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The industrial sector’s slow shift to renewable energy
Jackie Park, Editor
Renewable energy has come a long way in the last 15 years. It’s the fastest-growing energy source in the U.S., increasing by 42% in the U.S. since 2010. There are now more policies and grants encouraging renewable energy use, innovation, and knowledge sharing than ever before. Plus, the cost of electricity from solar power dropped 85% from 2010 to 2020.
The industrial sector has not picked up on these transformations as quickly as they’ve come. The industry hit a milestone in 2015 when it achieved 8% renewable energy as a portion of total energy use, according to Omdia. However, that number only increased to 10% by 2020. So, what’s holding them back?
Roadblocks to renewable energy
The first roadblock is the most obvious: money. From the upfront investment it takes to adopt renewables to subsidies for fossil fuels, moving to renewable energy isn’t cheap.
While using solar power that your own building has created is inexpensive, purchasing the panels, having them installed, and optimizing their use in your factory consumes lots of time and money. It could cost hundreds of thousands of dollars to get installed. That’s a lot of money from the get-go. After this initial investment, there’s no guarantee that the panels can produce enough energy to power an entire facility. They may instead augment other energy sources.
In addition to the upfront costs, companies are encouraged to resort to fossil fuels due to subsidies. According to the United Nations, fossil-fuel subsidies are one of the biggest financial barriers to renewable energy. In fact, in 2020, $5.9 trillion was spent on subsidies, tax breaks, and more—that comes out to $11 billion a day, according to the International Monetary Fund.
The other big roadblock is the nature of the industrial sector. Take aviation, for example. While sustainable aviation fuel is on the rise and new deals keep the industry innovating, it is difficult to produce in mass quantities, something commercial airlines need to stay afloat. Plus, it can cost up to three times as much as its traditional counterpart. The industrial sector is challenged by traditional sources of energy that are just too easy and inexpensive for some companies to let go of.
Getting creative with green energy
It’s not easy to move to renewables, but it’s worthwhile. Many companies are getting creative to advance renewable energy and other green goals across their businesses.
Many pulp and paper mills are using their waste to create energy. Asia Pulp & Paper burns acacia wood sap in boilers that produce steam and power turbines, in turn generating energy. This creative approach is both better for the environment and better financially. There are many ways to turn waste into energy: anaerobic digestion allows waste to transform into biogas, fertilizer, heat, and so much more. This approach is duplicable for many parts of the industrial sector.
Adidas offers another approach: among other initiatives, Adidas has moved both its own buildings and the buildings of its suppliers to green energy. Adidas certifies its buildings with the most widely used green building certification, LEED. LEED buildings are better for the environment and for humans and consume 25% less energy than standard buildings. The athletic apparel and footwear producer has set goals with the Science Based Targets Initiative for internal environmental goals, and work with value chain partners to set similar goals and provide resources for achieving green energy goals. These goals all contribute to Adidas’ goal to achieve climate neutrality across its value chain by 2050.
There is no one-size-fits-all renewable energy solution. However, the industrial sector can certainly step it up in terms of speed and efficiency adopting renewable energy sources across their business—every bit helps.
Lasers and climate change: How technology helps reduce methane emissions
Jackie Park, Editor
Did you know lasers can help fight climate change?
Well, sort of. While reducing carbon emissions remains at the top of many companies’ list of environmental priorities, it might not be the most important greenhouse gas to keep tabs on.
It’s no secret that carbon dioxide is much more abundant in the atmosphere than methane. Why should companies focus on methane instead?
Methane, or CH4, is best known for being a “bridge fuel” as we shift from reliance on coal to natural gas. This colorless, odorless gas is often leaked into the atmosphere via natural gas and petroleum systems, and is 80 times more harmful than carbon for the first 20 years after it’s released. This is because it traps more heat in the atmosphere per molecule. Carbon hangs around longer, but it doesn’t cause the intense warming methane does. Some scientists even believe our methane production has kickstarted a “termination event” significant enough to end an ice age based on ice core patterns.
In addition to its significant impact on the environment, regulations related to reporting and reducing methane emissions are extremely relaxed. Companies tracking methane emissions can interpret the Environmental Protection Agency’s reporting rules however they’d like. For example, interpreting the word “operational” to refer to only when a particular device is releasing emissions. There are more than 100 pages of EPA regulations for which companies are interpreting language from, according to Bloomberg. This reporting loophole prevents the EPA from having a complete picture of how much methane companies are contributing. Though, recent proposals would address some of these gaps.
More than half of all methane production in our atmosphere is caused by humans. That means we are wholly in charge of making the changes required to protect our environment, and in many cases, make money. Let’s look at some tech solutions for reducing methane emissions.
Now, lasers. Drilling for oil and gas leaks far more methane than previously thought. In fact, 9% of all methane produced in the Permian Basin, one of the highest-producing oil and gas sites in the world, is leaked into the atmosphere. To combat this, researchers have developed methods that use lasers to detect methane leaks. From drones to long-range frequency comb systems, these laser-based technologies can pinpoint methane leaks and communicate their location to team members. This information allows drilling companies to upgrade equipment to minimize leaks and maximize profits.
Fossil fuel company Triple Crown Resources is using LongPath’s long-range frequency comb laser sources to detect and fix leaks. Since they started using the system, they’ve upgraded about $400,000 of old, leaky equipment and increased revenue by more than $3.5 million.
Other companies, like Honeywell, have created special cameras that visualize methane emissions – another way to pinpoint methane leaks and understand their impact. These solutions even provide additional context like wind drift and live videos to aid in quick resolution of these leaks.
Beyond tech – methane-eating bacteria is here, too. The oil and gas industry isn’t the only one producing methane. Of human-produced methane emissions, 37% come from the agriculture industry. Luckily, scientists have discovered a bacterial group that consumes methane five times more methane than other bacteria. “Bacteria that rapidly eat methane at the higher concentrations found around cattle herds, etc. could make a huge contribution to cutting methane emissions, especially from tropical agriculture,” said Euan Nisbet, professor of Earth sciences at Royal Holloway, University of London, told The Guardian.
Methane is on its way up and out of our atmosphere – hopefully sooner rather than later.
Large companies frequently begin their ESG journeys by necessity, not by choice. With that comes financial support, a board of supporters and organizers, and a guide from their counterparts. Small- to medium-sized enterprises, however, might have a harder time getting started. With fewer resources, their teams and budgets are stretched thin and going green might not be in the plans.
As large companies are being pressured to reduce not just their own emissions but that of their supply chain , small companies are having to meet sustainability expectations set by their larger customers. One example of this is Apple who have announced that their supply chain will be carbon neutral by 2025. However, as part of this there is also a responsibility that the large companies help smaller companies in their supply chain to meet some of these challenges. This may be in sharing best practices and skills, or even some technologies to help smaller companies meet these pressures.
Manufacturing is one of the biggest contributors to greenhouse gas emissions globally, according to the United Nations. While this is mostly from larger enterprises, small- and medium-sized companies are contributing, too, probably more than you think: Research shows that SMEs contribute 60%-70% of industrial pollution in Europe. That's a significant portion of emissions.
What’s keeping small- and medium-sized enterprises from going green?
SMEs have a pretty simple problem: resources. They lack the expertise, technology, and financial backing needed to support green initiatives. While there might be a number of grants and other financial support available, getting documents organized and using the correct language for these programs is time-consuming and difficult for newbies.
These challenges are real, but that doesn’t mean SMEs can just throw in the towel. As we’ve discussed, their commitment to going green is an essential step on the journey to achieving ESG goals.
What can SMEs do to progress on ESG goals?
SMEs can make slow changes that will be beneficial in the long run. From hiring employees with a background in sustainability to reaching out to colleagues for advice on how their company implements sustainable goals and practices, there are a number of options available for getting started.
Then, it’s all about tracking, tracking, tracking. SMEs can’t make decisions on a whim: they need data about your environmental impact to make valuable and creative changes. Plus, this demonstrates the need for change to other stockholders, like employees, customers, and others who care about company progress.
Finally, make changes on an individual timeline. No two businesses are the same, especially when it comes to SMEs. It might take them a bit longer to make and implement changes. That’s OK. Some progress is better than none. Start small. Consider everyday adjustments that can add up, like using a coffee mug instead of a plastic cup or carpooling with coworkers. Then, think bigger. Is it time to upgrade machinery to something more energy efficient? Is there room in the budget to purchase electric vehicles for the fleet instead?
It all matters.
Without the support of SMEs, the industrial sector will not be able to meet its climate and sustainability goals. While it might take them a bit longer or stretching their resources a little further, it’s all about doing our part to protect the environment.
Nowadays, most manufacturers track consumption and waste metrics. This is a big step compared to 20 years ago. But is that information actually helpful if it’s just for internal consumption? And are these metrics on their own enough?
Setting sustainability goals is an important step toward improving internal processes to better take care of the environment. Sharing those goals with the public adds another level of accountability and trust. Plus, it is proven to boost profits and attract top talent.
Beyond internal motivations, sharing sustainability goals is practical in many countries too. The EU now has strict ESG reporting requirements from the Corporate Sustainability Reporting Directive, or CSRD. This isn’t just in the EU: the United States has climate reporting rules coming down the pipeline too.
According to Omdia, almost 60% of companies measure their carbon emissions, water consumption, and waste for internal measuring purposes. However, a little more than 30% of companies measure for public reporting purposes.
Reporting of emissions is generally the headline figure, with companies needing to prove their progress to carbon neutral and net zero targets. However, this is also a more difficult parameter to measure, and especially so when trying to calculate scope 3 emissions. While water and material can be more easily measured as an input, emissions are a byproduct that are released at numerous points across the manufacturing process (including advertently) through leaks.
As companies move from target setting to accurate reporting of progress this will necessitate greater investment in sensing and data collection technologies. To address this a range of vendors have begun to introduce carbon footprint monitoring solutions that can either track emissions broadly or target more specification applications within an organization.
Further, while it’s positive that more companies are capturing emissions data today, they may be missing the forest for the trees. Tracking your own data is important, but it’s not everything you can do. More than 40% of net-zero targets don’t include scope 3 emissions. That’s missing out on a lot of environmental impact. Plus, carbon isn’t the only area for improvement: waste and water consumption offer plenty of opportunities for development as companies set their sustainability goals.
All this talk around goals is a great place to start. Let's not forget that sustainability reporting is a marathon, not a sprint. Set realistic goals that mean something to your team and don’t be afraid to share with the outside world.
Ford, GM, Rivian, Volvo, and most recently, Nissan, all have one thing in common: they will begin outfitting their electric vehicles with Tesla’s charging plug in the coming years. This switch comes after Tesla announced in November that it would share its EV connector design with other automakers in an effort to accelerate the transition to sustainable energy. Now, the North American Charging Standard is looking like just that—a standard for EV producers.
The shift to using the same plug isn’t new, however. Interchangeable parts were popularized by Eli Whitney in the 19th century as a means of simplifying gun production. Whitney’s new process made gun-making cheaper and easier compared to the specialized crafting techniques that were used before. This historic shift affected manufacturing everywhere. Consider IKEA furniture: customizable dressers, beds, and other pieces that are produced on a mass scale are easier for the home corporation to produce, cheaper to get on the market, and easier for their consumers to access. But, besides the simplification that comes with interchangeable parts, it also brings environmental benefits.
