Interview: Bayer CPO Outlines Procurement Challenges for Net Zero goals

Companies worldwide are actively adopting net-zero carbon emissions targets for their supply chains. However, these ambitious goals present various challenges for businesses and procurement processes.

To gain insights into the specific procurement challenges associated with achieving net-zero targets, Beroe interviewed Thomas Udesen, the Chief Procurement Officer (CPO) at Bayer, a multinational life sciences company with a rich history that spans 160 years. Bayer has committed to a significant goal of achieving net zero greenhouse gas (GHG) emissions across its entire value chain by 2050 or even earlier. In line with this commitment, the company has also signed the Business Ambition for 1.5°C, demonstrating its dedication to limit global warming to 1.5 degrees Celsius above pre-industrial levels.

Thomas actively engages in sustainability initiatives, including participation in the chemical industry initiative named Together for Sustainability (TFS) and co-founding the initiative called the Sustainable Procurement Pledge (SPP), which boasts 12,000 procurement professionals from 146 countries.

It was 9 a.m. in Dusseldorf, Germany, when Thomas received Beroe’s video call. As the conversation got going, he pointed out that companies face various procurement challenges on their journey to achieving net-zero emissions. Procurement’s role in reducing a company’s Scope 3 emissions is significant as it involves making strategic decisions and collaborating with suppliers to minimize carbon emissions across the entire value chain.

The Leadership Challenge

At the outset, Thomas stressed that leadership is a key challenge, stating, "Walking the talk, and helping organizations navigate this super complex and dynamic, seemingly unsolvable challenge is essential." He further noted that leadership's role is crucial in prioritizing and balancing multiple criteria.

He also touched upon the issue of the knowledge gap and the need for solutions that acknowledge the essential nature of sustainability. "It is becoming a qualifier, it's no longer an option."

The Perception Challenge

One of the problems Thomas highlighted is a common perception that there is a 'first mover disadvantage', where people wrongly associate progress and sustainability with high costs.

“There is a prevalent misconception that wrongly links progress and sustainability with higher costs, an interpretation that many individuals have adopted. It is important to dispel this misconception and establish that it is often an erroneous assumption. However, the persistence of this bias adds complexity to the situation,” he said.

Moreover, Thomas spoke about the critical role of regulatory bodies and believed they could be more proactive, reward good behaviour and create a level playing field. He suggested that the introduction of certain regulations, such as carbon taxes or selective subsidies, are beneficial in eliminating ‘first mover disadvantage’ where it is real. He remarked, “The regulators have been too late in the game,” and indicated that these delayed actions and misconceptions at various levels within organizations have hindered progress.

The Cost Challenge

There is an emerging thesis within the alternative investment sphere which posits that ESG (Environmental, Social, and Governance) programs can be inflationary, and this could potentially exert pressure on companies' sustainability initiatives. This thesis is attracting growing interest from certain sections of the global financial community.

Thomas said that it is essential to recognize that sustainability and ESG are not always associated with inflationary costs. For instance, significant investments in renewable energy have proven to be financially beneficial for the company.

“Now, what can be done to counter this narrative? Regulators have a role to play. Through regulations and possibly taxes, such as carbon taxes, can help ensure that companies see beyond the immediate costs and recognize that adapting to sustainable practices is a sound investment for navigating the future regulatory environment.

“Additionally, it is imperative for companies to include the carbon impact in their decision-making process. Introducing internal carbon pricing is a step in that direction. It’s not a mandate, but a moral obligation to ensure that investments and purchases have minimal carbon impact, in line with commitments to societal and scientific goals,” Thomas explained.

He further emphasized that the financial consequences of non-compliance with environmental regulations can far outweigh the perceived costs associated with implementing ESG practices, disproving the notion that ESG initiatives are inflationary.

Drawing a parallel with the past, Thomas said there was a time when quality was the focus. “People were urged to prioritize quality despite initial costs, which some perceived as inflationary. Eventually, society’s emphasis on quality led to its integration into business practices. With scale, efficiencies were realized, and what was seen as a cost became an essential aspect of business. The same can be anticipated for ESG initiatives.

“It is expected that companies which remain defensive and do not adapt will eventually realize that not only was their approach a poor business strategy, but also ethically dubious,” he opined.

The Regulatory Challenge

Thomas observed that sustainability has evolved into a contentious political topic with distinct “For and Against” camps. He outlined the responsibilities of a CPO in ensuring that companies, industries, and societies move in the right direction regarding sustainability.

“Consistency in values and approaches necessitates ongoing interactions with various stakeholders. We actively engage with regulators to ensure our perspective on achieving standards aligns with pragmatic and implementable regulations that foster fairness and positive outcomes for all. Collaborating with industry peers, such as through initiatives like Together for Sustainability (TFS), allows us to operate at both the public opinion level and within the procurement realm,” Thomas said.

He also spoke about the value of a collaborative approach between the public and private sectors, and voiced his support for this partnership, saying, "We believe it's a positive development overall. We actively engage in dialogue with regulators and support the philosophy of public-private partnerships, welcoming further collaboration."

Additionally, he mentioned that his company's integrated report has been aligned with the Global Reporting Initiative (GRI) standards, which puts them in a favourable position regarding the new regulations.

