It is April 2020 and we are currently in the middle of the Covid-19 Coronavirus pandemic, however we will develop a vaccine for this virus, and so this crisis will finally pass. Unfortunately there is no similar “easy cure” for climate change.
With that in mind, a huge amount of an organisation’s carbon footprint comes from its supply chain, so when I heard about SAP’s new Climate 21 initiative, I was keen to get one of the core team, Toby Croucher to come on the podcast to talk about it.
Toby agreed and we had a great chat talking about how the Climate 21 initiative will help companies calculate, manage, and reduce the carbon footprint of their supply chain. Enjoy.
Click on the player above to hear our conversation and/or check out the transcript below:
Tom Raftery [00:00:00] Whereas if I’m looking down through my supply chain of different suppliers, it’s very difficult for me to tell who is using renewable energy or not, you know, which cloud provider do I choose? Because do I know their energy sources? Which logistics company do I use? Do I know which of them are using electric vehicles or which of them are using diesel? You know, that’s not exposed today.
Tom Raftery [00:00:27] Good morning, good afternoon or good evening. Wherever you are in the world, this is the digital supply chain podcast and I am your host, Tom Raftery.
Tom Raftery [00:00:38] Hi, everyone, welcome to the Digital Supply Chain podcast. My name is Tom Raftery with SAP and my special guest on the show today is Toby. Toby, would you like to introduce yourself?
Toby Croucher [00:00:47] Hi, Tom. Yeah thanks. My name’s Toby Croucher. I’m the energy and natural resource industry lead for the EMEA North region. There’s a Nordics and France UK, and Benelux. Good to talk with you Tom.
Tom Raftery [00:01:06] Thanks. Thanks. So when I want to get you on the show, Toby, because, you know, we’re gonna talk about a thing called an initiative of as SAP’s called Climate 21. And the reason I wanted to talk about that is because supply chains are a massive part of a company’s carbon footprint. And the Climate 21 initiative is is an initiative that SAP is, you know, getting into to try and address that. So and you’re you’re part of the core Climate 21 team. So I decided to have you on the show so we could talk a little bit about it. And, you know, some of the reasons behind it, what it hopes to address, where the future is going, that kind of thing. So could you, you know, maybe start off give me a little bit of a background of Climate 21. What is it and why is it.
Toby Croucher [00:01:58] Yeah, well, I mean, climate’s not been. It’s not it’s not a new issue. It’s not a new challenge, as it were, it’s been you know, it’s been in the in the public domain to varying degrees, you know, for decades, really. Certainly since the early 2000s. But but last year, last year in particular, there’s an entirely new level of exposure in society as to what’s happening with the climate. What was happening with our response and the gap between our ambition you know, globally, our ambition to stabilize our climate between one, half, two degrees from the from the Paris accord, the U.N. agreements that, you know, 73 countries now have signed up to be net zero. And a level of action going on, actually. And, you know, from an SAP perspective, you know, when you look at CO2, of all of the issues relating to sustainability, it’s the only one as a has a globally consistent currency. It means the same thing. And a ton of a ton of CO2 means the same thing wherever you are in the world.
Tom Raftery [00:03:11] There’s no there’s no difference between a French ton of CO2 and an American icon of CO2.
Toby Croucher [00:03:17] As as the head of the international agency said it, CO2 doesn’t need a passport. And you know, it can be converted. Different greenhouse gases can be converted into the equivalent CO2 now. So it really lends itself actually to a transactional system. And it’s spread. CO2 is spread in terms of it’s it’s it’s the output of CO2 across industries, through supply chains, all the way to customers, all the way from the lip of the primary energy industries. So it’s got it’s got a certain kind of attributes CO2 that really lend itself to SAp’s heritage. It’s it’s it relates to material flows. And, you know, to a large extent, all the issues around managing our approach to climate change have been you know, how do we get the accounting right globally? How do we get the accounting right all the way from the global system of accounting for CO2 down to the national decarbonisation targets, which which, you know, most of the countries we live in have; then down to an industry level. And that, you know, can be inside trading schemes like the EU have. And then inside to a company level. And then when you’re in a company, actually, you go start to look across all your activities globally. And that constitutes your footprint, whether that’s direct, scope one or indirect scope two or scope three, which is there all the way through your supply chain. And the moment the world doesn’t have an effective, reliable, consistent way of doing it, it fits over well with that SAP’s heritage and SAP’s capabilities. The program started off as week I think we set September, October last year, we started moving into action in this with, you know, with our Board level sponsorship.
