Reducing CO₂ faster and more effectively - that is the great challenge of the next decade. What role do corporations like Daimler play in this? In this interview, Maxfield Weiss, Executive Director at CDP Europe, and Timo Brechenmacher, Mercedes-Benz AG from Strategic Sustainability for Supply Chain, discuss about the power of data and the potential of a sustainability-focused supply chain.
Let's play out the following scenario: Every company within a value chain would work seriously to reduce its own CO₂ emissions. Wouldn't that be enough to achieve the goals of the Paris Climate Agreement?
Timo Brechenmacher: Presumably, that would be the case. Climate protection should be an integral part of any corporate business strategy. That is why, in addition to our own climate protection measures, it is important to us to raise awareness of climate protection among all our business partners, and to encourage them to implement their own measures. This is what we are working on with CDP, because in order to achieve our goal of a CO₂-neutral supply chain by 2039 at the latest, we need meaningful information on the carbon footprint of our suppliers. Transparency is the first step towards more climate protection.
CDP is a non-profit charity that runs the global environmental disclosure system. CDP scores companies’ environmental performance and gives capital markets and companies the data they need for comprehensive and environmental decision making. Currently, over 10,000 companies, cities, states and regions are using CDP to disclose environmental data. In 2015, CDP was a founding partner of the Science Based Targets initiative (SBTi), which provides a framework for companies and financial institutions to set emissions targets in line with the level of decarbonization required to meet the Paris agreement’s temperature goals. Find out more here.
Maxfield Weiss: I would agree that disclosure is really the fundamental basis for action. There's the old saying that what gets measured, gets managed. So, CDP’s mission and success over the past 20 years has been driving disclosure and the availability of comparable data, and therefore more ambitious action on the environmental crisis. We support the transition to a climate safe and resource secure economy to be made much faster, whether that be corporate buyers, capital markets or governments.
Timo Brechenmacher: There is another aspect to why disclosure and transparency are so relevant. Once you start publishing an annual progress report, you don't want to fall short of your previous achievements. Those who set goals want to make sure they achieve them. This illustrates the power of data, and shows how transparency can lead to action.
Maxfield Weiss: That's right, this correlation can be proven with figures. Of the suppliers disclosing data for the first time as part of our supply chain programme, 38 per cent are implementing CO₂ reduction measures. For those reporting for the third time, the figure rises to already 69 percent. So, this journey really underlines the importance of transparency.
In which areas do Daimler and CDP work together?
Maxfield Weiss: Daimler has been submitting data to CDP since 2003, and is one of the leading companies in our annual environmental scores. We also work together for more transparency on the carbon footprint of the supply chain. Last point that connects us: Mercedes-Benz has had its climate protection targets confirmed by the Science Based Targets Initiative, and thus supports the goals of the Paris Climate Agreement.
How does your cooperation works in daily business?
Timo Brechenmacher: There are two areas to be distinguished here. As Maxfield Weiss has already explained, Daimler participates in CDP's disclosure system by sharing climate-related data for more than 15 years now. Behind this is a structured process based on a complex questionnaire in which we report our own climate-related qualitative and quantitative information. This is done by our colleagues in Group Environmental Protection.
As part of the supply chain programme, we also engage in a very concrete exchange with our suppliers on the topic of CO₂ emissions. We inform them about the programme, motivate them to participate and ensure that they provide CDP with the necessary information. CDP supports the participants in compiling the information, and explains the relevant standard procedures. CDP provides us with the processed results and evaluates the comprehensiveness, transparency and commitment of the company in terms of sustainability aspects. In this way, we can see and understand what our suppliers are specifically doing for climate protection, and how active they already are.
So, you also encourage transparency along the supply chain to better plan your next steps?
Maxfield Weiss: I see our questionnaire as a framework, which of course starts with the aspects of transparency and disclosure. However, it can also be understood as a set of guidelines, and is aligned with the TCFD recommendations (Task Force on Climate-related Financial Disclosures) for better climate-related financial reporting. These guidelines are based on stakeholder expectations and the information that companies need in order to understand the opportunities and risks in their supply chain. It also provides investors with the information they need to assess the impact of their investment decisions. Therefore, we would like companies to see the CDP questionnaire not only as an evaluation tool, but as a tool to organise and structure their business decisions.