In 2021, the industrial sector was responsible for 23% of greenhouse gas emissions—third place among all contributors, according to the EPA. This contribution comes primarily from burning fossil fuels for energy and chemical reactions needed to create goods. In addition, the proportion of emissions would be much higher if electricity use emissions were included in this calculation.
What does that mean for industrial producers? Energy sources, chemical reactions, and electricity use provide the biggest opportunities for change.
Innovation and the environment
Tesla’s willingness to provide shared plans and automakers’ eagerness to take part in the North American Charging Standard means manufacturing the plugs and how they’ll fit into different car models will get a lot simpler. With more companies working on the same parts and processes, innovation is more likely. Consider how interchangeable parts laid the foundation for Ford’s assembly line and other innovations to the industry.
When a large proportion of the industry is working with one material, they must consider the most efficient way to produce that item. This kind of innovation can bring quicker, leaner manufacturing—a more sustainable option. Lean manufacturing cuts out physical and immaterial waste, bringing shorter lead times and higher quality products.
Luckily for the environment, less waste is a positive.
In addition to leaner manufacturing, this shift to the North American Charging Standard also brings the reduced environmental impact of Tesla’s supply chain. Tesla places high importance on maintaining an ethical and environmentally responsible supply chain. So, by other automakers using Tesla models and supplies, more parts of other manufacturers’ supply chains will become more sustainable.
Don’t forget about the consumers
Arguably just as important as the benefits to manufacturing are the benefits for consumers. Interchangeable parts make their lives easier and more sustainable, too.
Discontinued cars and parts make fixing run-down vehicles a big challenge. Particularly in a world where the EV landscape is changing every day, substituting parts can be difficult if a car isn’t made anymore. Standard charging ports make vehicles last longer, which is better for the environment and helps consumers use the vehicle until the end of its life. It also makes consumers more likely to want an EV—as discussed, a standard plug brings innovation and simplicity to the consumer. Many aren’t likely to purchase an EV for the hassle and lack of charging ports. But with a central charging plug available, the number of charging ports available for any given EV is likely to grow as chargers shift to accommodate more users.
This change isn’t the end-all, be-all to solving the auto industry’s sustainability challenge, but it surely is a step in the right direction for both producers and consumers.
Cut the greenwashing: Setting realistic goals and strategies for sustainability in manufacturing
Jackie Park, Editor
The world’s largest food producer just announced it is abandoning its claims to carbon neutrality. Believe it or not, this is a good thing.
"Net-zero” and “carbon neutral” are just two of many buzz words in ESG initiatives. Achieving carbon neutrality is the goal for any company looking to lessen their impact on the environment. However, things get dicey when companies say they’re going to make changes that aren’t realistic or, for lack of a better word, sustainable.
Planting trees to offset carbon emissions is helpful, but it's not the best we can do. Scientists say planting trees is a great first line of defense (plus, it’s popular with just about everyone), but trees will never fully offset the amount of carbon humans create.
Nestle joins the ranks of other large companies replacing carbon neutrality goals with promises to reduce greenhouse gas emissions. Though it might not immediately sound better, this shift allows the company to adjust resources toward achievable goals. While saying you’re working toward carbon neutrality sounds great, setting an unattainable goal does more harm than good. In fact, research shows that making false promises or not delivering on socially responsible initiatives actually hurts customer satisfaction.
Instead of making promises they can’t keep, many companies are turning to other methods to reduce their carbon footprint. Nestle, for example, is focusing on reducing its greenhouse gas emissions along its supply chain and operations, which will push the company further toward its broader net-zero greenhouse gas emissions goal. Let’s visit realistic strategies other manufacturing companies are adopting to achieve their sustainability goals:
Technology
AI is all the rage now, but its benefits to manufacturing are long lasting. According to a survey from Deloitte, 93% of manufacturing companies surveyed believe AI will be pivotal to driving growth and innovation in the sector. This investment drives the sustainable benefits to AI: its machine-learning skills, ability to regulate energy use and waste reduction capabilities make AI a valuable partner in the fight to reduce emissions and energy usage for large corporations.
Renewable Energy
Perhaps the simplest way to reduce carbon emissions is by purchasing renewable energy. Companies may choose to take advantage of power purchase agreements, renewable energy certificates, or self-generated energy sources like wind or solar. Many companies work with their energy suppliers to accomplish these goals. For example, Schneider Electric provides services to help its customers accomplish their sustainability goals.
Circular Manufacturing
Circular manufacturing provides a way for any waste a company creates in the manufacturing process to circle its way back into the economy for reuse. This can look like designing products that will last longer and are more easily recycled, which requires some advance planning, but helps companies reduce their overall footprint on the environment. For example, Bridgestone and Michelin are partnering up to reuse and recycle more of their waste and tires, hoping to make a dent in the 1 billion tires that reach the end of their life every year.
Employing new strategies and goals for sustainability can be daunting, but remember that setting achievable goals and practical strategies is generally your best bet for success. Your customers, company, and the environment will thank you later.
As more countries implement mandatory emissions tracking and companies across the globe ramp up company-wide sustainability goals, the push for solutions that will provide accurate, up-to-date information grows stronger. All 100 of the United States’ biggest companies now publish ESG reports, putting the pressure on not just to track and share data, but to use it to improve
Tracking ESG metrics is no small task—a company’s carbon footprint, energy efficiency, and leadership diversity statistics are all fair game. Plus, the outputs from partners up and down the supply chain, the ability of products to be reused or recycled, and how a team tackles travel can all factor into your company’s overall sustainability strategy.
Microsoft recently unveiled dramatic changes to its Microsoft Sustainability Manager solution, giving way for:
- Project ESG Lake: Users can now bring in emissions and other related information from outside sources to enrich the data housed in Sustainability Manager, convert their data into Power BI dashboards for powerful visualizations, and enrich their existing data across sustainability categories.
- Enhanced regulatory reporting capabilities: The Sustainability Manager now features expanded reporting data, giving users a complete look at what’s to come in their government reporting. In addition. Improvements also allow companies to use the program to set goals based on upcoming regulations and science-backed recommendations.
- Comprehensive carbon footprint data: Since its inception in 2022, Sustainability Manager has given users access to Scope 1 and 2 emissions data. Now, the program has expanded to include all 15 categories of Scope 3, giving users emissions data about processing and using sold products, franchise operations, investments, and fuel and energy use in their value chain.
- Waste data visualizations, reports: Users can now input waste data from outside sources and look forward to waste data visualizations and custom and regulatory waste sustainability reports.
- Water data capabilities: The Sustainability Manager now allows users to calculate water efficiency via total water consumed per net revenue across the business. Users can also track water storage and their progress toward water sustainability goals.
Sustainability goals do not mean anything without a way to keep track of data. Innovative technologies, like Microsoft Sustainability Manager, offer opportunities for companies to create meaningful, actionable goals with a timeframe.
They also bring much-needed regulatory background to companies that are required to submit information. Government paperwork can be complicated and time consuming without the right people and data at your disposal. Just like using an accounting system (or an accountant) for taxes, investing time and money in sustainability technology saves companies in the long run.
But what happens when the general population loses trust in corporate sustainability promises? A study from IBM shows that in 2021, consumer trust in corporate sustainability peaked at 48%. Just two years later, however, that number has fallen to 20%. According to the study, a lack of progress toward sustainability goals is likely to blame. While 95% of surveyed businesses have ESG goals, only 10% have made significant progress toward them. Further, IBM states that inadequate data is executives’ biggest obstacle when it comes to fulfilling these promises.
Emerging technologies help companies communicate their progress toward sustainable goals with consumers and job seekers. While this is still a new field for technology companies to enter, innovation is what keeps the industry turning. As sustainable goals and motivations change, the technology to support new problems will too.
Although decarbonization of energy seems to garner the greater share of attention, all efforts to improve manufacturing's relationship with energy must go hand in hand with efficiency improvements.
Last year global energy demand rose by 1%, according to the International Energy Agency (IEA). Fortunately, at the same time, global energy efficiency advancement reached 2.2% double the average from the previous half indicating an uptick after several years of slow progress. Without this progress, energy consumption would have been almost three times higher. This was according to IEA's “The Decade for Action” report released at the 8th annual IEA Global Conference, hosted in Versailles, France and organized in partnership with Schneider Electric.
The annual conference focused on energy efficiency this year hosted 650 participants from 80 countries, including 30 ministers and 50 CEOs. It culminated with an endorsement from 45 governments to target doubling the average global rate of energy efficiency improvements to over 4%, by 2030.
Based on recommendations from the "Global Commission for Urgent Action on Energy Efficiency" at the event and introduced by Schneider Electric Chairman Jean-Pascal Tricoire, a list of 10 strategic principles were released to support continued investment and action on efficiency. These were developed from workshops and discussions during the conference (see video below).
As part of this introduction, Tricoire emphasized two of his key takeaways from the previous day: "Energy Efficiency is the priority and we have technology and capabilities to push it to a new scale. … It’s not a question of choice. We have to do energy efficiency plus renewables. It's not a question of ‘or,’ it's an ‘and’ of many actions."
I had the pleasure of speaking with Barbara Frei (EVP of Industrial Automation) and Gwenaelle Avice-Huet (Chief Strategy and Sustainability Officer), two people at the forefront of Schneider Electric’s efforts to drive sustainability to the center both internally and externally by empowering their customers to do the same.
In terms of its own efforts, Avice-Huet shared that Schneider Electric has held commitments to sustainability with related KPIs as far back as 15 years ago. This included introducing a sustainability culture, with KPIs and remuneration accordingly. These early endeavors have manifest in the launch of more sustainable products that were years in development. One example was the launch of its SF6 free switchgear, which had been a decade in development. Avice-Huet emphasized the length of time and commitment some innovations necessitate.
Avice-Huet went on to highlight the example that, whilst thousands of companies are talking about setting SBTi targets, less than 100 companies have been validated. However, there are a number of factors driving change. With the energy crisis an immediate consideration, whilst longer term, regulations will also contribute to a greater focus.
Whether its optimizing processes or reporting performance, accessing data is a challenge. Frei emphasized the need for companies to start with measurement as a baseline to guide priority setting and to understand where the costs are to the business, where to implement efficiency plans and the challenges of overcoming siloes between different business functions—be it manufacturing, sales or IT.
These changes are an issue for many companies, but nowhere more so than the plethora of SMEs (small- to medium-sized enterprises). Frei highlighted that companies in this position are increasingly looking to consulting services to guide them both in establishing their priorities, conducting e.g. energy audits and helping them access and leverage their data to optimize. For Schneider Electric, this is crucial as it runs the Zero Carbon Project, working with its top 1,000 suppliers, most of which are SMEs, to reduce Scope 3 emissions, with a goal of reducing emissions by 50% by 2025. This has been supported by significant knowledge-sharing on its Zeigo Network to connect like-minded companies, and the introduction of its Zeigo Activate SaaS based tool.
