On the 15th March we were lucky enough to be joined by Cesare Guarini, former Director of Sustainability Procurement at PMI and sustainable procurement thought leader, for our webinar “How to Leverage Supplier Collaboration and Innovation to Reduce Scope 3 Emissions.”
If you missed it, you can access the full webinar here.
During the webinar we were inundated with some great questions for Cesare. As promised, we followed up with him after the webinar to answer these for you.
You can read the full transcript of the audience questions we posed to Cesare along with his answers below, or get access to the recorded bonus Q&A here.
Post-webinar Q&A Transcript
Mike Paul, Vizibl
Hi, everybody. Welcome back to a bonus session with myself and Cesare Guarini. Cesare, welcome back, thanks for re-joining us again. For those of you who were at our webinar last week, Cesare and I ran a webinar together for Vizibl called Leveraging Supplier Collaboration and Innovation to Reduce Scope Three Emissions. It was a great webinar, we had a really great conversation. Excellent to hear from Cesare as always.
During the Q&A at the end of the session there were so many questions that we didn't get around to them all, so we wanted to make sure that we addressed all of them. So we're back today. And Cesare, I'm going to put all of these questions to you. Sorry to put you back on the spot, but I know everybody would love to hear your thoughts on all of these questions.
Thank you. Thank you very much. Mike, appreciate it. My pleasure. It's great indeed to see the interest. And of course, we're very pleased at that and to get back to everyone, as we said we would.
Mike Paul, Vizibl
Absolutely. So the first question that we've got is about sustainable procurement software, which is where you finished your presentation, which is on the digitization part. The question is: when you're looking to buy sustainable procurement software, what functions and features should you be looking for?
Yeah, very good question indeed. And very relevant for procurement organizations that need to be making recommendations on this or the other software solution to their management over the years. There's different criteria and they change, but the ones I tend to find useful to screen these platforms and these solutions [for] are, first of all, as they call it in the digital world, UI and UX. So the user interface and the user experience. How is it to use the software, how intuitive, how easily can it be explained, how easy are the functionality that need to be used. So this is very important, as we said, to make it simple. So that it is intuitive and people have an interest and more eagerness to actually use it.
Then obviously we do all this to collect and consolidate data and also show management progress. So the second big area of consideration is around reporting functionalities and analytics. How can I segment my supplier base by type of category, by geographical footprint, and so on. So that it is easy for me to download and present the data in a format that is expected by my management.
The third set of criteria is around market adoption and scalability. So obviously we wish to also have a solution that can be very easily rolled out across our spend, but also that can leverage the activities and the learnings that others might be making with the same solution. Because by doing so, we will accelerate the scalability further and as well achieve greater cost efficiency performance.
Another very critical criteria, of course, is API and ERP integration. So how easy it is to connect the digital solution to your [existing] I.T systems and infrastructure, and how easy it is to actually pull data from from this platform, this solution, directly into your into your company data so that you don't have to download reports and data and then transfer them in your environment where you manage the entire end to end supplier lifecycle.
And then last but not least, capabilities around capability [uplift] and collaboration – how easy a solution is to actually support itself in making sure that it is adopted.[That] it is well supported but also [that] it provides opportunities to increase your knowledge on the topic beyond what the solution or the software itself is intended to provide.
Mike Paul, Vizibl
It's a great answer. Thank you. That’s a really comprehensive answer to that question. So many important features. So another question that we had… so as well as adopting software, obviously before you're going to take on this kind of project, especially when it comes to such scope three reduction and sustainability, you need to make sure that your company's agenda is set well to really be focused on this.
So the next question actually really focuses on that, which is what priorities do you see competing with the carbon agenda inside organizations? Is it truly front and center?
Yeah, no, this is of course very, very critical. But we work in sustainability, so we know we have a passion that goes sometimes beyond reason and that is great and we should continue to do so, [but] at the same time, we also need to keep in mind that like any other initiative, sustainability or in particular the carbon agenda competes like any other initiative within a company with all the other initiatives out there in terms of resource allocation, the budget, the [inaudible] and what have you.