Tom Raftery [00:05:17] OK. So before I turned the recorder on, we had a little bit of a discussion about this, and one of the topics that we said we would chat about was the idea of a carbon budget. Now, the idea of a carbon budget is something that a lot of people may be unfamiliar with. So I think the way I frame it to people and, you know, feel free to jump in. But the way I frame it to people is that we have, as you rightly pointed out from the Paris Climate Accord in 2015, we have internationally signed up to trying to limit the global warming to one and a half degrees C, between 1.5 degrees C and maximum 2 degrees C, ideally one and a half and at worst 2 degrees C is what, one hundred and ninety five countries signed off on. We know where we are today. We’re already at one. So that leaves us between a half and one degree C to go. And we know to get from where we are today to one and a half to two degrees C. We have to pump X gigatons of CO2 into the climate to reach our target of 1.5 to 2 degrees C and that X is known, it is just physics. It is about a thousand gigatons. And the issue around the carbon budget is that the fossil fuel companies have proven reserves of about 3000 gigatons. So it becomes kind of challenging, I think, for organizations. So but we do we have that budget. We know where we want to get to or where we want to stop at. And I mean, for companies, for organizations to figure it out where they are themselves, they need some kind of accounting right?.
Toby Croucher [00:07:03] Yeah, and I think, you know, you’re absolutely you’re absolutely right. You know, I mean, I I’ve I’ve explained that, you know, when I explain to my children, I explain it in the same way you think about calories, you know. I mean, it’s there are ways in which there are ways in which the world can absorb carbon sinks, absorb, you know, oceans and forests that suck up. And there are their outputs. There are ways in which it’s produced. And we’ve got to get a gigaton is a lot. But actually, you know, current rates of our current rates of consumption or carbon emissions, we’re gonna get I think it’s between eight and ten years we’ve used up all our budget. OK, if you’re dieting and someone’s that you couldn’t go over 2500 calories a day, you know. You know, you’ve got there by lunchtime. You know, and it’s it’s not that many years left now as you start to as you start to cascade that down, because that’s very, very hard for an organisation. Is is you you cascade that down until what are you what are you what are your targets and where are you going to go? Now, the interesting thing is, you know, and you hear this now increasingly from, you know, from the large international companies, you know, both in the energy intensive, industries and the consumer end and all the way through the supply chains. You can’t do this alone. You know, you can’t as a company continue to and that’s where the analogy breaks down. You can’t continue to squeeze your own emissions. You’ve got to get visibility through them, through and through your transactions. So, you know, we had a discussion with a company only this morning that produces industrial materials. And they said, well, you know, we really want to supply these these pumps. So the electricity they use is less and less and less actually are ah, you know, our customers are able to run these in a low carbon way. But actually, we get inputs to build them. We want to know how much carbon is in there. And and essentially this you know, this budgetry challenge, this carbon budget challenge is going to have is going to have to two parts to it. One part is is leaving fossil fuels in the ground. And those assets investors are calling those assets stranded assets. And the valuation of those companies that used to have a reserve to production ratio, which is “I’ve got loads in the bank, we can burn later”. That’s not going to apply anymore. That’s half of it. So half of it is is decarbonizing primary energy supply, which is you know there is options for that around hydrogen and bio and green electrons. The other half actually is products and services and squeezing those and in the same way, you know, if you if you want to lose weight, you need a good pair of scales. That’s second half for that second half that, you know, that, you know, decarbonise and squeezing all of the grams and kilos and tons and kilotons, not the gigatons a billion tonnes, but making all those small decisions, you know, you know, now just, you know, not having milk in your coffee, type decisions to make those types of decisions actually is going to take a very, very different approach to your future and your transactional systems.