Cultural transformation is needed within organizations to implement and accelerate the necessary efficiency changes. Avice-Huet highlighted this as a major driver to innovation. As CSSO, her team can't be involved in developing all products across the organization, but working with the CEO, a significant undertaking is ensuring that new ideas are organic and developed from those ‘on the ground,’ rather than from a centralized sustainability team. Doing this while developing an auditable organizational structure allows the company to track it’s the progress of various sustainability KPIs, ensuring a holistic, rather than siloed, view of the plethora of different activities going on at any given time in the organization.
The conference also addressed the issue of new technologies, and whilst there are interesting new technologies that may be relevant in the mid- to long-term, there is already a wealth of opportunity that can be accessed through existing technologies. Now is the time for companies to accelerate their energy transition.
The breadth and depth of resource consumption attributed to the industrial sector is staggering—from aluminum to zinc, H2O to HCL.
In particular, manufacturing companies are categorizing their consumption and by-products to energy, emissions, waster, water with all manufacturing sectors across discrete and process seeking to minimize resource usage and maximize efficiency to reduce their overall environmental footprint.
While all sectors engage with similar, high-level challenges, there is a lot of variance to the environmental footprint across manufacturing sectors, and even within them.
Whilst heavy industries such as oil, gas and mining have received the lion’s share of public attention, these are also, typically, sectors that are more advanced in their investment and ability to improve their sustainability (such as by optimizing energy efficiency). In contrast, some of the discrete and hybrid industry sectors such as pharmaceutical and semiconductor production aren’t as far a.
There are key differences across these industries, including different metrics they are trying to manage, and the significance of their contributions as a part of the broader manufacturing sector.
Energy
Reducing energy consumption is considered by most manufacturers to be the most important sustainability objective when determining investment by manufacturing companies. The cost of energy is a major contributor to this, with two-thirds of companies in the process manufacturing sector indicating that energy consumption accounts for more than 10% of their operating costs.
Whilst all industry sectors rely on energy, the process sectors are significantly more energy intensive. The chemical industry accounts for almost as much energy consumed as the next largest sectors of oil and gas, and the metal processing sector. The cement industry has the highest energy intensity (the amount of energy consumed per every million of revenue).
Companies are continuing to shift to renewable energy; however, for most industry sectors, green energy is still less than 10% of their overall energy consumption. And for energy-intensive continuous-process sectors, the ratio can be closer to 1%. Overcoming challenges around energy storage and the adaptation of continuous processes to fluctuating renewable energy supply will be key for these sectors.
Emissions
The drive to net zero is prioritizing the focus of many manufacturing companies towards emissions reduction. For most industries, the focus is primarily around CO2 reduction, although for the oil and gas sector, methane is also a key consideration. According to Environmental Defense Fund (EDF), methane has a Global Warming Potential (GWP) 80 times larger than that of CO2 for the first 20 years after its released into the atmosphere. Outside of agriculture, the oil and gas industry is the major contributor to methane emissions, which can arise across production and processing through, for example, flaring and intentional venting, as well as in transmission and distribution through fugitive emissions from leaking pipes, vessels and valves.
Efforts to reduce emissions encompass both strategies for reducing direct (scope 1) emissions, most prevalent in energy intensive industries (as discussed previously), as well as the broader scope 3 emissions across the supply chain.
Scope 1 emissions can be as much as 83% of the cement industry, and 80% of metal processing, whilst for the automotive industry—with long and complex supply chains and consumer packaged goods (CPF)—scope 3 emissions dominate (accounting for 97% and 87% of total emissions respectively).
The combination of both long and complex supply chains brings a set of challenges in how to address scope 3 emissions. Ford, for example, has around 1,400 Tier 1 production suppliers (before considering those Tier 2 and Tier 3 suppliers) alongside a strong dependency on heavy emitters, such as metals and chemicals as partners further upstream. As such a review of the selection of materials used in production, as well as both the sustainability and the location of which partners to work with is necessary.
Waste
A major challenge for the mining industry is the sheer scale of its waste. The top five mining companies (by revenue) were estimated to account for more than 5 billion tons of waste in 2020, with less than 1% of this waste recycled. The majority of this is left in waste rock dumps and tailing mines. Especially with the increasing material prices, there is a growing focus on the opportunity of re-mining this waste for other materials. Outside of this, much of the waste rock is used at the end of the life of the mine to fill it back in. However, tailings (fine grained rock remnants sometimes mixed with water) can be more of a challenge to deal with, as these huge dams are at risk of collapse, or pollution from effluent and dust emissions which may be toxic.
The disposal of hazardous waste can create additional challenges. For many industry sectors, from chemicals to pharmaceuticals and semiconductors, the volume of hazardous waste can eclipse that of non-hazardous waste. Industries such as semiconductor manufacturing can rely heavily on a range of liquids and solvents, which can be caustic or carcinogenic, requiring significant additional measures to ensure safe processing.
In contrast, in industries such as automotive (90%) and metal processing (70%), the process of recycling is both cost effective and far simpler to address. The simplicity is leading to companies to reuse and re-manufacture material and components.
Water
Although sometimes overlooked in relation to other types of resource consumption, global demand for fresh water is expected to exceed supply by 40% over the next decade. With 17% of global water used for industrial purposes, there is a growing focus on minimizing consumption in manufacturing.
Water is heavily used in different process across a range of sectors, for applications such as washing, cooling, boiling, cleaning, and cutting. Almost 3,000 liters are estimated to be used in the production of a single adult-size T-shirt, whilst for a smartphone, a staggering 15,000 liters is required.
The pulp and paper industry uses the most water, consuming in most of the processes from the making and processing of pulp to the paper manufacturing process, and especially the most water intensive part of the process of bleaching the paper.
With each industry facing unique challenges around reducing its environmental footprint, there isn’t any one-stop solution. This necessitates the need for consulting services including auditing, optimization of application and integration of technology to ensure long-term suitability.
/ Wear your glasses for sustainability passes!
A chain is only as strong as its weakest link. Across business, the oversight—or fragility—of certain dependencies can have catastrophic impacts. As we saw during the pandemic, the shortage of a microchip can lead to temporary shutdowns of numerous automotive plants.
Sometimes, these dependency-related challenges are the result of ‘black swan’ events (unforeseen and unpredictable events), at other times, these hurdles result from short-sighted planning.
A recent event in the UK would suggest the latter.
With the UK needing five times more solar and four times as much wind power to meet its target of 100% net zero emissions by 2035, significant investment have gone into launching renewable energy projects. The good news is that a combination of the UK government and private investors have spent £198 billion on renewable infrastructure since 2010.
However, whilst the projects have been lined up, and in many cases constructed, some are having to wait for more than a decade to be connected to the grid and 40% of projects are facing at least a one year wait to be connected (at best). As a result, the UK has the longest grid queues in Europe.
How many other sustainability efforts are being limited by short term or disconnected thinking?
Lots of manufacturing sustainability projects are in the planning or deployment phase. Yet, more than a few of these are being developed as ‘point’ solutions, focused on a specific problem or part of the business or facility, without fully considering wider dependencies and ramifications, both internally and externally.
Some of the internal dependencies may include close collaboration across different functions to ensure that an improvement in one area doesn’t detrimentally impact another. For example, introducing a new type of recyclable packaging material may demand greater energy to produce, increase the time or quality of production, increase waste or create transportation challenges.
Other considerations may impact the rate of transition to renewable energy and the suitability of this energy source for organizational processes.
But companies must also consider those around them. Is the infrastructure in place to support all critical points of failure? Can existing suppliers support the necessary changes or will they need assistance? How will upcoming regulations influence plans and the ability to adhere and report?
So, companies should get started and accelerate their sustainability projects. They should consider the net environmental benefit of these changes, rather than engaging in short-sighted activities that may not provide the benefits desired.
With in-person events making a comeback, it's great to once again see the latest and greatest offerings from technology vendors and learn how they’re being leveraged to address challenges in the industrial sector.
A 15-member Omdia team attended Hannover Messe 2023 in Germany, and I’ve provided some of my main takeaways and questions below, both on how technology is meeting environmental challenges as well as some of the interesting developments around technology as a whole.
Sustainability was fairly ubiquitous throughout, and while for some the link was tenuous, other vendors seemed to be getting a clearer picture of how to enable environmental sustainability—highlighting particular applications that can be used across renewables, energy efficiency, water consumption, and waste reduction. The future of work and the augmentation of the manufacturing workforce was also prevalent.
- High energy costs last winter and uncertainty over what’s in store for the end of this year made energy efficiency a hot topic at the show, with a huge number of exhibitors showing energy monitoring and management tools, both of processes and of the grid. Internet of things and artificial intelligence is widely leveraged in these solutions, but to date, most manufacturers are still struggling with the basics of accessing energy data. There’s also still limited clarity about how customers, especially small- and medium-sized companies can get off-the-shelf products that meet their price point and expertise, compared to the larger investments in customised solutions that leverage the consulting capabilities from vendors and partners, which larger manufacturers can access. In short, many vendors are still struggling to articulate a clear strategy around the question, ‘where do I start with sustainability?’.
- There were a lot of examples of the use of design and simulation tools—to optimize everything from components, products, processes, and plants for more sustainable operations—on display at the show. These technologies will be critical not just to reduce energy consumption but also to design products and processes with re-use or recycling in mind.
- Can DC power be used for some islands of manufacturing, more efficiently leveraging renewables (for example, solar powering the paint shop of an automotive plant)?
- The greenfield opportunity of battery manufacturing provides both the huge amounts of CapEx, a highly automated manufacturing process, and a clean slate to build digital transformation and sustainability into the core of all processes. This was evident at the show in technologies that enable more efficient design of batteries, both within operations and as part of a cyclical economy by enhancing product quality, optimizing sensitive manufacturing processes and tracking products across the supply chain.
Digital transformation
- ️Software-defined automation is here to stay There were many announcements at the show about the introduction or expansion of virtualization of control and the use of containerization—and subsequently, the ongoing shift to adopting more IT technology into the OT space.
- ️Data accessibility and contextualization is still a challenge. Many companies have a lot of data but struggle to bring various siloed datasets together to optimize decision making. A number of releases were focused on open data management tools that enable third parties (and manufacturers themselves) to develop tools of their own.
- ️It’s becoming a consensus that the future of industrial compute will behybrid computing, but whether that will start with the cloud or edge computing was a topic of much debate at the show.
- ️There was a big increase in industrial metaverse conversations. It’s here, despite the apparent struggles of the consumer metaverse. The importance of capturing a holistic picture of a business, rather than looking at siloed datasets, will be an important piece of the puzzle as companies continue making data-driven decisions and bring individual Digital Twins together.
- ️Do natural language processing tools such as ChatGPT have a home in manufacturing? There were a number of demos of the artificial intelligence system being used for coding PLCs, featuring the ability to code to a particular style (what does this mean for low code?), as well as augmenting worker training.
- ️Beyond this, the show featured discussions about the autonomous factory and ongoing discussions about how manufacturers can move from basic analytics to leverage more complex machine learning models, highlighting the future path the industry is on.