And that's just normal. So what happens and what is critical in my view, is that sustainability… yes, we're going to change the world. We're going to give the world, our planet, the future, a chance for a future. But it's [just] as important why you go through the logic, the corporate logic to position sustainability, as we were saying a little bit during the webinar as a “value driver”.
So we need to show in a tangible way what value in terms of cost reduction, increased innovation, superior financials, shareholder value etc. … and the data are there. The examples are there, there's plenty, and no limitation there to our management. So by doing so they will make decisions on shifting certain resources away from wherever else towards sustainability.
Mike Paul, Vizibl
And that's actually… that leads in really nicely to the next two questions. So I'll deal with the first of the two, which is specifically about your background, because you've come from a sustainable procurement background at a large corporate, [somewhere where] the idea of sustainability and procurement being intertwined is very firmly established at this point.
So say you're a leader within a business and you can see that sustainability and procurement needs to get closer together and start working more closely and become maybe an intertwined team. What would you say is the best way to enact that change?
My experience suggests that the single biggest element to success is around the internal governance model and specifically with regard to the link that the sustainability programme has with not only [the teams] working on sustainability, but [with] senior management and key executives and even the board – [if they are] compensated in the short term and long term, if their reward system is linked to achieving sustainability objectives, then this on my view is proven to be a major step forward. Because, as they say, what gets measured gets done, what gets rewarded gets done better and faster. So that to me, it really is a major one – the way we choose to show the level of commitment [to sustainability] the companies [have] in actual fact because they [i.e. various teams] have a personal stake in it.
Doing that, then what comes is that all of a sudden you will be treating sustainability not as much as a compliance exercise or a corporate project, but the way you do business because you're rewarded to yourselves and to your suppliers accordingly. Those certainly are the biggest levers in my view. The other one being you need to have an organization that is capable of following your own organization above and beyond.
Again, the ones holding sustainability roles, but also in the case of procurement, of course, your supply base, which more often than not is represented by smaller or medium sized family owned run companies and not the large enterprises we usually are part of. So that means very significant and very ongoing investments in capability building are also necessary for success.
Mike Paul, Vizibl
Yeah, it's a great point. And I think the second part of the same question is what internal changes would you make if you were the leader? What internal changes would you make in order for decarbonization to happen right away? What would be your one big change?
As I'm sure the participants have seen by now, you know, we're not always objective. We get carried away by, you know, our passion and the belief we have in trying to make a change, a tangible, significant step change in this topic. I really believe that the more visionary companies are the ones that actually are merging the two roles of Chief Sustainability Officer (which is coordinating the entire sustainability strategy within the company and actually being the point, the single point of contact and frontend person towards the outside world in communication, in engagement and so on) with the Chief Procurement Officer.
As we know, 80-90% of the carbon footprint is in the supply chain and therefore it needs to be managed and dealt with by procurement. No one will look for child labor in our operations, in our manufacturing plant, but in the ones of our suppliers. Then we conclude that companies will become only truly sustainable if they make it happen in their supply chain and through procurement. And bringing those two functions together should definitely align objectives and engagement and communications towards the outside world as well.
Mike Paul, Vizibl
So merging the CSO and the CPO into a sort of chief sustainable procurement officer, perhaps?
Yeah, yeah, yeah, absolutely.
Mike Paul, Vizibl
Okay! Again, following on from that very similar question, my line of questioning in the next one is: with scope three reduction quickly becoming a top priority for procurement functions, what would you recommend for professionals who are used to a more traditional procurement approach?
Yeah, also a very good question as well. I companies companies need to do, in my view, my experience suggests, a step backwards and look at this from the outside. [They need to] come to the conclusion of whether they believe that sustainability is or should be the way you run your business now, where you take decisions based on sustainability criteria and metrics.
