SIEMENS Advisory Services Curbing Carbon Emissions User Guide

: July 3, 2024
: SIEMENS

Table of Contents

Part 1: Introduction
Making supplier emissions reductions manageable

SIEMENS Advisory Services Curbing Carbon Emissions User Guide

Part 1: Introduction

Pressure on companies from regulators, shareholders, and customers to provide emissions metrics, enable benchmarking of energy efficiency gains, and develop carbon emissions reporting is increasing.

Businesses without decarbonization plans are at a competitive disadvantage, as lenders and other stakeholders increasingly factor sustainability initiatives and environmental, social, and governance (ESG) scores into their decision- making processes. According to a recent Bloomberg survey, 85% of investors think ESG leads to “better returns, resilient portfolios, and enhanced fundamental analysis.”

Supplier organizations are currently under particularly intense pressure to decarbonize. They find themselves in the vortex of a perfect storm: as large global firms set emissions reduction targets and report those targets to shareholders and the public; such firms begin evaluating the sustainability practices of their key suppliers. Global firms know they can only achieve emissions reductions with a sustainable supply chain, therefore, suppliers that fail to comply with the guidelines of their most important customers risk losing business.

As this scenario evolves, it becomes clear that decarbonization investments aren’t limited to big corporations. Small and medium-sized businesses have a huge, collective impact on the global supply chain and economy. According to the U.S. Environmental Protection Agency, organization supply chains account for over 90% of their greenhouse gas (GHG) emissions. For these reasons, large global companies like Siemens are supporting the sustainable transformation of their suppliers through programs like the Siemens Sustainable

Supplier Initiative.

All companies involved in the initiative are both suppliers and customers of suppliers. For example, Siemens relies on thousands of suppliers when manufacturing products while also supplying goods and services to tens of thousands of customers. This is why bridging and aligning customer and supplier ESG policies are critical for achieving global emissions reduction.

“Decarbonization is not a one-time, massive investment that involves a total reorganization of business operations.

Instead, it’s a continuum guided by a plan that executes multiple steps to help make incremental progress.”

Making supplier emissions reductions manageable

Complying with regulators’ and customers’ growing emissions reduction demands can be daunting for many suppliers. The perception of high costs, increased risk, and business disruption associated with decarbonization makes beginning the process difficult for many businesses.

When helping its suppliers achieve decarbonization goals, Siemens embraces a pragmatic, measured approach. That means viewing decarbonization efforts not as a high- cost activity but as a methodology for driving long-term profits. Decarbonization is not a one-time, massive investment that involves a total reorganization of business operations.

Instead, it’s a continuum guided by a plan that executes multiple steps to help make incremental progress.

When collaborating with suppliers, Siemens helps them balance urgency with pragmatism to make the transition to lower emissions more manageable. Inaction is no longer a realistic option, as customers and investors abandon businesses that do not move forward with emissions reduction efforts. The top priority for suppliers should therefore be formulating a cohesive plan for moving forward.

Understanding Scope 1, 2 and 3 emissions Decolonization brings a set of specific terminology that is important for suppliers to understand. Global emissions generally fall into three distinct categories:

Scope 1 emissions – Direct GHG emissions from sources the organization owns or controls (e.g., office buildings, factories, distribution centers, vehicle fleets).
Scope 2 emissions – Indirect GHG emissions associated with purchasing electricity, steam, heat, or cooling (e.g., power sources, utilities with or without renewable resources in their power generation mix).
Scope 3 emissions – GHG emissions related to supply chains (e.g., emissions built into the products supplied as raw materials to an organization).

Manufacturers and building owners have direct control over Scope 1 and 2 emissions. For example, building owners can deploy energy management systems to lower energy consumption. Businesses can also evaluate their local utility to understand the degree to which the energy supply is high or low in carbon, and then pursue a more carbon-friendly energy purchasing policy. Scope 3 emissions are a longerterm challenge requiring supplier and customer collaboration, as company’s must rely on external influences to join in on the sustainability journey.

High-level strategies

When suppliers pursue decarbonization, some critical pillars to success include:

Increasing emissions transparency by sourcing on-shore or near-shore materials and establishing local suppliers as critical partners.
Enhancing competitiveness by deploying a more open and interoperable technology base and positioning increased transparency as an asset when working with customers.
Positioning sustainability as a cornerstone of your business. Demonstrate your commitment to social and environmental needs in addition to increasing profitability and lowering costs.
Offer low-carbon supplies to customers and set shorter-term (e.g., 2030) reduction goals and longer-term (e.g., 2050) net-zero goals.