Businesses strive to manufacture as much as possible, as well as possible, for as little expense as possible. This is a mindset that is well illustrated when considering industrial maintenance and the application of technology. However, this equation is having to expand as companies go green.
Over the last 10 years, predictive maintenance has been a low hanging fruit of digital transformation in the manufacturing sector. Predictive maintenance is the process of collecting various measurements like vibration, temperature, acoustics, etc. from critical assets to enable companies to predict the likely timeframes within which an asset may fail, allowing them to plan maintenance accordingly. This is done to conduct any necessary repairs (or replacement) of the asset in advance of it failing and causing unplanned downtime.
Predictive maintenance is achieved by monitoring the performance of an asset and comparing it to a baseline of historic data to track its health, providing early indications of potential faults. This is done by comparing results with historic data and identifying similar patterns that reflect previous failures which can then be used to predict the timeline of degradation and plan accordingly.
Predictive maintenance isn’t suitable for all assets, and a critical analysis is often conducted to understand its importance in the process, the cost of the asset, the cost of maintenance, and its availability, among other things. As such, there isn’t a one-size-fits-all approach for asset maintenance. A light bulb might be to run to failure, whilst a turbine requires regular maintenance checks, whether based on usage or a predetermined interval, or a predictive maintenance approach.
A more holistic ‘risk-based management’ approach can further optimize decision making. Rather than just looking at when an asset may fail, other factors such as, maintenance availability and cost of repair, cost of downtime, mitigation against damage to other equipment, the cost of lost batches and spoilt goods etc. as well as safety hazards related to the asset’s degradation are all calculated.
In fact, as a result of these factors, unplanned downtime can cost 10-times that of planned downtime.
There’s a sustainability angle
Beyond the direct financial cost, sustainability-related calculations haven’t been a major consideration in this calculation until now. But as companies intensify monitorization of their environmental footprint by accessing this type of data and analyzing it to understand how the environmental impact of assets will intensify, technology vendors are expanding their asset health solutions accordingly to provide a sustainability focus.
The sustainability impact can be significant.
In an example highlighted by Emerson, a steam pump survey at a refinery discovered that a third of steam traps weren't operating correcting—with over 2,300 being replaced. This resulted in a reduction of 400,000 pounds of CO2 emissions and $725k,000 in annual energy bill savings because of reduced steam loss.
Other impacts that will negatively impact ESG results include late identification of, e.g., a faulty bearing in a machine leading to production of sub-standard products, culminating in wasted material and energy.
In the future, the strategy for maintenance of an asset will not be viewed as solely an uptime-versus-maintenance equation, but also factor related to environmental impact, especially for energy-intensive industrial equipment (such as boilers, furnaces and chillers, etc.). With companies looking to optimize their energy consumption and reduce emissions, identifying and addressing bad actor-assets will be essential to this strategy.
Regenerative and low harmonics drives are growing thanks to regulations and ESG goals
by Rachel See, Research Analyst
Low harmonic drives are used to reduce low power quality and solve disturbances to the electrical grid that are caused by adding machines. Their ability to correct the power factor and reduce harmonics can reduce operational costs significantly. Regenerative drives feed electricity back into the system or power grid, reducing the overall energy consumption of end users’ applications and lowering total energy costs.
Regenerative drives cannot be used in every application. The most common applications are elevators and escalators, cranes and hoists, and conveyors; where there are frequent starts and stops, acceleration and deceleration. This technology can send energy back to the grid or share energy with other drives. For low harmonic drives, there is traction in the commercial HVAC, water and wastewater, building automation and heavy industries such as the oil and gas, and mining markets. Industries with higher energy consumption and elevated CO2 emissions are quicker to adopt low harmonics and regenerative drive solutions.
This market only accounts for approximately 7.5% of the LV Drives market; however, it is forecasted to grow to USD1,254 billion in 2026 as a result of the following trends:
1. Electrification
This technology will grow as the electrification trend introduces harmonics into the system, which needs rectification. In many regions, industrial and residential areas share the same electrical grid. With the increasing addition of electrical devices (such as LV drives) in factories, these devices add in harmonic currents, which will add stress to the electrical network, damage equipment, disrupt operations, and increase operational costs. Electrical equipment in factories or buildings will have to comply with those standards such as IEC 61000-3-6, NEMA IS07 P1-2019 or ANSI C82.77-10-2021, for example.
2. IEEE 519 Standards (2022)
With the increasing need for electrification, the initiative to implement standards has also increased. Important standards are set by the International Electrotechnical Commission (IEC) and the Institute of Electrical and Electronics Engineers (IEEE), such as IEEE 519 (2022), on certain limits on harmonic disturbances into the grid systems. This is impacting machine builders, system integrators, and end users who have started to implement these technologies because they have become necessary.
3. Demand for clean power
There is a need for clean power that oscillates without harmonic distortion, spikes, or voltage drop. This is apparent in countries like India, China, and South-Eastern Asia, where there is manufacturing and industrial growth and where residential and industrial areas share the grid. The drive for energy efficiency and having to mitigate harmonics allows the system to be more efficient.
4. Government Legislation
If the company has a bad power factor, the end user will be penalized based on the count of megawatts per hour. Bad power factor is when the ratio of true power to apparent power is 0.85 and below, and results in higher losses in the system and a higher electricity bill. This is applicable in all regions and is monitored by government-regulated utility companies that charge a penalty per electricity bill. Companies will do a cost analysis on how much they have to pay as a penalty if they put poor-quality power back into the grid. In a case in Tamil Nadu, India, in 2015; the Tamil Nadu Electricity Board charged Southern Railway Rs73.98 lakhs (approximately $88,800) for not complying with harmonics regulations. One way to mitigate this challenge is by introducing low harmonic drive technology.
5. Decarbonization
Initiatives to reduce CO2 emissions as part of an increasing ESG focus both by governments and manufacturers, particularly in energy intensive industries, will also impact demand. Without a regenerative drive solution, excess energy has nowhere to flow when power generation occurs. With this solution, power can be sent back to the grid or shared among other drives in the system creating cost savings for the company by lowering total energy consumption.
6. Infrastructure
Variable speed drives tend to be adopted in infrastructure designs for energy and system efficiency purposes. This includes building automation, commercial HVAC, refrigeration, water and wastewater systems, and more. Investment in greenfield factories will more frequently include this technology. Inclusion in brownfield factories will not be as straightforward because companies will have to perform heavy analysis on the whole system before implementing this technology.
Regeneration and low harmonic technology in drives is a solution to watch out for, as the common thread in all trends stated above are energy savings and cost savings. High energy intensive industries will be targeted for this technology’s growth. With the current climate of high energy prices and decarbonization trends, Omdia expects regenerative and low harmonic drives to have a revenue CAGR of 5.4% from 2021 until 2026.
Sustainability - if you don’t pay for it, you’ll pay for it!
by Alex West, Senior Principal Analyst
Survival is the foundational motivation for most of life—it drives people, societies, and businesses.
Alongside this, short-term needs will often be prioritized over longer term objectives.
The most basic motivations that drive people are food, water, and oxygen. Only after these basic needs are met can lower priorities like relationships, positive self-esteem and the ‘greater good’ be pursued. This idea was proposed by Abraham Maslow in 1943 to capture humanity’s predisposition to motives.
Businesses are run by people, so they naturally follow a similar path, initially focusing on survival (generating revenue and profit) before expanding to more philosophical goals, such as being a purpose driven company and the impact of an organization on society.
In order to see a sustainable transformation of the manufacturing sector, companies will need to be incentivized to be more sustainable. Simply depending on the good will of companies, when the result may be a loss in competitiveness and profitability, is not sustainable
When the economy is strong, companies have greater freedom to promote ideals and goals, like sustainability; however, to assume that companies will just ‘do the right thing’ when more base motivators are at play is not realistic.
The benefit of doing and the cost of not doing can be a powerful carrot-and-stick combination to ensure that sustainability is built into a company’s foundational motivations.
It's still about the money
Most businesses hold revenue as the primary motivator. And given the current economic climate— with concerns about a global recession in the wake of recent turbulent business conditions—revenue has become a growing concern.
In the past, such conditions have led to a diminished focus on sustainability. In fact, a recent Omdia analysis of the top 170 manufacturing companies found that between 2010 and 2020 there was an inverse correlation between CapEx (Capital Expenditure), generally a good guide to a company's or industry's financial health, and their scope 1 emissions intensity (emissions per $millions of revenue). This suggests that, in difficult times, sustainability efforts take a back seat to more immediate financial concerns.
However, in the next few years business survival will become more closely linked with progress toward sustainability goals. Businesses can’t sell to a customer they can’t do business, and many manufacturers are starting to hold supply chain partners accountable for their efforts and are re-evaluating partnerships based on sustainability objectives.
The profitability vs. sustainability equation
The question of the profitability of sustainability is still one that many companies are reviewing, and the answer differs by company, industry and region. For some, the level of savings through greater efficiencies, reduced resource consumption and less waste provides an immediate return on the needed investment, whilst there are many cases where the case still isn't clear. However, this calculation is changing. First, new legislation is being introduced that mandates the auditable reporting of sustainability metrics and greater transparency towards progress to targets. In addition, the price point for manufacturing less sustainable products is rising, with, for example increasing carbon taxes. Over the last couple of years, the carbon price in Europe has increased from Euro 15 to almost Euro 100, with additional focus on limiting a company’s ability to outsource ‘dirtier. manufacturing processes to other regions through efforts such as the CBAM (Carbon Border Adjustment Mechanism).
If you don’t pay the price - you pay the price!
Henry Ford once said: “If you need a machine and don't buy it, you pay for it without getting it.”
Even when direct profit and revenue generating impacts are excluded, there are a plethora of other challenges that impact a company’s ability to do business by not investing in sustainability. This can include the impact on brand reputation, the threat of legislation—with climate related legal actions against manufacturing companies continuing to rise, and now extending to company leaders individually as well as the companies themselves. Alongside this is the impact on talent. In an industry struggling to attract and retain talent, companies perceived to be either unsustainable or greenwashing face far greater challenges in keeping or bring in the best talent.
The sincerity and robustness of commitments and pledges will be tested over the next 18 months by the ongoing challenging economic conditions. Short-term thinking by manufacturers could help companies prevail in the current economic climate. However, longer term as legislation and internal and external stakeholder pressure increases many may face even more severe conditions in the aftermath.
The Green Leader: Sustainable practices start at the top
by Alex West, Senior Principal Analyst
The issue of sustainability within many businesses has been elevated in importance to the board level. The impact on C-suite executives is both direct to their role and within their purview to influence change.
Many manufacturers have begun to introduce sustainability related criteria into leaders' KPIs and renumeration packages and some company directors have personally faced legal action because of a company's inadequate climate strategy.
Senior leadership is also going to be critical in helping overcome some of the common challenges to a sustainability transformation manufacturing companies face.
Who is responsible for driving company sustainability efforts?
