 1,000 suppliers. The commitment is audited every year, with Schneider reporting on its performance every quarter and including this information in the company’s financial disclosures.
- Conserving resources and developing a circular supply chain: Eliminating single-use plastic and using recycled cardboards in all its primary and secondary packaging while increasing the volume of green materials (metals and plastics) used in its products by 50%.
- Social inclusion: Auditing and assessing working conditions at 4,000 of its suppliers and launching an aspirational Decent Work Program to ensure dignified working conditions for workers by implementing preventive controls to reduce the likelihood of malpractice at its strategic suppliers.
Approach
Decarbonising the supply chain
Schneider Electric’s efforts to decarbonise its supply chain have been complicated by two important factors:
- Varying levels of understanding that exist across its supply base
- A lack of access to accurate CO2 data
The 1,015 supplier organisations participating in Schneider Electric’s carbon-reduction initiative, The Zero Carbon Project, come from more than 60 categories across all geographies and vary in their size and carbon maturity. To add to the complexity, approximately 75% of the companies involved had never quantified their carbon emissions and were new to the subject. This made adopting a uniform approach impossible. To address this disparity and ensure all suppliers started with a common understanding, Schneider concentrated on handholding and capacity-building with suppliers.
To address these challenges and deliver progress towards its zero-carbon ambition, Schneider Electric implemented actions to:
- Engage stakeholders and gather supplier decarbonisation data
- Determine supplier carbon maturity and create customised support plans
- Provide training on end-to-end decarbonisation, including carbon footprint calculation methods, resources available and various approaches to carbon reduction
GETTING STARTED: ENGAGING STAKEHOLDERS AND GATHERING SUPPLIER DECARBONISATION DATA
The 1,015 participating companies include strategic and nonstrategic high-emission suppliers. In-house experts initially estimated emissions for Schneider Electric’s suppliers using individual category emissions and the company’s spend with each supplier in that category. Having completed these calculations, the company identified suppliers with the highest emissions, and began to engage each supplier and communicate its ambition to reduce carbon dioxide emissions.
The Zero Carbon Project was formally launched with a virtual event that brought together senior leaders from the top 1,000 suppliers, along with Schneider Electric’s executive leadership team to discuss the company’s decarbonisation ambitions and the role of suppliers. Shortly afterwards, Schneider Electric sent a carbon maturity survey to these suppliers to gauge their maturity in addressing CO2 emissions, covering questions such as:
- Have you quantified the carbon footprint of your company?
- Do you have a CO2 reduction programme?
- Have you defined targets for emission reduction?
- What is your highest company level oversight for the emission reduction programme?
The survey was sent through Schneider’s supplier relationship management platform, which is used for all supplier communications and has the functionality to send and store supplier surveys. With suppliers accustomed to receiving messages through the platform, distributing the decarbonisation survey in this way helped to normalise the process – instead of creating an additional workstream for suppliers.
Involvement from the entire procurement organisation has been crucial to the programme’s success. Like many other functions at Schneider Electric, procurement has its net-zero target embedded into its annual planning and its progress is reviewed by the company’s senior leadership on a regular basis.
To boost supplier engagement, category managers and buyers who work with participating businesses included the survey and CO2-reduction engagement as a key element in their supplier interactions. “The entire procurement team has adopted this ambition, embedded it in their operational plans and activated to address the issue,” says Kanishk Negi, Sustainable Procurement Director at Schneider Electric.
DETERMINING SUPPLIER MATURITY AND CREATING ACTION PLANS
The information provided in the survey helped Schneider Electric outline the different capability stages its suppliers typically go through. “If you look at the decarbonisation journey of any supplier, it follows a fairly similar approach,” Negi says. This can broadly be defined into three different levels of maturity:
- Aspiring: Those that are at the early stage of the journey and still need to quantify emissions and track data. “This represents a large part of the group,” Negi notes.
- Advanced: Companies that have already quantified their emissions but are yet to set the targets or start to put those targets into action.
- Leaders: Those that have quantified their emissions, set targets and begun to work on decarbonising their operations.
The responses to the carbon maturity survey determine the level of maturity for each supplier. Schneider Electric customises its approach to decarbonisation with these suppliers depending on which of the three levels of maturity they belong to. “Especially for those at the early stages of maturity, we have to present the CO2-reduction project in as simple a manner as possible. If you use jargon or add the complexity associated with decarbonisation, that can create an entry barrier for first timers,” Negi says.
As a result, there are three simple steps to communicate with suppliers:
- Quantify emissions and provide data to help set a CO2 baseline, based on primary data.
- Set a reduction goal.
- Create an action plan for achieving this target.