Part 2: Addressing carbon emissions challenges

Beyond high-level strategies, suppliers can adopt a series of tactical approaches to help address some of their customers’ sustainability demands.

“Forwardlooking suppliers are building their sustainability arks before the flood waters of mandatory regulations get too high.”

These include issuing surveys and establishing emissions reporting standards before waiting for regulator mandates to kick in. Providing customers with information about your organization’s planned evolution, including benchmarks and targets, is a step in the right direction. Such actions contribute to the levels of transparency customers seek and foster collaboration for joint emissions reduction strategies. Forward-looking suppliers are building their sustainability arks before the flood waters of mandatory regulations get too high.

Other elements critical to a successful long-term decarbonization strategy include:

Acting with urgency – Supplier corporate cultures must accept the urgency of addressing climate Acting swiftly and attacking the most challenging sustainability issues first will result in higher long-term business (and environmental) benefits.
Transforming while maintaining profitable and productive operations – Maintaining operations while integrating sustainable practices will require better data management. Digitalization of technologies helps simplify data gathering, centralization, and analysis, enabling suppliers to streamline the generation and publication of emissions-related metrics.
Motivating the workforce – Driving successful decarbonization heavily depends on the workforce’s willingness to adapt and improve. Strategies that encourage employee buy-in and demonstrate decarbonization’s long-term “stay in business” aspects help build awareness that non-sustainable approaches erode
Reinventing processes – As the supply chain evolves from a disconnected, linear approach to a digital supply network, the need for accurate and timely data, including emissions data, increases. Blockchain technologies can help exchange information and trace data across a product’s life cycle.
Building an effective ecosystem of partners – To lower carbon emissions, organizations will require access to more local suppliers with lower transportation emissions that are in a position to create fully reusable products.
Adhering to standards – Suppliers don’t need to reinvent the wheel regarding emissions reporting. Standards bodies such as the European SBTI (Science-based Target Initiative) index can help organizations set realistic goals and embrace a recognized emissions reporting methodology.
Incorporating circularity – Each organization must contribute to building a circular supply chain. This implies removing waste and integrating sustainability into business practices. Achieving circularity does not require a cookie-cutter approach, but executing fundamentals and integrating new technologies are critical success factors.

Part 3: Best practices for reducing carbon emissions

Suppliers often wonder how to begin migrating their business to more sustainable operation.

The objective should not be making large, upfront, one-time investments, but instead developing a plan for incremental progress. Each step of that plan should be designed for future decarbonization flexibility and alignment while allowing for proper timing of more significant sustainability-related investments.

Such a plan should include:

Benchmarks from which to measure and report on emissions reduction progress
Assessment of emissions sources and achievable reduction through each of the key decarbonization levers
Alignment of target setting and reporting plans with key customer requirements
Alignment with overall asset management planning process
Accounting for upstream emissions contributors such as core materials from which products are built or assembled

These early steps create the transparency that customers look for from their suppliers. Initial steps also involve clean energy sourcing and making an incremental impact through the easyto-implement purchase of renewable energy credits. Many Siemens suppliers, for example, are investing in smart infrastructure that enables them to measure progress toward net-zero commitments. As we work with our suppliers, we gain transparency to their decarbonization progress through our carbon web assessments.

Essential steps that propel the transition to supplier-level decarbonization include:

Shifting from a “nice to have” to a “must have” mentality on sustainability
Complying with a formalized sustainable code of operations
Setting targets to reduce Scope 1, 2 and 3 emissions (e.g., short-term by 2030, long- term by 2050)
Linking corporate bonuses to sustainability progress
Understanding financing mechanisms to support investment in decarbonization

Part 4: Impact of smart infrastructure and digital services

Smart systems and digital operations are potent tools that lower an organization’s carbon emissions.

“Digital twins have the potential to control future environmental impacts in the product design phase, as impact analysis tools help engineers make the most sustainable design decisions, linking cost and emissions variables.”