Over three quarters of manufacturing companies now have C-suite responsibility for sustainability efforts, and we've seen a major rise in the number of dedicated chief sustainability officer (CSO) roles over the last few years. While the growth in CSO positions highlights an increasing focus on sustainability by companies, there are concerns that not all such roles encapsulate day-to-day operational decisions and long-term strategies and are instead focused on reporting. These sustainability leaders must be empowered to influence real change across the organization.
Some of the most significant obstacles to deploying industrial sustainability initiatives are those that can be addressed by leadership. Executives can play a huge role in sustainability transformation by addressing organizational barriers, upfront cost, changing company culture, and by navigating competing priorities that must be addressed when introducing changes.
Overcoming organizational barriers
A centralized strategy (both across different business functions and facilities) is needed to retain focus. Although many different applications may provide benefits, prioritization is necessary to align investments with both short- and long-term corporate strategies to meet environmental sustainability targets. Senior leadership involvement also helps mitigate de-emphasis because of staff turnover.
Supporting investment
Sustainability projects will continue to be deployed for many years to come. Some of these may not provide a quick return on investment, although many align with longer-term corporate strategies. Senior leadership sponsorship ensures investment continuity so that both long-term projects and major investments are funded adequately and not sacrificed or deprioritized for the sake of smaller quick wins.
Supporting culture change
Culture eats strategy for breakfast. The success of sustainability initiatives depend on how well new technologies and approaches are introduced. Crucial to this is employee buy-in, and a shared vision so that employees do not consider sustainability efforts to be a tick-box exercise. Communicating vision transparently, correlating sustainability investments with business values, and introducing accountability are all key areas that senior leaders should address.
Overcoming competing priorities
Competing objectives and priorities can derail industrial sustainability investments. Especially in current economic conditions, companies must consider where to prioritize resource allocation. Ensuring focus extends beyond profitability and growth to reducing environmental impact; this is a challenge that must be reviewed from the top down. However, balancing demand across different departments can also influence an initiative’s success. For example, in a sustainability project, the design of a more sustainable product with less carbon emission and higher quality may increase the input cost and lower the speed of production. Such changes may require reconciliation across different business functions, with guidance from senior leadership necessary to ensure cooperation and compliance.
Whether its the empowerment of the CSO or the integration of sustainability metrics into the performance targets of other senior leadership positions, the era of having sustainability centralized is gone. Stakeholders are looking to those at the top to take action.
Omdia at Hannover Messe 2023
On the 17th of April the Omdia research team will be attending Hannover Messe, whether you’d like to meet with our analysts at the show, or if there are key topics you’d like to see us cover in our Hannover 2023 show write-up, let us know at ist@informa.com.
Great for scrabble, not for standards – harmonization of reporting on the horizon
by Alex West, Senior Principal Analyst
Do you know your SASB from your GRI or your TCFD from your CDSB, how about CDP?
For anyone that’s been even slightly exposed to the sustainability, you will at some point be overwhelmed by the alphabet soup that is sustainability frameworks and standards. According to Ernst & Young, there are over 600 acronyms ranging from general to industry and geographic specific. To address the complexities many companies have had to invest in recruiting specialists to track, understand, and ensure compliance to applicable standards.
Standards are necessary to ensure that the data being reported by a company can be easily compared with others so that stakeholders can make a like for like comparison. The absence of this can lead to selective reporting of data to cover up environmental impact, and the concealment of progress toward sustainability goals and public commitments.
To date, most ESG reporting is voluntary, so the pressure on companies to report has been less. However, this is changing. Over the last year, the Securities and Exchange Commission (SEC) issued its proposal for “The Enhancement and Standardization of Climate-Related Disclosures for Investors,” requiring climate-related reporting. The EU introduced similar—albeit more comprehensive—requirements through its (Corporate Sustainability Reporting Directive) CSRD, mandating the publication of broad ESG reports in line with recommendations of the Taskforce on Climate-related Financial Disclosures (TCFD), on June 7, 2021.
We’ve highlighted some of the more common standards and frameworks below:
Often, in industries with a plethora of different standards, organisations get entrenched around certain bodies leading to major challenges in reconciling different approaches. Encouragingly, this seems so far to be an issue that’s being addressed with organizations merging or aligning to facilitate an environment where reported data is reported to both a robust and agreed upon set of metrics and measurement criteria that are easily comparable to other companies. With the SASB and IIRC consolidating to form the VRF (acronym overload alert), the organization further consolidated with the CDSB to form the ISSB. The ISSB, GRI and TCFD, which all complement each other, have agreed to alignment and harmonization, with the ISSB expecting first corporate reports in 2025.
This is all great news, and should massively simplify the standards landscape, but we haven’t reached a panacea just yet. Questions remain on further alignment of standards e.g., between the US SEC rules and the ISSB standards. Also, how ready are companies to meet the proposed timelines for mandated reporting? Many manufacturers are not currently able to access the right data, necessitating additional investment in the form of sensing, databases and visualization tools to collect, curate and visualize the data as well as the skills required to report.
Don’t boil the ocean if you don’t want the ocean to boil
by Alex West, Senior Principal Analyst
With different processes, customers, suppliers, inefficiencies and budgets,no two companies will have the same ESG journey. Each must be selective and data-led when making decisions as to where and where not to focus.
Simply deciding on the different metrics to focus on is no small feat when considering there are over 630 ESG indicators, and a similar number of ESG frameworks and standards around the world.
The challenge becomes where should a company focus its investments. One of the considerations, of course, should be impact.
However a company chooses to allocate its efforts, they must look at tools that help to understand the impact of changes in product design (or a plant or process), the manufacturing process, the supply chain, and the product’s end-of-life.
Across the lifecycle of products and processes, there’s a range of inefficiencies and waste that can be addressed, like removing physical prototyping at the design stage of a product or plant, optimizing production to reduce energy consumption, reducing unplanned downtime, and ensuring more sustainable supply chains.
In general, companies expect the most significant impact of sustainability initiatives to be felt in operations, whilst 40% of companies expect sustainability initiatives to be of minimal or no impact in their supply chain. (Although that could change as new EU and US SEC legislation is introduced mandating reporting of scope 3 emissions for larger companies.)
While change will be required across all these business functions, and ultimately should result in companies conducting product lifecycle assessments, many still struggle with how to deal with often siloed teams and platforms. Often, different departments run different solutions with a lack of a digital thread across the organization, limiting both visibility and the ability to analyze relevant data.
For example, each energy management, asset health monitoring, and supply chain management (SCM) solution system is likely to sit in different departments with limited interaction. However, the ability to look at the variety of datasets can help optimize decision making, help organizations better prioritize investments in sustainability projects, and understand their footprint based on more comprehensive datasets.
Once a company is at this stage, it can make data-driven decisions about the changes and impacts it wants to make. In the meantime, for most companies, getting started with some early priorities and focused wins is a good start to the journey.
Chatting Up Sustainability: A Chat GPT Written Guide to Greener Manufacturing
by Alex West, Senior Principal Analyst
Ok, I need to confess, I couldn’t resist jumping on the bandwagon to try a Chat GPT article for Industrial Sustainability Today.
For those of you that aren’t familiar with this—now viral—technology, it's an advanced language modelling system developed by OpenAI that can generate human-like text in response to prompts. It has been trained on over 570 gigabytes of text data and can be applied to a wide variety of tasks. Unfortunately, to date, it can only cumulate pre-September 2021 data.
Some interesting background about the tech. Open AI was founded by Elon Musk and Sam Altman. Microsoft Corp., which had made an earlier $1 billion investment into the company and is looking to expand its funding to $10 billion, with the company valued at $29 billion.
The adoption of Chat GPT has been meteoric. Five days after its launch, in November 2022, it jumped to a million users. People have deployed it in an almost limitless array of applications, from jokes, to love letters, from ladder logic coding to keep fit routines, and this newsletter. Today, we asked the AI a few questions about the current state of sustainability in the manufacturing sector— I’ve edited some answers for brevity. And just a note that there’s been some controversy surrounding the veracity of AI answers.
Is the manufacturing sector on target to meet SBTi?
It's a mixed bag, my friends! The manufacturing sector has certainly made progress towards meeting the Science Based Targets Initiative (SBTi) targets, but there's still a ways to go. For those unfamiliar, the SBTi is a collaboration between leading environmental organizations and companies committed to reducing their greenhouse gas emissions in line with the goals of the Paris Agreement.
On the positive side, we're seeing an increasing number of manufacturers adopt renewable energy sources, implement energy-efficient systems, and implement circular economy practices to reduce waste.
However, not all manufacturers are moving at the same pace. While some are making impressive progress, others are still lagging. Industries, such as the steel and cement sectors, are particularly challenging and require more creative solutions to reduce emissions.
Another concern is that while companies may be making progress on individual sustainability targets, they may not necessarily be aligned with the broader goals of the SBTi. For example, a company may reduce its energy consumption, but if it's still relying on fossil fuels, it's not aligned with the long-term goals of the Paris Agreement.
Is profitability a realistic driver for sustainability in the manufacturing sector?
Yes, profitability can be a realistic driver for sustainability in the manufacturing sector. Companies that prioritize sustainability often find that it can lead to increased efficiency, reduced waste, and improved brand reputation, all of which can positively impact the bottom line. For example, implementing energy-efficient processes can lower energy costs, while reducing waste can minimize disposal fees and increase resource utilization. Additionally, consumers are becoming more conscious of the environmental impact of the products they purchase and are willing to pay a premium for sustainable products. This can increase revenue and brand loyalty. However, it's important to note that sustainability should not be solely driven by profit motives, as it is also a moral and ethical responsibility to protect the environment and future generations.
What lessons can small and medium sized manufacturing companies apply to become more sustainable?
Small and medium-sized manufacturing companies can apply several specific lessons to become more sustainable. Here are a few:
- Start with a sustainability assessment: Identifying areas of impact, such as energy consumption, waste production, and water usage, is crucial for small and medium-sized manufacturers to develop a sustainability plan.
- Implement Energy Efficiency Measures: Investing in energy-efficient equipment and processes can help reduce costs, minimize waste, and improve sustainability outcomes.
- Engage Employees: Employee engagement and involvement in sustainability initiatives can have a significant impact. Encourage employees to adopt eco-friendly habits and support green initiatives.
- Source sustainably: Small and medium-sized companies can partner with suppliers who share similar sustainability values, reducing their impact and creating a sustainable supply chain.
- Embrace digital solutions: Technology can be leveraged to optimize operations, reduce waste, and increase efficiency. For example, using cloud-based software to monitor energy consumption can help companies identify areas for improvement.
What technologies and innovations can be deployed to support manufacturing sustainability?
One of the key technologies being used to support sustainability in the manufacturing sector is Industry 4.0. This involves the use of advanced technologies such as artificial intelligence, the Internet of Things (IoT), and robotics to optimize production processes, increase efficiency, and reduce waste. For example, some companies are using machine learning algorithms to analyze production data and identify areas for improvement, such as reducing energy consumption or improving supply chain efficiency.