And if you accept that and you commit the resources against that, then your sustainability programme within any function, including procurement, becomes a business transformation initiative. And therefore, as we were also discussing during the webinar, a change management mindset. So carbon or any other sustainability initiative needs to become the way you run your business. And if you make a commitment and you are determined to achieve what it takes in terms of your contribution to deliver the the 1.5 degrees celsius threshold, then you will need to select and reward suppliers on carbon metrics to deliver [against] that commitment.
Mike Paul, Vizibl
The next question is from Thomas Heiner, which I've adapted slightly because it was a question that was asked in the moment. And actually what Thomas is referring to has actually happened since he asked the question. So he asked the question about a forthcoming IPCC report – the Intergovernmental Panel on Climate Change, that is, for anybody who's unfamiliar with IPCC. They've now given their final warnings to us over the one and a half degree Celsius target that we're aiming to stay below.
They now said that they think, well, that they are certain that we will exceed that target in the 2030s on our current trajectory. So despite all the reliance on technical solutions and the delegation of responsibility to politics and to politicians, the key question that remains unanswered is how we achieve a mindset shift. And I assume Thomas means [both] corporations and maybe individuals, but for the purposes of this I will talk about corporations.
Thomas also says only if individuals know their responsibility and scope of action will we achieve progress. What do you think about that?
Yeah, absolutely. And I believe that clearly any legislative framework mandating whatever objective is good and particularly if it provides or contains provision as to what happens if you fail to deliver against that because obviously at that point things become real and then companies start to behave accordingly. Looking at the supply chain due diligence legislation that came just onstream in Germany in January this year, there is a potential penalty of 2% of your revenue, total revenue, if you are not meeting that requirement.
Now, how is that going to be proven and validated? How these penalties will be enforced will be seen, but in the meantime it is out there. And so companies need to reflect how they meet this requirement. And so if I follow the same logic, then I need to say, okay, what is my expected contribution in terms of my operations, my ecosystem, and my entire value chain to deliver against 1.5 degrees?
And today you can go through the Science Based Target Initiative. You will have a baseline, have clearly identified what kind of reduction you need to achieve in percentage terms, in absolute terms to be meeting the 1.5 degree target and then you break it down. You have a roadmap and a guide path that will, over time, clearly identify what targets all the different stakeholders – notably procurement and suppliers – need to deliver to achieve the overall objective.
And so like any other project or initiative that has a middle to long term target, you break it down, you put the resources behind it and then you monitor progress and make adjustments as needed in order to be effective. We come, but we go back, of course, a little bit as well to what we were saying before. You need to put in the incentives so internally your compensation is linked to achieving that externally with your supplier, your business is awarded by contributing and participating in the achievement of my company's carbon reduction objectives.
Mike Paul, Vizibl
And again, this is an answer that feeds brilliantly into the next question because talking about incentives and but not only incentives, but ways to to encourage your suppliers to try to meet the targets that you as an organization are trying to hit yourselves. Ludovico Bertolini asks in the next question: in order to negotiate with suppliers for more sustainable raw materials with lower primary emission factor and then to reduce scope three, do you have to assign a monetary value to carbon reduction, i.e. apply carbon pricing?
Absolutely. And this is also a very good reflection because if you are very serious, we go back to the idea that sustainability is a value driver, [considering] financial/cost implications. Then you are [inaudible]. So when I was at PMI, we had an internal carbon pricing which was introduced to actually make business decisions [with]. And if you look just to the outside and what happens, you know, when carbon price is [growing] from 20 oe 30 euros or dollars per tonne all of a sudden is coming to 100… for the companies that actually need to go out and buy credit and what have you, then all of a sudden it is three or four or five times more expensive than it used to be, just one or two years ago. And obviously these are the kinds of mechanisms that will drive greater behavior towards what we need to do in order to, in this case, reduce our carbon footprint. Absolutely.