Siemens offers modern approaches that help facilitate collaboration between experts for developing new low emissions solutions and modeling higher sustainability facilities. These include the Siemens Xcelerator, which acts as a curated, modular portfolio of software and IoT-enabled hardware solutions that help organizations transition through digital transformation. Through Siemens Xcelerator, a robust ecosystem of developers share knowledge and generate new solutions that help simplify the transition to lower emissions and decrease decarbonization costs.

For example, Siemens Xcelerator developer software can track and manage carbon footprints throughout product life cycles and supply chains. SiGREEN, an emissions tracking tool that is part of the Siemens Xcelerator platform, enables companies to connect with all of their suppliers and make data-driven decisions that reduce product carbon footprints and decarbonize at scale.

Digital twin is another Siemens approach. The cloud- based virtual model tests control logic through operator graphics in virtual commissioning scenarios, minimizing potential errors and streamlining operational processes. This allows facility operators to pinpoint where efficiency gains can be made and downtime can be avoided. By pairing virtual and physical worlds (the twins) through data analysis and systems monitoring, a company can actively avert problems before they occur. Digital twins can also be used to create transparency of product emissions by enabling better decisions when navigating the emissions reduction roadmap. Digital twins have the potential to control future environmental impacts in the product design phase, as impact analysis tools help engineers make the most sustainable design decisions, linking cost and emissions variables.

Another Siemens approach is reinventing manufacturing processes. Smart manufacturing uses less energy to produce products. For example, using 3D printers for part creation—instead of the traditional, expensive, and high- emission approach of shipping parts—can make parts available 80% faster with a 70% cost reduction. Many other smart solution options enable manufacturers to waste less water and power across their operations. Siemens has piloted these approaches both in-house and through solution development partners. For example, at a Siemens factory in China, the deployment of a digital twin helped to facilitate energy savings of 5 million kilowatt hours and a carbon emissions reduction of 3,300 tons.

Substantial energy savings resulted from optimizing IT/OT convergence and implementing more efficient use of electric motors (reductions of up to 70% of energy consumed have been reported). The deployment of Variable Speed Drives (VSD) also helped to generate up to 30% in energy savings.

In another example, a car parts manufacturer collaborated with Siemens to optimize their plants. Siemens and its technology partners visited 75 sites across the globe and generated emissions assessments and reports based on data collected. A comprehensive analysis that would typically take five to seven years was accomplished in under a year. It was discovered that 90% of the organization’s carbon emissions came from suppliers. Energy dashboarding is now available throughout the car manufacturer’s organization, and they have much more visibility to their Scope 1, 2 and 3 emissions.

The five levers that drive sustainability

Cross-industry businesses of all sizes are discovering more reasons to decarbonize operations. These include lower costs, fewer carbon emissions, a positive corporate image, and compliance with government regulations. But embarking on the journey toward a green future can feel like a monumental task. To address this challenge, successful organizations focus their decarbonization efforts by exercising tight control over five fundamental operational levers:

Reduce consumption by improving energy efficiency
- HVAC control and optimization, modern lighting control, chilled water system optimization, airflow management, and humidification adjustments are all “low-hanging fruit” initiatives that generate 3-5% energy savings over a payback period of 3-5 years.
  Longer-term approaches like heat recovery and storage, equipment upgrades, variable frequency drive (VFD) deployment, process efficiency initiatives, and digitalization, generate more than 10% in energy savings within a payback of 5-7 years.
Produce and store energy on site
- Solar PV and energy storage systems make local power generation and storage affordable and manageable. New generation microgrid power management, geothermal cooling, fuel cells, and cogeneration systems are all now options for deploying more resilient on-site energy plants.
Transition to fleet electrification
- An EV charging infrastructure enables vehicle fleet electrification. Microgrid-enabled smart charging, charger installation, and grid integration are critical first steps.
Procure clean energy
- Renewable energy certificates (RECs), utility green tariffs (UGTs), nature-based carbon offsets, and virtual power purchase agreements (VPPA) help to blaze a path towards clean energy sourcing.
Manage thermal loads –
- Conversion to heat pumps, boiler and furnace electrification, low-carbon fuel conversions, dualfuel retrofits, geothermal integration, and thermal energy storage all help reduce use of fossil fuels.
  Organizations that successfully manage these levers significantly improve outcomes—ensuring all internal goals are addressed while meeting the requirements of regulators, shareholders, employees, and customers alike.

Part 5: Use case examples

Many small and medium manufacturing businesses are collaborating with Siemens due to our experience helping complex organizations migrate to decarbonization.

