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Industrial Decarbonization Must Involve Entire Corporate Value Chain

  • In many sectors, the majority of carbon emissions lie in a corporation’s value chain
  • Reducing company’s carbon emissions also means reducing carbon emissions in its entire value chain
  • Mapping and decarbonizing the value chain prove to be a big challenge for companies

Jakarta, 15 November 2022

Industrial decarbonization would not happen without cooperation and collaboration between a company and its entire value chain. Such is clear during a panel discussion themed “Value Chain Decarbonization”, which was a part of Indonesia Net Zero Summit 2022: Industrial Decarbonization at All Cost held on Friday, November 11 2022, in Bali.

Globalization has opened up many opportunities for cooperation between companies coming from different regions. Right now, cross-continent cooperation between companies has become the norm; world-class principal companies have been engaging with suppliers from different countries. This globalized business and trade pattern brings with it challenges for companies looking to decarbonize their operations. Differing compliance standards between sellers and buyers also pose a great challenge. However, when we look at the global standard of Science Based Targets initiative (SBTi), it is clear that every company will have to decarbonize their entire value chain.

The fact of the matter is not one company can decarbonize its value chain one by one, separately. This is because a single product is made through an interconnected global value chain which involves multiple entities. Decarbonizing a product means decarbonizing an entire value chain consisting of many actors with differing standards and capabilities.

According to the World Resources Institute (WRI), 75% of global greenhouse gas emissions come from the private sector, but only 25% of private companies are measuring their emissions and setting emission reduction targets according to the SBTi.

Emission data and information to support decarbonization

In the panel discussion featuring representatives from the Fast Moving Consumer Goods (FMCG) sector (PT Nestlé Indonesia), the chemical industry  (PT BASF Indonesia), and the fashion industry (H&M Indonesia), the panelists agreed on the importance of having data and information related to emissions; how companies can collect the needed emissions data as a starting point to plan their emission reduction roadmap, both in their corporate value chain and beyond.

PT Nestlé Indonesia, as one of the big players in both the national and global FMCG industry, revealed that 95% of their emissions come from Scope 3, which are emissions coming from the supply chain. Nestlé works together with suppliers at local and global level to ensure that their supply chain contributes to their emission reduction efforts. To achieve net zero in its value chain, Nestlé focuses on four main areas which serve as the pillars to achieve their net zero targets: carbon reduction, sustainable packaging, caring for water, and sustainable sourcing.

Prawitya Soemadijo, Sustainability Director of PT Nestlé Indonesia, affirmed, “Nestlé implements a holistic life cycle approach to track the carbon footprints of each product, and this, of course, needs the involvement of many parties to work together.”

Agus Ciputra, President Director of PT BASF Indonesia, confessed on the challenging nature of mapping emissions in their entire value chain. “But it’s not something impossible,” he reaffirmed.

PT BASF Indonesia did their assignments and became the first chemical company to disclose their emissions from about 45.000 product types they produce. As BASF is a chemical ingredients supplier, this emission information will greatly help their clients to count the emissions in their value chain.

Energy decarbonization 

The energy sector has sub-sectors which are often overlooked. Generally, many people only see electricity as the main focus of the energy transition agenda towards achieving Net Zero Emissions. This can pose a challenge for the big transition agenda, as final energies such as heat should also be considered in the energy transition strategy.

Anya Saphira, Program Stakeholder Engagement and Public Lead Affair of H&M Group Production Office in Indonesia, stated, “In the garment and textile sectors, heat generation plays a big role in the manufacturing process. In Indonesia, this energy is still sourced from fossil fuels.”

If we are looking at the emission factors of energy, Anya said, Indonesia has a “combo impact problem”, where emissions from fossil fuels come from electricity used in production processes as well as on-site heat generation. Anya expressed that they would need assistance and attention from policy-makers and other stakeholders to create a local solution for this problem. 

Just like the two other companies in the panel, H&M’s biggest emissions lie in its value chain, especially in material production, fabric manufacturing and dying, as well as washing. H&M works together with suppliers to solve the environmental problems and social impacts within the corporate value chain.

Anya added later on that being used to consuming fossil fuels does not mean one cannot find an alternative to turn to in order to reduce emissions. In this regard, biomass has a big potential to become a solution for Indonesia’s energy challenge, as the abundance of agricultural wastes can be used as an alternative to fossil fuels to generate heat. With that said, there still needs to be a clear set of policies and regulations to ensure sustainable alternative resources.

KADIN Net Zero Hub, who has been working for a year with WRI, CDP, and UNDP, continues to cooperate and collaborate with these organizations, as well as with others, to find climate solutions to reduce emissions in a company’s entire value chain. 

At the end of the day, industrial decarbonization cannot be tackled alone. It will take collaborations and coordination from all industrial sectors to map Scope 1, 2, and 3 –not just to count numbers to inventorize their GHG emissions, but also to share insights and learnings from different experiences and efforts in reducing emissions.

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