Mike Paul, Vizibl
We have a few questions now from I'm going to say Professor Karsten Machholz I'm pretty sure is hopefully a correct representation. So the first one is a similar question, but it's about the fact that in certain industries, 80% of your emissions is not in your supply chain, in your scope three, it's actually within your organization in scopes one and two.
So the first question in full is: in a few energy intensive industries, your scope one and two accounts for 80% of your emissions. Would you propose a different approach for steel, aluminum, gas, cement and so on? Or would the approach that you're suggesting for scope three be similar but simpler because more of your emissions are actually in-house and within your control?
Yeah, no, this is interesting and thanks Karsten for all the different questions. No – in my view I would not see a major or significant difference in the approach. The key difference would rather be in where is the priority and therefore where you apply your focus. I mean, if scope one and scope two, as we know they are easier to control because they are within your operations, so you can decide on your own. You don't need anybody else. If you want to switch your energy from oil to wind or solar, [you can], whereas on scope three, you will have to influence actors out there, your suppliers to join you on the journey, and so you will have much more control [when it comes to scopes 1 or 2]. The flip side of that will be that you will be the one to actually be making the investments on your own, because that's what it's your operations.
Whereas in the case of the suppliers [for scope 3], you will have to influence and then hopefully they will be the ones to make those investments on their own, in their own operations.
But from the approach? No, because in the end whether it's my plant or your plant, what needs to be done? It's clear and is very similar, especially when it relates in particular to energy sources.
Mike Paul, Vizibl
So I guess dealing with 80% scope one and two is theoretically easier but costs more. And you have to take the responsibility for actually doing it internally. So it comes with its pluses and minuses?
Yeah. Yes, absolutely, Mike. And I would also briefly add… if you are [at] 80% [scopes 1&2], then you're talking a very large significant scale of investments, we understand. But [it’s important to ask]: what is my role? How do I break it down into a package that I can deal with year after year through a roadmap and a guide to deliver [against] the ultimate goal?
Even if your scopes one and two combined is “only 20%” you clearly see, you know, that the companies that are leading the way, they walk the talk. They are making these investments and then are actually changing the total configuration of their energy supply by switching, as an example, to renewables.
Mike Paul, Vizibl
Which in turn obviously is a major driver towards the ability of procurement [to] eventually bring the suppliers along in the journey because again [you have to] walk the talk.
Mike Paul, Vizibl
Yeah absolutely right and yeah again speaking of walking the talk… moving slightly away from specifically talking about emissions and scope three and energy and into the broader ESG agenda which the webinar didn't really deal with [directly]. Karsten and I are fascinated to hear more about what you think about the wider ESG agenda.
So the next question was: diversity / gender is quite different between the US and European markets. Could you expand, for example, on the percentage of business to women, or veteran owned. or indigenous groups?
Yeah. Yeah. No, absolutely. I basically worked all my professional life in US corporations. So obviously the topic of diversity and inclusion is much more profound because historically and therefore culturally this has been a key major focus of attention for many years. And in fact, there is a legal requirement in the US. I'm sure Karsten well knows you need to have, by law, certain business awarded to minorities or women.
But from a procurement perspective, what I've seen to be two major metrics are yes, the the percentage of spend that you have with your suppliers – that is with suppliers that are owned and or run by an executive team [of] minorities, or in the case of of the US, you know Asian or Hispanic [owners] or women. And so there are clear targets for US based companies on that. And there are also specific ad hoc service providers that cover this type of requirement.
The other one, which is a little bit more internal, which then this brings us closer – brings the US and Europe closer – is the number of minority representatives, and in particular women, that hold management or senior management positions. And so while it is not strictly a requirement in Europe, you know again like in the case of the supplier due diligence legislation in Germany, companies proactively and certainly the industry leaders have been moving along [on] these for some time.