Another area where technology is playing a major role is in the development of sustainable materials. Companies are using advanced materials science to create new, sustainable materials that can be used in a wide range of products. For example, some companies are developing biodegradable plastics that break down in the environment, reducing the impact of plastic waste. Other companies are working on developing more sustainable alternatives to traditional materials, such as bamboo or recycled materials.
There are many other technologies and innovations being used to support sustainability in the manufacturing sector. These include:
- Renewable energy systems, such as solar panels and wind turbines, which are being used to power manufacturing facilities and reduce reliance on fossil fuels.
- Energy-efficient lighting systems, which reduce energy consumption and help companies meet their sustainability targets.
- Water treatment and recycling systems, which help companies conserve water and reduce waste.
- Supply chain management systems, which help companies track and optimize their use of resources and reduce waste.
The use of technology is critical in helping companies achieve their sustainability goals, but it's important to remember that technology alone is not enough. Companies must also have the right policies, processes, and culture in place to support sustainability. For example, they must set clear sustainability targets, invest in research and development, and engage employees and stakeholders in their sustainability efforts.
Ok, I’m back.
I’ve been thoroughly impressed by the breadth of capabilities provided by AI, although obviously it’s limited both by its ability to provide new insights and the fact that it is based on data available prior to September 2021.
There’s currently a frenzy of debate as to the impact that technologies like Chat GPT will have on the future of work. Undoubtedly, subsequent versions that have access to even larger sets of more current data will unearth a range of uses beyond even those that are still being discovered.
But for now, I’m off to get a Valentine’s Day poem written for my wife. ;)
The good, the bad and the downright ugly of ESG reporting in manufacturing
by Alex West, Senior Principal Analyst
In the aftermath of a disaster is when new laws and regulations are often introduced to address problems. Following the 1929 stock market crash, for example, standardized corporate financial reporting became a regulated requirement for public companies.
Today, as progressively more severe climate disasters devastate communities around the globe, responsibility is being placed on companies to disclose their impact on the environment.
Since the first companies began to separately report environmental, social and governance (ESG) data in 1989, the release of such reports has become commonplace amongst leading multinational manufacturers. However, the quality and rigour of sustainability reporting is still far from its financial equivalent.
In a review of reported ESG data over a 10-year period from about 170 manufacturers, the quality of reported data left a lot to be desired. Reported data was littered with examples of companies showing; impossible spikes and troughs, order of magnitude step changes, and years of omitted, consumption and efficiency data. Whilst the quality of emissions and energy consumption data was generally more robust—including metrics such as water and waste consumption, and recycling—it was both less often reported and more prone to inaccuracies.
Some reports supply caveats for large variations, but there are many examples of companies that are still mainly focused on target setting rather than detailing progress towards these goals.
That’s not to say there aren’t also many organizations doing a good job. In fact, the proportion of companies reporting some data has increased significantly over the last 10 years. The proportion of leading manufacturing companies reporting energy and emissions has increased by around 25% (to 88% and 85% respectively in 2020). However, it’s clear there are still a lot of corporations that have jumped into reporting to address stakeholder pressure without sufficient understanding. Other parameters, such as Scope 3 emissions (57%) and water recycling (33%) significantly lag these headline metrics.
Such companies shouldn’t be entirely viewed with cynicism. In the same way the process for financial reporting required major changes (and many companies initially struggled), the same is true for ESG reporting.
Such challenges include:
- The lack of a universal reporting standard.
Untangling the alphabet soup of ESG acronyms—from CDP and GRI to SASB and TCFD—should become smoother as part of on-going effort to better align the main frameworks. At present, the ability to compare reporting from different companies is difficult because of differing frameworks and guidelines that may have been used.
- Changes in definitions and expectations affecting targets that were set years ago.
In October 2021, the Science Base Targets Initiative (SBTi) released the world’s first corporate net-zero standard (a requirement for direct emissions reductions across boundaries or value chains, generally excluding offsets). However, by that time, many companies had already set their own definitions and targets around becoming net zero or carbon neutral, many of which included using e.g., carbon offsets. Complying with these new standards requires changes in how data is calculated, and the timeline of when (or if) these targets will be achieved.
- Data collection
While digitization has become far more common in the manufacturing sector over the last decade, paper-based systems for data collection are still widespread. This leads to recording problems and makes it difficult to access the data.
Meanwhile, ESG data for multinational manufacturers can become siloed both by business function and location (influenced by different regional reporting requirements). Consolidating this data within a single reporting system adds added complexity.
And this is before even considering the collection of data from suppliers to understand scope 3 emissions, or the, in some cases, almost impossible task of considering the downstream footprint, including the final use of a product.
As more data becomes available and different measures are used to calculate companies’ resource usage and footprint, the results reported may also change significantly.
Just as accurate reporting was enforced for financial data—with heavy penalties levied for those missing the mark—the same will eventually be true for publishing valid sustainability data. The EU council has already introduced reporting rules for large public companies with more than 500 employees. The rules will come into force in 2024 through the Corporate Sustainability Reporting Directive (CSRD). A similar initiative mandating climate-related reporting has been proposed in the U.S. by the SEC.
Reporting today may be ugly, but whether companies choose not to disclose sustainability information or simply can’t, ESG reporting in the industry is heading toward a clean-up.
Tomorrow's tech for today’s trials
by Alex West, Senior Principal Analyst
For those wondering about technologies of the future, there are few better places to go than the Consumer Electronics Show (CES) in Las Vegas, Nevada. The event returned in-full this year (after a weaker, COVID-impacted return in 2022), bouncing back with more than 3,200 exhibiting companies, including 1,000 start-ups. Although there is a consumer focus—as the name suggests—many new technologies that are beginning to serve the manufacturing sector launched in the consumer sector, such as 5G and virtual reality.
For some, this year’s event didn’t have a new technology with a ‘wow factor,’ but it was encouraging that one of the stand-out topics was sustainability. Myriad of companies highlighted the improved sustainability credentials of their products, from reduced energy consumption to the use of more eco-friendly materials, and the potential benefits customers could leverage through their technology.
A few highlights from the show can be found below:
Without question, the biggest showcase of the event (literally) was the 100-ton autonomous Cat 777 off-highway truck demonstration. Caterpillar claims it already has 560 deployed across three continents. Caterpillar’s booth featured two remote operating stations, at which users could operate either a large dozer or an excavator. It also had a recruiting lounge with job information, and the opportunity to interview for, open high-tech roles within the company.
EVs and electrification continued to expand in the showcase as a major theme. Both new releases and concept cars were introduced, along with the electrification of almost every other type of vehicle from bikes and off-road vehicles to an excavator from John Deere and even an electric watercraft from Candela.
Augmented and virtual reality tools were ubiquitous, and the show continued to be a venue for the semiconductor industry with announcements of new benchmarks for processor efficiency, high performance, and AI functionality.
There were many new concepts with sustainability at their heart:
Good Year spotlighted tires containing 90% sustainable materials and reduced rolling resistance. The new tire substitutes petroleum-based products for materials such as surplus soybean oil and silica from the waste residue of rice husks.
Ansys, a engineering simulation software company, highlighted sustainable products customers have produced with their tools, including:
- The AF125 motor, battery, and G5 and S9 inverters from Turntide.
- The e-Omnia X Type e-bike from Bianchi.
- The ZooZ device from Autotalks, which was designed to increase safety in micromobility.
- Two HIVE air cleaner units from Praan, which can remove particulate matter and greenhouse gases directly from the atmosphere.
The challenges of tracking emissions were addressed at ClimateTrade’s booth, where it showcased a solution for digital record keeping of direct and indirect emissions, connecting to “verified environmental projects” for offsetting purposes. The solution uses blockchain to provide traceability and insight into the emissions of multiple companies, allowing each to address its emissions via offsets.
A similar use of technology was presented by Allinfra, which presented its Allinfra Climate tool to support organisations in storing auditable and verifiable data for ESG risk management. The tool uses blockchain amongst other software tools to support digital verification of investments in carbon credits.
Manufacturers are struggling with the various hurdles of redesigning products, collecting and reporting data, and considering how to offer new sustainability services to customers. CES 2023 provided a glimpse of technologies that are filtering through the consumer space to the manufacturing sector. Further, the show highlighted the growing demand for sustainable solutions from the consumer side.
Making new (and green) friends in 2023
by Alex West, Senior Principal Analyst
Re-evaluation of supply chains
The global pandemic and the Russian invasion of Ukraine have had an unprecedented impact on the manufacturing sector. Some supply chains just about ground to a halt, while the prices of some materials and components have skyrocketed. This has impacted everything from microchips to cargo ships. Entire automotive production lines were stopped, for example, due to the lack of availability of a single semiconductor component. At the same time, the cost of freight increased by 70-95% in 2021.
Even before these black swan events, there was growing momentum to review supply chains based on the availability of low-cost labor and growing Sino-U.S. tensions, which were causing manufacturers to consider near or re-shoring. These considerations won't dissipate in 2023.
Sustainability is another factor that will weigh increasingly on supplier selection.
This is driving a review of how organizations consider suppliers; especially as public companies are challenged not only about their own environmental footprint, but also that of their entire supply chain.
The sustainability credentials of partner organizations is a factor that is growing in importance. Companies are making decisions on who they will partner with based on their efforts around topics such as GHG emissions, to ensure their own scope 3 emissions can be monitored, managed and minimized.
Who a company chooses to partner with says a lot about their overall emissions reduction objectives.
Counting emissions
Reducing GHG emissions is the most important priority for most manufacturers' sustainability efforts. It's also the most difficult, and many manufacturers are lagging both in their setting of commitments and their progress to meeting them. This is unsurprising, considering the complexity of monitoring emissions compared to other metrics such as water and waste.
Scope 3 emissions (the indirect emissions from upstream sourcing and downstream product use), includes the footprint associated to purchased resources, capital goods and equipment, and services. This is significantly more difficult to measure, and with a few exceptions such as cement and metal processing, the extent of scope 3 emissions significantly outweighs those of scope 1 and scope 2. According to Omdia research, these accounted for an estimated 79.3% of total emissions in the manufacturing sector in 2020.
Many companies are already being held accountable for their own footprint, but in 2023, greater pressure will be applied for companies to take responsibility for the emissions of their partners.
The mandate for change
Monitoring this kind of data is becoming a mandatory requirement for many public companies. In March of this year, the U.S. Securities and Exchange Commission (SEC) proposed amendments to the Securities Act of 1933 and the Securities Exchange Act of 1934 that would require registrants to provide climate-related information as part of their reporting. This would require all registrants to provide scope 1 and scope 2 emissions. It would also mean that, for many companies, disclosure of scope 3 emissions would be mandated for the first time. This could come as early fiscal year 2024, although a longer phase-in period is proposed than for scope 1 and scope 2 reporting.
A new year and new friends
Gathering this data is going to be a particularly difficult challenge for companies with an extensive supply chain. Consider, for example, Volkswagen, which is estimated to have around 40,000 suppliers. While larger companies might already have made a good start monitoring their own emissions, gathering this data from across their supply chains—which include companies of varying sizes and from different regions where either the data/skillsets might not be available, or where the impetus doesn't exist to do so.