The Challenge of Slow Progress

When asked about the common sentiment he frequently encounters within the procurement community regarding the implementation of sustainability initiatives, he responded, "Everyone wants to get this moving at a faster pace" and emphasized the need to find mechanisms to “democratize the practical tools” required for implementation and acceleration of change.

He highlighted that procurement professionals are generally aware of the necessity for change but often seek guidance on how to motivate their organizations and supply chains. He spoke about the challenges procurement professionals face in educating, disseminating knowledge, creating business cases, and tracking progress.

Additionally, Thomas observed that the realm of sustainable procurement is complex with an abundance of information, which can be overwhelming. He mentioned, "There's too much information and it's not relevant. So people spend a lot of time looking for stuff which should be readily available."

Furthermore, he pointed out a notable apprehension within the community concerning the consequences of making mistakes. He acknowledged that sustainability dialogues and regulations often have a punitive undertone, emphasizing penalties for non-compliance.

He criticized this approach, stating that it hampers innovation and discourages individuals from taking action unless they achieve perfection. He advocated for a more supportive and incentivizing framework that recognizes the importance of trial and error in the process of progress.

The Data Collection Challenge

Bayer currently employs a blend of internal tools and collaborations with external entities such as the Carbon Disclosure Project (CDP) for collecting supplier data related to sustainability. This data is audited and included in the company's integrated report, ensuring credibility. However, Thomas acknowledges that the current process is cumbersome and inefficient, as too much time is spent on data reconciliation and cleansing rather than taking action based on the data.

He added that the carbon emission data collection is in the process of being fully automated. “Suppliers will be required to input the data into a system that are currently being developed in coordination with nearly 50 companies in the industry. We need to establish connections with each member company, such as Bayer, to integrate the data into our bills of materials and related processes. Each company may have different levels of readiness for data collection, but we have a platform where the data can be accessed and extracted. I believe that this is still a rudimentary stage, but the key is to consolidate the data in one place and standardize the process. That's our first step," Thomas said.

He acknowledged that internally, his team places great importance on integrating sustainability values at every level of their operations. However, he also noted that externally, there is a lack of standardized approaches for determining product carbon footprints, leading to discrepancies in definitions and suboptimal comparisons.

“To address this issue, we have taken significant steps under the umbrella of our sustainability initiative, Together for Sustainability (TFS). We have developed and launched the chemical industry guideline, a standard that was previously non-existent, and made it accessible to the public. This guideline, known as the PCF (Product Carbon Footprint) guideline, is now becoming the industry standard for chemicals, considering their vital role in various aspects of everyday life. We have collaborated with esteemed organizations like the Carbon Disclosure Project, SBTi, World Economic Forum and others to ensure a comprehensive approach.

“Additionally, in terms of technology, we have partnered with a prominent solution provider to collect product carbon footprints from our suppliers. This data is not only shared between suppliers and customers but is also made available to the industry members. By democratizing this data, we aim to streamline processes, minimize bureaucracy, and focus on taking effective actions that have a meaningful impact,” Thomas elaborated.

The Reporting Challenge

In compliance with regulatory requirements, companies are mandated to report carbon emission data throughout their supply chain. Given the reliance on a manual process, it is crucial to ensure the accuracy and consistency of the emission data collected from various suppliers, both for internal reporting and to meet regulatory reporting standards.

Thomas explained that the company is engaged in a collaboration with the Carbon Disclosure Project (CDP), and utilizes a carbon model that is based on a mix of spend-based assumptions and company-specific submissions. He noted, "Some of the suppliers are providing data that has been audited by an independent body”.

“It's a journey. It's not perfect, but we know where we have to go," he said.

The Catalogue Challenge

In response to a question about incorporating sustainability-focused buying options into a company's e-catalogue, Thomas conveyed enthusiasm for the companies undertaking such initiatives.

“I wish all those companies great success, for them and actually for all of us. Integration of sustainable options in catalogues relies on various factors. If the content can be credibly displayed to the business user then we have a winner on our hands." He emphasized that as these business models mature, there is a role for leaders to embrace and possibly enforce these changes to drive progress.

Thomas pointed out that many purchasing decisions are made sub-optimally due to lack of awareness. “If consumers were aware of the positive impact of choosing one product over another, such as supporting diversity or reducing carbon footprint, they might make different choices. Many people don't know that. Product carbon footprints, as an example, need to be visible, and we need to get good at providing better options to business users," he added.

“Roll Up Sleeves and Get to Work”

Sustainability has gained traction among many global corporations as well as multiple governmental procurement organizations. The trend, for now, looks irreversible.

“At Bayer we have formed a specialized team known as our ‘Decarbonization Accelerator’. This team ensures that the subject of decarbonization stays as a priority among the company’s senior leaders. The emphasis is not on being highly innovative, but on executing what is already known to be essential.

“The key is to take action -- to roll up sleeves and get to work. Leadership, setting priorities, and having a genuine passion for what one is doing are crucial. When an organization demonstrates commitment to these values, it becomes apparent to employees, suppliers, and customers. This recognition can lead to accelerated efforts and credibility.

“Sometimes, focusing on fundamental actions can lead to innovation. Unfortunately, many companies are still struggling to execute even the basic steps,” Thomas concluded.