Tom Raftery [00:10:28] And I think it’s it’s important as well, because in in, you know, take your example in the idea of a diet. It’s very easy going through the the aisles of the grocery store to pick up the items and look at the label on them to see how many you know, how much carbohydrate is in them or how much protein or fat is in them, you know, per 100 grams or whatever it is. Whereas if I’m looking down through my supply chain at different suppliers, it’s very difficult for me to tell who is using renewable energy or not. You know, which cloud provider do I choose? Because do I know their energy sources? Which which logistics company do I use? Do I know which of them are using electric vehicles or which of them are using diesel? You know, that’s not exposed today.
Toby Croucher [00:11:18] No, it’s not. And you know that there’s a big element of trust. You know, public trust in relation to, you know, I mean, you saw with Volkswagen’s challenges around their , you know, that their emissions monitoring dieselgate. Exactly. Dieselgate. And I think, you know, what we’re starting to build when we start to look at Climate 21 is an ability to, you know, to have that visibility and to be able to manage that and have that ledger that passes through as those as those products and services move down through the industrial, ultimately to us as consumers I mean, the notion has been, you know, the notion has been, you know, presented that individuals should have a carbon budget, you know, depending on the population growth projections it’s somewhere between, you know, two tons and four tons or six tons. But it’s it’s a budget now at the moment you know, very few of us would know whether we were underweight or overweight in terms of are we doing the right thing. Now, you know, you know, you’ve got photovoltaics on your roof. You know, it’s a it’s a big decision to make in a way to dieting. You don’t eat cake. You don’t eat cake if you’re dieting. But the smaller decisions, the small decisions around how to source which which supplier will source materials, can you change? What’s the substitution options you’ve got? These traditionally these lifecycle assessments are these lifecycle assessments have been done on a on a singular basis for a single product or a single service. And the you know, the the oil and gas industry did it with biofuels. Right? Well, sort of biofuels, but it becomes. But to do it once is a manual exercise to do it systematically, continually across all your business process. I mean, that’s you know, that’s an entirely different undertaking. But actually, that’s the only way you’re going to get the assurance through your supply chain. You’re gonna get the visibility through your supply chain. You’re going to get an ability to have those numbers, not just assured, as they are currently in that scope three area. But verified, reported both to investors to say, I’m decarbonising my business and ultimately to your your customers, whether it b2b or b2c. And that level of trust is going to have to come with a completely transactional level. I mean, currently, you know, many of our customers, if not most report CO2 emissions reporting is very important. And that will remain important for lots of reasons. But it’s the longer term is the management of them that’s going to become so, so important. And the ability to tell a story about how you’re effectively managing and effectively decarbonizing not just your business strategy book, but your supply chains as well.
Tom Raftery [00:14:02] OK. So we’re going to help with the calculation and transparency of emissions. Where else is this going?
Toby Croucher [00:14:14] Well, I mean, if you if you look at it, if you if you look at the discussions we’re having with with many of our customers, if you look at the way you CO2 is not it’s not singular issue. It’s related to, you know, land-use change, for example. It’s related to, you know, there are in some parts of the world. It is a very really a good example. You take you know, you’re low carbon energy is is actually a secondary importance to air quality and NOxand SOx and those issues. And the intent here is not to have a singular transactional system around CO2. I mean CO2 as I said at the beginning, it got certain qualities. And it’s a it’s a it’s a global it’s it’s a global priority, of course, for reasons we know well. But if we start to look at our strategy, it’s very much towards saying, let’s look at let’s look at the traditional non-financial flows, things that fit under the broad banner of sustainability. Let’s look at the non-financial flows and see how we start to build those in into our our ERP proposition. So Climate 21 is it is it is a kind of leading program that’s gonna be followed with, you know, us evaluating how it’s up, to what extent can we build this transactional future that historically has been, you know, hasn’t been included in with an organisation decision making has been reported on up in the manage and optimise. How do we start to build that in strategically? And that’s it. I mean, that’s it’s incredibly. It is. It is something, actually. You know, the world. And I said this to you, Tom, before we started the call. This idea of, you know, ecosystem services and the services that nature provides, if you like. I mean, that’s, you know, since the beginning of time, the the ultimate supply chain has been that nature itself, which we benefitted from a tremendous reliability. You know, it’s it’s it’s free at point of consumption. I mean, it’s got all the qualities about it now. You know, if you start to build that into then and you’re in your industrial systems, it’s a huge leap. It’s a huge leap.