This may mean changing suppliers if an organization’s sustainability objectives don't align, or if a supplier isn’t able to prove progress towards meeting targets. It can also mean a more rigorous consideration of the location of partners. This relates to both the environmental cost of transporting components and goods over long distances, and changes in carbon taxes charged.
Some companies have, in previous years, selected to purchase components and raw materials from partners in regions where carbon taxes weren’t applied, especially for more emissions-intensive processes. However, legislation such as the EUs Carbon Border Adjustment Mechanism (CBAM) are aimed at closing such loopholes.
As carbon prices go up, this will reduce the profitability of working with less sustainable companies.
According to Omdia’s Industrial Sustainability Readiness Index, 54% of manufacturing companies are receiving requests requiring them to make changes to meet emissions targets, and more than half of manufacturers are reviewing their partner network to prioritize partnerships with companies whose sustainability targets align with them.
Apple, for example, has committed to a net zero supply chain by 2030. The tech brand is in the process of reviewing its major manufacturing partners and requiring them to report their progress on goals to reduce scope 1 and scope 2 emissions related to production, while encouraging them to use more renewable energy. Another major electronics manufacturer company indicated that they wouldn’t be able to add new suppliers to their approved vendor list unless they had set and could prove their progress towards targets.
Making these changes takes time, and currently only 8% of manufacturers are in the process of transitioning to new partners. However, for those serious about addressing their scope 3 emissions, 2023 will see the end of some friendships and the beginning of many new ones.
The challenges of going green
by Alex West, Senior Principal Analyst
As the global economic climate becoming gloomier by the day, the resolve of manufacturers’ climate change efforts is being tested. However, beyond this, there are other common obstacles that must be addressed for a successful investment in sustainability.
In this edition of Industrial Sustainability Today, we’re sharing access to “Industrial Sustainability: Moving sustainability forward in manufacturing” (details required), a white paper developed in partnership with Schneider Electric based on an Omdia survey. Below, we’ve also shared an excerpt on some of the data points around the challenges faced.
We’d love to hear from you about the main challenges your organization is facing. If you’re willing to share, please let us know at ist@informa.com.
Barriers to sustainability initiatives
There are barriers to the deployment and success of sustainability projects. Manufacturers were asked to characterize market challenges to investing in sustainability initiatives and identified the following, which represent key roadblocks to deployment:
- Twenty-nine percent said legacy assets and infrastructure were a major challenge. Industrial companies often measure infrastructure replacement rates in decades, and the process is expensive and disruptive. Installed systems may not be well suited to sustainability initiatives.
- Upfront cost or budgeting challenges was identified as a key roadblock by 27% of respondents. A further 47% said that this was a challenge, but one that could be overcome.
- Competing priorities and a lack of access to the right data were chosen by 23% and 21% of respondents respectively. In some industries, sustainability investments can directly benefit the bottom line through reductions in energy consumption or improvements in process efficiency. This is not the case for all industry sectors, especially the less resource-intensive ones. Here, external influences, such as taxes and subsidies, may be necessary to support sustainability.
- Culture change was ranked as a major challenge by 19% of respondents. Sustainability is increasingly a C-suite initiative. Seventy-eight percent of respondents said that a C-level role is directly responsible for driving their sustainability efforts, and some companies are creating a chief sustainability officer (CSO) role to support this evolution. Beyond these executive-level positions, the success of initiatives will depend on how well the technologies and solutions can be introduced into daily operations and longer-term strategy plans.
- The lack of an identified benefit was stated as a major challenge in only 10% of responses, suggesting that most end users can articulate the benefit of sustainability projects internally. When considering the advantage of investment companies should consider return on value (ROV) rather than return on investment (ROI). With industrial sustainability projects still relatively new in many cases, the benefits that can be realised by businesses will continue to evolve over time and will extend beyond direct returns to intangibles such as brand management, adherence to future legislations and insurance costs.
Footing the bill for sustainability – How industrial vendors are addressing COP 27 concerns
by Alex West, Senior Principal Analyst
A major talking point at The 2022 United Nations Climate Change Conference (COP27), which commenced last week in Egypt, has centered around compensation for damages to the climate caused by developed regions (with the G20 a particular focus). Another prevailing question has been to role played by developing regions, which haven’t fully benefited from industrialization or the commercialization of natural resources, in a global economy that is trying to minimize the impact of both.
This balance was concisely expressed by Macky Sall, president of Senegal: “Let’s be clear, we are in favor of reduction of greenhouse gas emissions. But we Africans cannot accept that our vital interests be ignored.”
It’s a painful time to be footing the bill. So, who’s going to pay?
The challenges are significant, and the promised contribution from developed nations to equitably address climate change is paltry.
However, a small reason for optimism is that some of the equipment that powered the industrialization of many of the developed regions is far more sustainable than it was in decades past.
Coinciding with COP27 was the return after a 3-year, COVID-enforced break of the Smart Production Solutions show (SPS) in Nuremberg. While the exhibition, which focused on industrial automation, wasn’t awash with sustainability marketing, it was one of the main recurring themes in conversations.
As well as internal improvements, many industrial automation vendors are going through a degree of organizational restructuring to ensure their companies are best positioned to support customers either considering sustainability transitions or in the middle of them. This includes the formation of new teams, the recruitment of additional personnel and skillsets, and the development of new solutions and services.
Some notable factors manufacturers are reviewing related to the use of technologies, new processes, and materials and components used are as follows:
- The use of more energy efficient electronic components such as IGBTs and microcontrollers.
- Consideration of new materials including a switch to different plastics or metals to support recycling or reuse, and the experimentation with technologies such as nanotechnologies on equipment coatings, to minimize clean in place processes (CIP).
- Product design with a focus on the products end of life, and the ease with which a product can be remanufactured or disassembled with components reintroduced for new products.
- Introducing quality control technology within the manufacturing processes, for example, machine vision systems with artificial intelligence and analytics capabilities to provide early fault identification, reducing material and energy waste.
- Optimizing spare part management to minimize customer downtime and increase OEE and, subsequently, sustainability.
- Reviewing and nurturing supply chains to support a circular economy as well as more localized supply chains.
- Replacing product manuals and certifications with QR codes printed on devices.
Vendors are also reviewing how to support their customers, who are increasingly asking for end-to-end environmental support, with enhancements as well as the introduction of new solutions:
- The transition to higher efficiency motors and components (e.g., gearboxes)
- Increased focus on a solutions-based approach to selling automation, which package products such as drives and other efficiency enhancing equipment.
- Linked with the trend to a more solutions-based approach to selling equipment, some industrial automation equipment vendors are introducing more consulting services to include environmental sustainability expertise.
- Improved connectivity of automation, such as motors, to support collection, contextualization and analytics of data including energy consumption to support optimization of operations and better integration of data into Energy Management Systems.
- Integration of edge computing on devices for products that can both capture and provide analytics to support energy management systems locally.
- Dashboards to help manufacturers track and trace their carbon footprint
- Manufacturers are also reviewing how they can work with supply chains to support a circular economy for their products. This may extend to new business models, such as an automation as a service model.
So, while many G20 governments make token gestures at COP27, the industrial technology sector is making notable investments to facilitate a less impactful industrialization of developing (as well as developed) regions.
While these changes are an enabler to address climate change, as COP27 has highlighted, who will foot the bill for the necessary investment still needs to be resolved.
*Photo credit to Peter Taylor, who joined an 8km morning run bare foot and paid the price for not having bought his running shoes to Nurnberg.
SPS—the motor and sustainability
by Alex West, Senior Principal Analyst
The Smart Production Solutions (SPS) show in Nurnberg, Germany returns next week after a pandemic-enforced hiatus.
While another major German automation fair, Hannover Messe, is the region’s main show piece event for the year, SPS and its focus on technology is firmly rooted in industrial automation and has always been an event more focused on the industry’s inner workings.
Inevitably, sustainability will be a primary topic of discussion, but arguably less so than at other events. Throughout, discussions covering motors, drives, mechanical components, and sensing and control will take centre stage.
So how is the show relevant to those interested in sustainability?
Consider the following:
- More than 70% of manufacturing companies have identified legacy assets and infrastructure as a challenge to investing in sustainability initiatives.
- Currently, there are more than 800 million industrial electric motors installed worldwide consuming more than 7,000 trillion KWH of electricity each year. That’s greater than China’s annual electricity consumption.
The industrial motor—the workhorse of the manufacturing sector—is both ubiquitous and the primary consumer of energy for manufacturers.
Efforts have been made over the last 20 years through legislation to support the transition to move from inefficient motors e.g. IE1 (standard efficiency) motors to higher efficiency products. However, adoption of these standards has varied significantly across different regions
The adoption of higher efficiency motors is growing quickly, with the installed base of IE3 and IE4 motors (premium and super premium efficiency) projected to grow at unit CAGR of 22% from 2020 to 2025.
Variable frequency drives (VFDs), electronics that control the speed and operation of motors—through both optimizing power through over specification of applications as well as by reducing idle time—will also contribute significantly to energy savings.
To put into context the potential savings: If all motors were converted to high efficiency motors with VFDs the global annual energy savings would be enough to power all the households in the U.S. and Germany for one year.
So, while sustainability might be the latest buzz word for SPS this year, one the biggest short-term advances the manufacturing sector can make in addressing its environmental impact is looking at the existing operations and equipment.
Keeping manufacturing’s lights on in an energy crisis
by Alex West, Senior Principal Analyst
In the United Kingdom, shoppers are starting to stock up on candles and blankets. I was recently asked by a family member for a coal barbecue, “just in case.” That “just in case” mentality is driven by concerns of both the escalating price of energy and a fear of its availability as we head into the winter months.
And it isn’t limited to consumers. As the end of the year approaches, many businesses are also concerned about how they will keep their processes running.
Nowhere is this more pronounced than in Germany. The manufacturing hub of Europe, which accounts for a substantial amount of the continent’s machinery production, is home to some of the world’s leading manufacturers in energy intensive industries such as chemicals, steel, and fertilizers. Because of that, it is more affected than most by its heavy reliance on Russian energy. In recent months, this reliance has become a political weapon.
In 2021, Russia accounted for 55% of Germany’s gas imports, and while this percentage declined to 26% by the end of June (due to the reduced capacity of the Nord Stream 1 pipeline), it still represents a major energy dependency
In the event of a shortage, and to avoid a shortfall in supply to households, Germany would need to ration its gas supplies, a task that would fall to the network regulator BNetzA. Large industrial companies accounted for approximately 37% of Germany’s gas demand in 2021 and would be an area of focus. BNetzA is looking to prioritize cuts to production not deemed to be essential.
Even without rationing, fluctuating energy prices are causing manufacturers to consider rising costs. As an example, BASF has warned of steep price increases as a result of reduced supplies. This is a similar challenge for many manufacturing companies, with energy consumption contributing to a sizable proportion of costs.
However, the risk of outages introduces additional and significant cost concerns. Traditionally, energy outages are not long term, with 70% of manufacturing companies experiencing outages that last, on average, less than an hour. However, these costs are still significant, with 38% of these companies indicating that outages they’d experienced in the previous year had cost over $250,000.