Schneider Electric only requires suppliers to fulfil these three steps for their operations in Scopes 1 and 2 – that is, emissions from their direct operations and from purchased energy. It does not require the same for Scope 3, or emissions from the supplier’s wider value chain. Negi says: “If they can provide Scope 3, that’s great. But the focus, for now, is on emissions within the supplier’s control. If one has not yet mastered Scope 1 and 2 emissions, it would be difficult to efficiently engage in Scope 3 emission reduction.”
TRAINING SUPPLIERS
Feedback from the surveys showed that approximately 75% of these suppliers were at the early stage of maturity in decarbonisation and had yet to quantify their carbon footprint.
To address this gap, 17 experts from various departments within Schneider Electric collaborated to create a series of training and engagement programmes, which included eight virtual technical training courses for suppliers. Running three hours in duration across different time zones and in different languages, the sessions were customised to address the needs of both aspiring and advanced suppliers across different topics. These included building a decarbonisation programme, setting emission-reduction targets and cutting emissions. The training followed four stages:
- Introduction: Explaining the milestones of the Zero Carbon Project.
- Experience sharing: Showcasing Schneider Electric’s actions for decarbonisation and the technologies it has used.
- Technical training: Including carbon footprint methodology, decarbonisation levers, developing a decarbonisation roadmap and case studies.
- Technology showcase: Highlighting solutions and best practices, case studies from Schneider Electric and clients.
Additionally, the company organised 40 technical sessions on its decarbonisation roadmap with a special focus on quantifying and calculating CO2 emissions. To provide more specific support, Schneider has hosted more than 50 one-on-one handholding sessions to advise suppliers and resolve specific queries. Procurement staff deliver the training and engagement programme to ensure suppliers have opportunities to overcome their doubts.
As the initiative evolves, so too will the training that Schneider provides. While the initial sessions focused on gathering data, calculating emissions, emissions factors and their sources, this will evolve over time to focus on concrete steps that companies can take to reduce their emissions and the potential impacts of those actions.
Following this training, suppliers are asked to revisit their processes and start quantifying their emissions and build their decarbonisation roadmap. To provide flexibility and around-the-clock support, procurement collaborated with Schneider’s sustainability business team – an in-house consulting team that advises companies on decarbonisation on a commercial basis – to launch a dedicated web portal for participating suppliers.
Another important aspect is experience sharing among suppliers to provide a faster learning curve. Schneider Electric holds a monthly Zero Carbon Project Community Forum to facilitate peer-to-peer learning, as well as enable suppliers to share their lessons with others and brainstorm on relevant topics. This helps to invigorate discussion on the topic.
Using green materials
The second part of Schneider Electric’s sustainability strategy is focused on resource conservation and reducing the company’s environmental impact by improving the mix of sustainable materials it uses – both in its packaging and its products.
SUSTAINABLE PACKAGING
Pivoting to sustainable packaging required a global cross-functional team that comprised staff from procurement, product, design, marketing, and teams from manufacturing plants to implement this project successfully across the company’s packaging portfolio. By blending expertise from across the business the company was able to understand the impact of any changes on its products, its transportation, and the way in which it produces them.
Schneider Electric identified options to redesign packaging and find alternative materials – replacing single-use plastics, substituting bleached cardboard from virgin fibre with natural recycled material, and introducing recyclable covers using paper instead of polyethylene bags, among other innovative solutions.
With the company using automated machinery to package its products, procurement’s collaboration and engagement with the management teams at manufacturing locations was crucial to understanding the impact of changing packaging materials and specifications on the functioning of these machines, as well as making the decision to invest in new machines. This included scoping the modifications required, calculating the costs involved, conducting feasibility checks and measuring the potential returns on investment.
GREEN MATERIALS
Schneider Electric adopted a pragmatic approach to reducing the overall environmental impact of the materials the company uses in its products. As there is no standard definition of ‘green materials’, the company defined its own green criteria, which included delivering a positive impact on climate, resources, people and ecosystems.
In addition to the CO2 impact of various commodities, which is already known, Schneider Electric commissioned a new study on the overall biodiversity impact of the various materials it consumes. As a result, thermoplastics, steel and aluminium were the first materials selected for transformation. Specific ‘green’ criteria for each of the materials were defined by procurement in conjunction with the business, technical, engineering and environment teams.
As these green criteria are much more stringent than those of competitor organisations throughout the market, they pose unique materials availability challenges. Hence the procurement teams must focus on engaging suppliers to form strategic alliances and codeveloping these products to ensure the timely availability of materials.
The company has successfully launched two electrical switch ranges made using recycled materials in the past year. Schneider Electric’s Odace Sustainable Smart Switches comprise 100% recycled electric/electronic waste, while its Merten (ocean plastic model) switch, produced with Dutch multinational DSM, is manufactured from fishing nets recovered from the Indian Ocean and the Arabian Sea.
in addition to deploying green criteria for metals, the company has joined with industry leaders and is a member of forums that promote traceability and encourage the adoption of stringent criteria during the manufacturing process to accelerate the green material market. Suppliers that adhere to these requirements gain preference in sourcing decisions.