Mike Paul, Vizibl
Yeah. Following on from that, that's more of a social [issue] – that question [pertains] more to the S of ESG. So then Karsten’s final question is: What do you think is the most difficult part of ESG? Is it the G? Is it governance, would you say?
Yeah, that's also very interesting because “G”, thinking in the experience I had. does vary in two ways. Certainly in geographical terms what we mean by governance and by good governance means quite different things in one region or the other and we should all be mindful and considerate about that and we should also act accordingly. But also it has some relation with the industry your company is in – certain practices are more or less legal in certain industries than others. And that's a fact. And you know, good or bad, this needs to be accounted for.
I think that the “G” is maybe the more difficult to [address] and challenging to implement or to enforce because, you know, what are the actual metrics that you that you can put in place? Just thinking of it, you know, a discussion already starts. But certainly my experience suggests that having strong governance in place, ethics and values and governance models is very critical to actually achieve success on the other two, because only when your G is strong, in my view, then you can become even more effective on E and on S.
Mike Paul, Vizibl
Mm Yeah, that's great advice. So the very final question is from Matthew Hucker, which brings us back to back to the original title of the webinar. Matthew asks: you mentioned some of the key challenges for procurement professionals on driving sustainability, such as cost. How as sustainability professionals can we shift our own internal colleagues’ mindsets away from these metrics and showcase the real benefits of sustainability?
What comes to mind, Matthew, is a bit of what we've been sharing before. We cannot be successfully in these discussions internally. We need to move a little bit away from sustainability as “we're going to change and save the world”, into “sustainability is the way we need to be doing business because it also brings real tangible value.”
So we need to find ways to position sustainability as a value driver, as we were saying. And, and that is by showing – as with the Germany supply chain due diligence legislation example – that by not being compliant, our costs will increase. And actually you are exposing the company to a 2% penalty, which is a huge number, and it could be much bigger than any other penalty any company ever, ever paid.
There is a lot of studies and data out there that clearly show in some countries – and in more and more every day– that renewable energy is becoming more cost effective than oil and carbon. Yeah, it does require investments, but like any investments, there is a payback. And so you can make a business case out of this.
Certainly a sustainability as [a driver of?] license to operate in certain industries. I spent seven years in the chemical industry. At some point it was not a matter of is it more or less expensive. It was a matter of do you get it, yes or no? Because the local Indian, Chinese, or whatever country’s government, local government, or federal government will simply shut down the operations because the pollution was so high that the people complained so much – and rightly. And then the plant was stopped.
And as you often are – though I hope not your case – in a single source situation, then you have a really big problem all of a sudden. We talked also during the webinar, but maybe it’s interesting or useful to underscore once again that sustainability is clearly a value driver in terms of financial performance and delivery of superior shareholder value. Plenty of studies and data out there show that the more sustainable companies [are], the more successful in financial returns. It's clear the correlation is very, very strong. So some homework, some research, here's the data.
And then last but not least, sustainability also equals, from a procurement perspective, access to innovation. Some companies today are now investing at least 50 or maybe 80 or more percent of their R&D budget to develop products that have a sustainability component or a benefit or advantage or differentiation. So that is a way to actually support, eventually, your bottom line as well.
And then last but not least, clearly: talent attraction on the one hand. If you hire anybody these days coming out of college, they will ask you: “what are you doing on sustainability? And can you elaborate a little bit more about your priorities and objectives in this area?” as one of their criteria that they, the applicants, use on whether to accept the employment offers or not.
And the flip side of that is the reputational risks – and therefore value intrinsic value– that sustainability has in terms of preempting potential negative impact because of whatever may happen that you are not aware of, or or you are not addressing in your supply chain.
Mike Paul, Vizibl
Fantastic insights, as always, Cesare. Thank you for joining us again to go over the Q&A. It's been another great session. Thanks for joining us, everybody, and we'll see you on our next webinar.
Thanks to you again, Mike and to everyone and indeed – until then. Bye for now.
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