With the potential threat these challenges bring, manufacturing companies must not only look at alternative energy sources. Crucially, they also need to do a better job of understanding and optimizing the energy usage of their operations. However, many companies still have very limited visibility of this at best monitoring only the energy into the plant. Taking action to address inefficient processes requires a great level of granularity to improve efficiency at a line or machine level. According to a current Omdia survey, more than half of manufacturing companies across both discrete and process industries do not yet have an energy management system deployed for their operations.
Along with a range of other benefits, deployment of such solutions can identify inefficiencies and wastage, including leaks, with necessary information fed to maintenance teams for resolution. It can also support a more intelligent use of energy to avoid costly peak-period rates etc.
Ultimately, manufacturers are still at the mercy of energy providers, but just as consumers may be asked to down the thermostats and turning off the lights as they switch to candles, if manufacturers want to keep the lights on, they will need to employ a more considered energy strategy.
A digital company is a greener company
by Alex West, Senior Principal Analyst
The primary objective for most manufacturing companies is “How do we make more with less and make it better.”
Overall equipment effectiveness (OEE) is a widely accepted metric for measuring this, taking into consideration production performance and the potential areas for improvement of manufacturing equipment. A score of 85% or above is considered world class for discrete industry sectors, whilst a score between 50% and 60% is considered typical.
Calculating OEE requires data, and to ensure the greater accuracy of such measurements, companies are turning to industrial IoT solutions to provide the automated data capture and analytics necessary to support a focus around improving productivity, efficiency and quality, among other things. As the access to and quality of relevant data improves, demand for new applications has been driven from predictive maintenance to process optimization, to quality monitoring.
Over the last few years, companies have increasingly started to look at expanding their mission statement beyond the aforementioned objective to extend to a triple bottom line focus. This includes adding “having a positive impact on the society and environment” to the mission statement.
A major question for the industry as it faces challenging economic conditions is “will this focus continue or will recent sustainability efforts fall by the way side?”
The answer is yes, no, and tune in to the next edition where we’ll show you some recent Omdia findings. Meanwhile, while some major sustainability efforts are likely to be paused, others will be less so, and the efforts to improve productivity and performance, as measured by the aforementioned OEE, will continue to drive sustainability benefits as illustrated below:
If you’re at a manufacturing company, how do you expect your company’s investment in sustainability to change as a result of the current industry conditions (and if you’re a technology vendor, how are your manufacturing customers reacting)?
Is carbon offsetting a hope or a hoax?
by Alex West, Senior Principal Analyst
And does planting trees sufficiently offset #emissions being produced elsewhere? Beyond the questionable veracity of some carbon offsetting practices and the carbon offset registry industry governing it, the mathematics are concerning.
Meeting a goal of ‘#netzero carbon emissions by 2050’ would require an estimated 1.6 billion hectares of new forest—five times the size of India, according to an Oxfam report. This is in contrast to an estimated 500 million hectares of land still available for new forests.
And it’s not just a question of having enough land. It’s also about whether projects have an impact beyond ‘business as usual.’
Reasons why an initiative might not have an additional impact:
i) Claiming projects that wouldn’t have gone ahead either way as wins (e.g. forest conservation projects on protected land, which wouldn’t have been deforested)
ii) Planting trees in cooler climates, where a greater amount of solar radiation is absorbed rather than reflected (the Albedo effect), reducing the benefits of carbon capture
In fact, according to research from Berkeley, Oxford, and Carbon Plan (from 2016) it was found that 85% of offsets sold at the time of the study were not additional—and so had no impact on climate change1.
However, it’s not just the questionable efficacy of this approach to sufficiently meet carbon capture needs that’s problematic, it’s also the false sense of security that’s created by saying these efforts are having a positive impact. To borrow a quote from John Oliver “when you buy an offset so you can pollute more, and that offset is ‘cow manure’ (edited), you’re now actively making things worse”.
The ‘see no evil, hear no evil’ approach adopted by some industrial companies—associated with some carbon offsetting practices—can create a dangerous mindset that you can pollute more because of offsets.
The offsets industry is undoubtedly becoming more regulated and will play an important role in the sustainability transition, but not to the overstated degree many industrial companies are relying on.
The road to net zero for the industrial sector is going to take all the tools in the bag, and this includes digital transformation, which can impact #design, #operations and a company’s #supplychain, as industries both address low-hanging fruit through optimization and the longer term challenges of reinventing some processes and products.
Martin Cames et al., “How Additional Is the Clean Development Mechanism?” (Berlin, 2016)1
Sustainability takeaways from #SIM2022
by Alex West, Senior Principal Analyst
It was great to be in Brussels at the start of the month at #SIM2022, discussing the role of technology in sustainability transformation (SX). Alongside the broader topic of decarbonization of heavy industry and the path to net zero, more specific conversations around green hydrogen, carbon capture, the circular economy, and legislation were covered across heavy industries such as cement, metals, and glass.
Here are some of my takeaways from the event:
- We’re still very much at the start of the journey (and already falling behind in terms of ability to meet 2050 targets), with a lot of significant challenges ahead. However, technology is not the bottleneck, with solutions already available to help customers address challenges of emissions, waste etc. Some leading players in hard-to-abate emissions industries such as cement, metals, chemicals, and glass industries etc. are aggressively forging a path to tackle the problems.
- Big challenges and questions include: can sustainability be profitable; how to embed cultural and organizational change; and the role and roll-out of regulations and standards across the different manufacturing sectors that balance maintaining a competitive market whilst eliminating (or at least reducing) the loopholes that facilitate greenwashing.
- The two overarching topics that resonated were around decarbonization and circular supply chains:
- As an extension of discussions on circular economy, we heard more about “Industry symbiosis” and “industry clusters,” where waste materials can be reintroduced to new product lifecycles in local businesses (with minimal transportation) operating in different industry sectors.
- Industry clusters can create the needed critical mass to make access to technologies such as carbon capture and storage solutions (CCS) more economically viable, especially for small to medium size companies.
- The data challenge is still significant, especially as companies look to extend beyond basic monitoring (e.g., energy meter monitoring overall consumption) for visualization (e.g., understanding where the inefficiencies in their process lie), and leveraging data for optimization of processes. More sensing is necessary to be able to provide greater granularity of data down from plant-level to process, line, or asset level insight. In many companies, data isn’t tagged (or is incorrectly tagged) so it lacks contextualization. The variety of functions available in solutions, such as within energy management systems, can’t be accessed until these basics are in place.
- These challenges are not just internal but extend across the product lifecycle, and even as it extends into second life products. This requires secure data exchange and traceability across for industrial supply chains as companies face growing requirements to consider both their scope-three emissions, and a product’s carbon footprint (PCF).
- Another significant focus was on the role and evolution of regulations, the challenges in implementing a standardized approach and the impact on multi-national competition. The European Union has taken the lead with EU-#CBAM (Carbon Border Adjustment Mechanism), an extension of the EU #ETS; however, this was recently delayed in the EU parliament. Sentiment from some of the speakers at the event was that this wasn’t entirely bad and would support more far-reaching measures in a final version.
- At the crux of all of these discussions is the simple question—is sustainability profitable? Yes, no, and yes!
- Yes - Digital transformation can already provide tools to optimize processes and minimize inefficiencies across multiple business functions (design, operations, maintenance, supply chain) that can both provide an immediate RoI whilst improving sustainability.
- No - Some of the changes needed to meet corporate pledges and commitments e.g., in changing of processes or use of new materials etc. may require investment that doesn’t have an immediate payback.
- Yes – however, the cost of not doing something should not be ignored. With the combination of stakeholder pressure, the evolution of regulations (including the ever-rising EU carbon price), as well as pressure to meet targets aligned to major corporations decarbonizing their supply chain, companies not starting their SX journey will find themselves in a precarious position in the future.
Will the energy trilemma cause a backward step for sustainability?
Investment in sustainability in the manufacturing sector is on somewhat of a knife's edge as we see the impact of the tragic events in Ukraine spread. As oil prices contribute to soaring inflation, the global manufacturing sector is forecast to slow, with some predicting a recession in Europe and North America.
In the past, economic performance has correlated with decisions around sustainability investment. Will the same hold true this time around?
Over 40% of manufacturers in a recent Omdia survey have been making sustainability investments because it was seen as a corporate responsibility – as opposed to expecting cost savings or improved performance. Worryingly, as we’ve seen in the past, as market growth slows, good intentions tend weaken. So, will this be the same again?
Reducing energy consumption is the most important factor driving manufacturing companies to invest in operational sustainability initiatives, with a transition to renewable energy also a major objective. As well as being a primary driver for change, it’s also currently one with significant hurdles to overcome.
The energy trilemma of energy security, energy decarbonization and affordability has been brought into sharp contrast as a result of the Ukraine conflict. Whilst a global challenge, the difficulties faced by Germany emphasize the problem.
Affordability: With restrictions on Russian supply, the second largest gas and third largest oil producer globally, and accounting for approximately a third of its exports to Europe, prices have soared – contributing to inflationary pressures and weakening demand.
Security: Germany has been impacted more than many. It relies on Russia for approximately a third of its gas and is now scrambling to acquire other sources of energy.
Decarbonization: The result of this shift is an unfortunate reversion to coal plants. Germany plans to reactivate 10 GW of old coal plants to help meet the shortfall, and subsequently, increasing carbon emissions significantly!
Clearly this is bad news in the short term, but there’s a glimmer of good news as nations quickly look to reduce their reliance on Russian fossil fuels and re-evaluating their longer-term sources to ensure energy security. As part of this planning, investment in renewables will accelerate, as well as a greater attention on better managing energy demand.
Sometimes, to go beyond good intentions to real change, a bit of pain is needed. This may be the unfortunate stimulus the global energy market needed.
Apple helps clean its partner network
Many multi-nationals are already in the process of cleaning up their carbon footprint. However, with over three quarters of all emissions categorized as Scope 3, their influence over their partners is even greater.
Last month, Apple announced that 213 of its major manufacturing partners are pledging to use renewable electricity for all Apple production – enabling the company to reach its target of a carbon neutral supply chain by 2030.
Biden’s Big Battery Bonanza
Infrastructure funding, to the tune of $3.1 billion dollars, has been announced by the US DoE (Department of Energy) this month. This fund has been allocated to create, and retrofit existing, EV battery manufacturing facilities across the nation. A further $60 million will also be spent on both supporting a circular economy for re-use of batteries, as well as recycling materials back into the supply chain.
These investments align with the broader governmental strategy to strengthen America’s energy independence.
BMW iFACTORY where Digital Technology and Sustainability meet
Last month BMW launched its BMW iFACTORY strategy; an approach for its legacy and future plants as it plans its shift to e-mobility.
The BMW iFACTORY. LEAN. GREEN. DIGITAL., approach emphasises how factories of the future will combine new technologies, such as virtualization, data science and artificial intelligence, with sustainable practices such as renewable energy use and circularity, designed in from the outset.
Its plant in Debrecen, Hungary will launch in 2025 and is planned to be the first CO2 free vehicle plant in the world.
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