Tom Raftery [00:16:29] Very true. We are, today is the first of April we’re recording in the middle of a global pandemic. The Covid-19 Coronavirus pandemic. Are you seeing any parallels between what we’re seeing in the pandemic and the whole climate issue?
Toby Croucher [00:16:48] There’s an incredible amount being written actually at the moment about the link between current employment, I think, because, you know, for very obvious and actually rightfully so, you know that the Coronavirus situation has knocked climate change off the off the pedestal of global concerns. And that’s absolutely correct. I think what’s really interesting what is really interesting with Corona. And this is really this is really, I think, important for the climate debate is we’re seeing most of the reporting that we’re receiving as members of society is based around what the modelling is telling us, the data in terms of how we’re doing, you know, in terms of flattening the curve and the forecast and, you know, the idea of the idea of being, you know, relying on on data to see where you are, you know, modelling to see what could happen and then and then forecasting your interventions to see where that’s going to get you to against, certain outcomes you don’t want. That’s… And we’ve been very science led. I must say, I think that the way we’re responding as companies, we’re being led by the science. We certainly see that in the UK. It’s been you know, it’s that the science is leading our response. Now I think that’s very promising for the climate agenda, particularly in this next decade that is being called that the decade of delivery. If we don’t if we don’t crack, if we don’t crack some of these challenges in the next 10 years. And we’ve had 20 years to think about it. And we don’t get it in the next 10 years. We’re in a very, very difficult position. So so I think there’s something there’s something positive around corona. And we may see it. We may see a return to science and science based decision making being led by data, which, again, we have a role in. I think that’s very, very positive. I think the risk for me is the oil prices has dropped. It’s it’s it’s low. And actually one way to one way to stimulate, you know, the post-corona recovery could bake-in could lock in some sort of high carbon outcomes that will lose time. And we don’t have you know, we don’t have that time to lose. You know, I think the drop in in consumption during the Coronavirus. We’ll eat that up in a few months. That won’t really matter. It’s about trying to stimulate economies. And there’s such an oversupply of fossil fuels at the moment that if that squeezes, you know, other investments that could be made, that that would be challenging. The final thing I would say with corona is, is, you know, with running all the risk management, we can we’re doing as much as we can. As societies in the hope there’s going to be a remedy, a vaccine, something, something at some point in future, we know we’ll come in and take this particular problem away as long as we can reduce, reduce what’s happening in the interim. That silver bullet will not present herself with with climate change this decade. There isn’t you know, there isn’t a singular answer like that. And that’s, I think, why it’s been such an such a difficult challenge over the past couple decades, because there’s so many dimensions to it. You know, fiscal, technology, societal, I mean, it’s a hundred years worth of energy infrastructure has been built around the world, around, you know. And it’s a tremendously efficient oil and gas and coal as well are very energy dense think they’re great fuels. If it wasn’t for that pesky CO2. So I think right. I think it’s there’s some things we can learn from corona, I feel cautiously positive.
Tom Raftery [00:20:30] When one of the things that, hey, I try and get people to visualise is, you know, what is a ton? You know, you can think of like a Mini Cooper as being roughly a ton and a gigaton is one billion tons. So try and picture a billion Mini Coopers and then try and picture a way of hoovering 10 billion Mini Coopers out of the atmosphere, every year, and storing them somewhere. And that’s the kind of level of challenge we’re at, and 10 billion is probably not enough to be hoovering out of the atmosphere every year. We obviously need to stop putting it in, putting them into the atmosphere in the first place. But we’ll have to try and suck them out as well. And that’s an even bigger challenge, I think.