Industry examples of how suppliers are taking on the emissions challenge include:

Logistics – Organizations can now measure and publish the carbon footprint on each sea freight and air freight logistics container. Over 95% of these emissions fall under Scope This type of decarbonization initiative can be a challenge for large companies, as they must monitor supply chains of up to 70,000 suppliers.
Hotels – By embracing science-based targets and engaging in sustainability initiatives (e.g., using digital keys, enforcing guest towel reuse policies, diverting plastics from landfills), hotel chains are starting to lower their carbon emissions. They are also installing EV charging stations and deploying carbon-neutral environmental monitoring
Materials manufacturing – Manufacturers are under intense customer pressure to reduce carbon emissions. Such pressures ease the business case for funding technological changes that reduce carbon emissions. Transitioning away from fossil fuels through Public-Private Partnerships (PPPs) has helped a leading material manufacturer and Siemens supplier implement scalable on site solar generation. As the company has grown, it has migrated from using zero renewable energy five years ago to supplying 50% of its total energy from renewables today. Siemens advisory services helped with energy acquisition, energy allocation, and emissions reporting.
Food and beverage – With food safety being such a high-visibility issue, food and beverage companies are tasked with having a better handle on the traceability of their products— not only in their food processing factories but also across upstream and downstream supply chain processes. Digital twin tools help address these challenges by simulating and modeling the supply chain more accurately by generating “what if” scenarios, reducing waste, and lowering high emissions.
Utilities – The electricity and heat generation sectors are tasked with mapping a migration path to achieve a 100% carbon-free system. Siemens has worked with utilities to create green energy tariffs, develop new energy sourcing arrangements, and acquire renewable energy credits.

Part 6: Siemens efforts to facilitate supplier decarbonization

Since 2019, Siemens has been intensively working on a process for determining an internal carbon footprint and reducing emissions through individual business unit target agreements.
“The decarbonization of Siemens’ supply chain is emerging as a top priority. The long-term goal is to achieve an emission-free supply chain by 2050.”

At Siemens, a 1% reduction in corporate emissions translates to 70 million tons of saved carbon dioxide. Internally, we understand the “must have” aspect of sustainability.

We define our ESG ambitions within our DEGREE (Decarbonization, Ethics, Governance, Resource efficiency, Equity, and Employability) framework—a 360-degree approach reflecting our core sustainability values.

Within Siemens, several 2030 emissions targets have been set, and these include:

Operating a 100% electric internal vehicle fleet
Leasing only net-zero carbon emissions buildings
Supplying 100% of power consumed with renewables
Reducing supply chain (Scope 3) emissions by 20%

The decarbonization of Siemens’ supply chain is emerging as a top priority. Siemens works with over 65,000 suppliers worldwide, and in fiscal year 2023, we purchased goods and services valued at just under €37 billion, the equivalent of about half our total revenue. The long-term goal is to achieve an emission-free supply chain by 2050.

Using a holistic, sustainable supply chain management approach, Siemens works to help ensure well-being of the supply chain workforce and adherence to environmental regulations. In addition, Siemens has developed policies on supplier standards regarding social, environmental, and ethical performance. These standards lay the foundation for guiding supplier selection, evaluation, and ongoing engagement. The Siemens Supplier Code of Conduct is designed to document the expected supplier sustainability compliance requirements. The code draws from the principles outlined in the United Nations Global Compact (UNGC) and Siemens Business Conduct Guidelines (BCGs).

Siemens helps its suppliers comply with the code of conduct and accelerate their business transformation as sustainability transparency in several ways:

Carbon web assessment tool – This tool makes it easy to automatically calculate the carbon emissions generated by purchased goods and services and make comparisons. Therefore, the suppliers with the most favorable footprints can be easily identified and prioritized.
Supplier landing page – This web page, dedicated to Siemens suppliers, provides insights on carbon reduction management, emissions transparency, and Siemens methodology for sourcing.
Siemens expertise – We offer carbon emission reduction planning and help our suppliers build a clear short-term and longer- term path to achieving 2030 and 2050

Small and medium enterprise decarbonization efforts are crucial to achieving global net-zero goals. But one company cannot do it alone.

Decarbonization requires collaboration with experts committed to establishing targets and using knowledge and technology to reach those goals. To learn more, download our latest version of the Siemens Sustainability Report.

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