Improving working conditions
The final pillar of Schneider Electric’s sustainability strategy involves ensuring decent work conditions and protecting the rights of workers throughout the supply chain. The company has deployed a mixture of corrective and preventative measures to tackle poor working conditions and promote equality.
CORRECTIVE MEASURES
This includes onsite audits and assessments of the suppliers to identify malpractices and deployment of remedial measures, with a particular focus on the high-risk suppliers, which are identified using the RBA supplier risk analysis tool.
Between 2017 and 2021, Schneider Electric conducted approximately 580 on-site audits at supplier premises to review working conditions and these businesses’ safety preparedness. identifying 7,800 instances of noncompliance that were addressed. Additionally, 624 remote assessments were conducted in 2021.
PREVENTIVE MEASURES
Suppliers are mandated to implement aspirational, worker-friendly policies and processes that act as a form of ‘preventive control’, strengthening existing safeguards and reducing the likelihood of any malpractice. The focus of this program is on strategic suppliers.
Schneider Electric leveraged international labour frameworks, including the International Labour Organization to structure the requirements of the Decent Work programme. The scheme includes a range of aspirational measures, such as workplace equality policies to balance work and family life, purchasing practices, responsible recruitment and paying living wages.
Outcome
Results
Schneider Electric’s approach has delivered substantial improvements across all three of the areas it has focused on:
DECARBONISING THE SUPPLY CHAIN
In the first year, Schneider Electric onboarded more than 1,000 companies onto its decarbonisation programme. Of these, more than 700 had started their decarbonisation journey by joining The Zero Carbon Project. By end of 2021, 10% of suppliers had already reduced 5% of their carbon emissions
USING GREEN MATERIALS
In February 2021, sustainable packaging accounted for 1% of Schneider Electric’s spend in this category. By the end of December, this figure had increased to 20.9% and the environmental impact of such a change is already apparent. Life cycle assessment data from a packaging supplier shows that switching from a bleached/virgin fibre cardboard to natural/recycled materials results in a reduction of virgin wood content of up to 100%; a reduction in dust emissions of up to 88%, a reduction in water usage of up to 60% and a decrease of up to 60% in biochemical and chemical oxygen demand during manufacturing.
Having successfully launched two new products using sustainable thermoplastic materials, Schneider Electric has launched a similar programme with steel and aluminium. As of the end of 2021, the company’s consumption of green materials stands at 11%.
IMPROVING WORKING CONDITIONS
Between 2017 and 2021, audits of approximately 580 suppliers helped Schneider to identify 7,800 instances of noncompliance. Of these, 37% were health and safety issues while 25% related to labour and human rights concerns. With these issues successfully remedied, the scheme has already improved working conditions for 185,000 supplier employees.
Furthermore, during this period, Schneider Electric’s suppliers’ ISO-26000 social responsibility score improved to 58.7 out of 100 – an increase of 7.6 points.
Advice for others
Following the early success of the scheme and the company’s continuing progress in improving sustainability, Kanishk Negi, Sustainable Procurement Director at Schneider Electric, shares advice for others looking to develop a more sustainable supply chain.
- Treat sustainability as a transformation lever: Sustainability is all about improving efficiency and doing more with less. Use it as a tool to identify potential areas of improvement in the organisation.
- Collaboration with suppliers is vital: Engage with your suppliers in building their capacity, sharing experiences and supporting them by co-creating innovative solutions that expedite the transformation, both for their business and the planet.
- Set ambitious goals: Decarbonising the supply chain is an enormous undertaking – setting stretching targets motivates all stakeholders to make progress.
Next steps
Schneider Electric emphasises that achieving its target is a long journey that has only just started. “We cannot yet say we have all the answers,” says Negi. “It’s a long journey and we do not have all solutions or technologies required ready today. But we must ensure that companies are aggressively moving to fully utilise all available solutions and technologies, and striving to be the catalyst for change. Working with our suppliers is a critical part of that journey – we have to leverage our collective intelligence and push the boundaries.”
From 2022 onwards, Schneider Electric expects to accelerate the sustainability progress suppliers are making. “This depends on the maturity of the supplier, of course,” Negi points out. “Some may already be doing so, but this is the next natural course of our engagement.”
Schneider Electric’s approach to sustainability transformation is based on collaboration and cooperation and it is not a requirement embedded into supplier contracts. “This may change in the future, but we firstly want suppliers to voluntarily join the journey and realise it makes sense to their business, like it did for us,” Negi says. “We want our suppliers to realise the value in the activities and recognise it’s not only for the environment but also for their business.”
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