Where do the highest CO₂ emissions occur in the production?
Maxfield Weiss: Emissions that occur in the supply chain tend to be on average over 11 times larger than the operational emissions of a company. This is because emissions from upstream stages of the production process are often higher than direct emissions from production. This should be considered in strategic action planning, to avoid business risks related to environmental impacts within the supply chain.
Timo Brechenmacher: Following this along the entire lifecycle is also becoming increasingly important, in view of the growing number of electric vehicles. With regard to the supply chain, the focus is therefore shifting to emissions during the supplier's manufacturing process, as they arise in e.g. battery cell production and in the mining and further processing of the battery raw materials. Other focus topics are steel, aluminium and polymers.
What positive influence does Daimler have in energy-intensive areas of the value chain, such as steel or aluminium production?
Timo Brechenmacher: With Ambition 2039 we at Mercedes-Benz want to be CO₂-neutral along the entire value chain. We can only achieve this goal together with our suppliers. We have therefore issued an 'Ambition Letter' to our suppliers to support our ambitious climate targets and induce them to supply us only with CO₂-neutral products by 2039. So far, over 88 per cent of our suppliers in terms of procurement volume have agreed to this. We are thus making CO₂-neutrality an important criterion for contract placement within our procurement processes: a supplier who fails to sign the Ambition Letter will not be considered for further contracts.
In addition, we are the first passenger car manufacturer to participate in the Swedish start-up "H2 Green Steel", and will use CO₂-free steel in our series production vehicles in the future. An important milestone when you consider that on average, half of a Mercedes-Benz saloon is made of steel. In addition, we are pursuing the goal of a green steel supply chain together with all our steel suppliers.
Right in line with the motto: procurement means power?
Timo Brechenmacher: Naturally, procurement plays an important role in the sustainable transformation of our company. In order to drive technological change, continuously optimise technologies and achieve our global climate goals, we rely on long-term supplier relationships based on confidence. We have agreed the purchase of battery cells and modules from CO₂-neutral production with two strategic partners for battery cells, starting with the EQS.
Maxfield Weiss: We also see positive opportunities to influence things through cooperation in the area of climate targets themselves. We are encouraged by companies that use their exposed position to set science-based targets and support other companies in adopting a best-in-class approach. Organisations that act early and set a science-based target can be one step ahead in terms of future stakeholder expectations.
Are shortened supply chains on account fewer involved parties a path to greater sustainability?
Maxfield Weiss: Shorter supply chains reduce the number of suppliers a company has to manage, and thus promote a more direct exchange. At the same time, this puts buyers in a position to exert more influence on compliance with environmental standards, and to support business partners in building up corresponding expertise. On the other hand, there is enormous potential along international supply chains for car manufacturers like Daimler to be agents of change. In countries where sustainability standards are poorly enforced or non-existent, sustainability requirements imposed by business partners may be an opportunity for binding standards. If companies withdraw from such countries, this can lead to many suppliers no longer reporting environmental data and neglecting their own reduction targets.
How confident are you that as a global community, we will achieve the goal of net-zero by 2050?
Timo Brechenmacher: I am hopeful that we will. In addition, the attitude of my colleagues motivates me a great deal. Many people approach us in procurement because they want to contribute in their business area. I can see the same commitment from our suppliers. Our Ambition 2039 is geared for the long term, and I am optimistic that we will achieve it.
Maxfield Weiss: The number of companies reporting to CDP has increased by an encouraging 70 per cent since the signing of the Paris Agreement. Moreover, the Bank of America estimates that assets invested according to ESG criteria could grow by 20 trillion dollars over the next 20 years. Investments in climate protection will play a significant role in this. So, this is very encouraging. Nevertheless, we urgently need to ramp up our environmental protection measures and become much faster. The commitment to a science-based target and the resulting reduction path points the way.