Toby Croucher [00:21:22] Yeah, I think we land use land use will play a role, you know, to kind of recarbonise reforestation. Yeah, that that will play a role. You know, it’s a policy decision as to whether that’s linked as an offset or not. You know, I think you have to be careful with with offsets, you know. But but and sequestrations, carbon capture and storage actually finding it and, you know, putting in an aquifer, putting in a geological formation. But there you need a you know, you you kind of need a big single point geography. The geography doesn’t work. So it’s you know, that’s that’s that’s challenging as well. And that’s where you start to look at you know, you start to look at solving this this challenge and you have to set as a lot of energy efficiency needed, a lot of land use changes. You’re going to have to rely on, you know, the three you know, the three kind of energy supply vectors around bio and hydrogen where appropriate. And then, you know, green electrons from renewables, you’re going to have to try and sequester. And then you’re going to have to have, you know, buildings and different industrial solutions. So buildings, heating, cooling buildings. Mobility is going to have to be addressed. And you start to see actually and the whole thing, that whole picture of activity is gonna have to it will generate a whole new set of business models of course. There’ll be a whole supply chain associated around it, but it’s going to in a whole system transaction to make sure that it all adds up. And there is a global accounting system which which links them on the micro to the macro. And I think it’s going to be it’s going to be very. Yeah, it’s gonna be very interesting to see how this how this plays.
Tom Raftery [00:23:12] Toby we’re coming to the end of the podcast. We’ve gone 22, 23 minutes at this point. Is there as a last question, is there any question I have not asked you that you wish I had?
Toby Croucher [00:23:27] No, I think, you know, I think it is a typical job interview, kind of question, where would you know where? Would you like to be in 10 years time or where would you like to where would you like to have got this agenda to in in in 10 years time? And that’s probably the question. Are you going to ask that question?
Tom Raftery [00:23:51] You asked it. Go ahead and answer it now!
Toby Croucher [00:23:57] Well, I think will be what I think will be great, actually. And I see I see that there’s very much there’s an element of the role with this in SAP is the market and markets and, you know, and customers and investors and employees over the next decade. Very much so if we’re to stand a chance of hitting our 2050 targets and seeing ourselves in a good place for, you know, future generations. The companies do well in this are going to have to be you know, it’s going to have to be clear they’re winning and they’re doing well and they are performing well. And I think that’s that’s where you start to see flows of talent, flows of capital, you know, access to markets, new markets, going to the companies that get this, you know, that really get this that really get the fact that they’ve got a build-in, you know, a new system of transaction. They’ve got to take these issues from being historically reported once a year, you know, in a report which often doesn’t really get read by very many people and pushed out the door, you know, with risks, all those associated risks of, you know, it being marketing, they’ve got to build it in actually all the routine way of running a business. And I think when that happens and when society responds and consumers respond, those companies will win. And that they’ll not just win in traditional ways, that they’ll win in terms of their market share. And I I think we’ve started to see that, you know, the early seeds of that we have done before, you know, but then we get hit with a financial crisis or other crisis. But I think if we’re looking for where I want to get to in 10 years time and the role SAP could play, I think it’s very much in shifting that, you know, shifting that gap between the companies that are really, you know, doing this and those that aren’t and that gap, you know, there’ll be a high penalty to pay for the companies that don’t manage to get across that gap and start building this way of working and become, you know, essentially sustainable businesses.
Tom Raftery [00:26:14] Yeah. Cool, cool, cool, Toby. If people want to know more about Toby or about SAP Climate 21 initiative or about, you know, any anything else you think they might want to know about or where we’re should/ where would I direct them to go?
Toby Croucher [00:26:36] Within SAP we have a Jam site. There’s an internal Jam site for our Internal employees. We have an external point of view. I mean, I know as I said, you know, I think just before we started the conversation Tom we’re in, build and develop, you know, where we were kind of, you know, a pretty early stages but we’re moving very, very fast. But either, you know, comes to me there’s a there’s a core team working this, you know, right now. I mean, you know, organizationally it will grow and expand over time as we start to build up, you know, our go to market and our, you know, engage with customers more widely. So use the jam internally. Or come through the Climate 21 core team. I’m happy to fill any any questions around our approach.
Tom Raftery [00:27:27] Super, super, Toby. That’s been fantastic. Thanks a million for joining me on the show today.
Toby Croucher [00:27:32] My pleasure. Thanks a lot.
Tom Raftery [00:27:37] OK, we’ve come to the end of the show. Thanks, everyone, for listening. If you’d like to know more about digital supply chains, head on over to SAP dot com slash digital supply chain or simply drop me an email to Tom Dot Raftery at SAP dot com. If you’d like to show, please don’t forget to subscribe to it in your podcast application to get new episodes right away as soon as they’re published. And also, please don’t forget to rate and review the podcast. It really does help new people. To find the show. Thanks. Catch you all next time.