(00:00)Speaker 1
Hey, Jeff.
(00:00)Speaker 2
Hey, David.
(00:01)Speaker 1
It’s the end of the week. It is the end of the week, I thought. We’re in a beautiful Los Angeles, El Segundo, and I thought this was going to be the first podcast here, but I heard that this is. I’m not part of the first one recorded here.
(00:17)Speaker 2
Well, I think the first publicly released podcast in the LA office.
(00:22)Speaker 1
Oh, it will be this one.
(00:23)Speaker 2
Yeah.
(00:23)Speaker 1
Okay. Okay. So you’re okay? Well, good.
(00:25)Speaker 2
First time here?
(00:27)Speaker 1
It is my first time here. I think it’s great. I think it’s amazing. You moved in here, what, a couple months ago?
(00:33)Speaker 2
Yeah, 45 days.
(00:35)Speaker 1
Oh, wow. You’re counting like if you had a newborn or something. There you go. Now it’s pretty amazing. Good lighting, good setup. Has a little Montreal feel to it with the furniture. Okay, good. All right, so today’s podcast, we’re going to talk about sustainability in the supply chain.
(00:56)Speaker 2
Is that fair?
(00:58)Speaker 1
All right. And I think, where do you. Should we start? Start with the fact that we, or organizations more and more want to measure themselves. Right?
(01:10)Speaker 2
Yeah. I mean, this. This is. So we’re supply chain firm sustainability. I would say a lot of the things about sustainability are sort of adjacent to the work we do. And over the last few years, it crossed paths more and more. And Earth Day is coming up. We wanted to talk about it. There are more and more regulations and policies and companies that want to, you know, do right by their shareholders or consumers and, you know, make sure that they are doing things that are sustainable. And that can present a lot of challenges when you’re trying to figure out how to actually execute on reducing your carbon emissions. So there are many different organizations, but there is a specific organization called science based targets. And what science based targets aims to do is set sustainability initiatives for public and private companies. Publicize them or make them public. Have companies make their own declarations, hey, we’re going to do this by this year. We’re going to reduce emissions by, by x amount by this year. And that’s all sort of trying to line up with the Paris accords and reducing global, reducing temperatures by one and.
(02:20)Speaker 1
A half degrees celsius.
(02:22)Speaker 2
So in, that is a lot of different stuff. But the way that you look at emissions and the way that emissions are categorized, there’s three different groups. There’s scope one, scope two and scope three. Scope one and two you can think of as like, your direct emission. Exactly. If you’re driving a truck for your business, that’s going to be your scope one and your scope two, scope three and I think something that we want to talk about here is beyond just your supply chain. It involves your vendors, where is the product coming from? And everything upstream to where that plant was potentially grown. And then on the downstream side actually includes everything all the way to the use of it by the consumer and the disposal of it. So what it aims to do is really capture for this good or this service that you sold, what is every single emission that is related to it.
(03:11)Speaker 1
And when you refer to the science based portion, it’s basically trying to put a framework around it so that we can actually either score it or quantify it, rather than just organization making claims that we’re the best or we’ve done so much, but it’s difficult to measure.
(03:31)Speaker 2
Yes.
(03:33)Speaker 1
So can you explain maybe. Well, the pros is establishing a system, call it, in order to make these comparison or calculations possible. But obviously there’s a lot of not downfalls but barriers or challenges that come with this. Right?
(03:52)Speaker 2
Yeah. I think of like an analogy that is good here is like, if you’re trying to lose weight or if you’re trying to get faster at, you know, a couple of endurance athletes trying to get faster at something, let’s say you want to improve at running and you say, oh, yesterday I was slow and today I was fast. Like, okay, that’s, you know, a little bit subjective. That’s the direction that a lot of companies have chosen to go starting out. And it’s okay, right? Because they’re starting, it’s their first time. You know, it’s good that we’re setting goals and we’re getting closer, but there’s really two categories of how you track your emissions. There’s spend based and there’s activity based and it’s what it sounds like. So if it’s spend based, if I spend a million dollars on gasoline last year, I’m going to apply an emissions factor and I’m going to figure out how much CO2 that I actually admit into the atmosphere. The problem with that is that that’s really just a proxy and it doesn’t dive into details and it’s a lot harder to act on it. Whereas if it’s activity based, you’re actually looking at the activities.
(04:55)Speaker 2
What are the routes that I drove? What was my mileage? How much did I actually move? And that’s going to give you a much more accurate baseline. So the reason I bring it up is just to say that when you use the spend based approach and you set a target ten years down the line, you’re not really getting closer on the way there necessarily? Sure, if you’re reducing your spend, probably you’re getting in the right direction, but it’s much harder to act on and actually see how you’re tracking. Whereas if you’re activity based, you know exactly what you did, you have a much more accurate baseline and it’s going to be a lot easier to make informed decisions about how to reduce your emissions.
(05:34)Speaker 1
Okay, and what about like how are we moving forward? So how are, what should organization be doing in order to start establishing something that is, you know, a little bit more concrete? Like is there initiatives that are trying to kind of make the whole thing more uniform or it’s kind of. Some larger organizations are making claims or starting to do something and others are following.
(06:10)Speaker 2
Yeah, I think it’s a good question. So I think there’s two different things come to mind. One is like leveraging software to pull your ERP data or pull data from business tools, apply some sort of algorithm to say, yeah, your emissions are above this. So that’s getting closer to that activity base. Right. You’re actually using like, hey, we had this, you know, we received this truckload and it was 2000 miles away. And if that’s all going into a piece of software, you’re probably getting a little bit closer. The other thing is to take the approach of, well, let’s just do a study, a full carbon accounting study where you’re going to get a professional partner consulting firm to come in and look at all of the predefined categories of emissions, look at your business, audit, every process, and actually pull last year’s data the same way that, you know, we would do a network analysis or an accounting firm would do an audit and say, hey, this is, you know, this is your standard of approval, 2023 admissions report. And again, that goes back to what I said before, that gives you the actuals, like this is what we actually did last year.
(07:14)Speaker 2
And, you know, maybe a 10% improvement is achievable based on those versus a high level. Yeah, we’re about, you know, we’re sort gonna of here.
(07:22)Speaker 1
And what about the precision? Because you say you could hire experts. Are we, like, how precise can that be? And that’s really because this is not something I’m familiar with. Or is there still the need to make so many assumptions? Because when you talk about, yes, there’s within my own organizations, but then when we look at a full supply chain, you want to look upstream and downstream, like how easy or extremely difficult it becomes to put some degree of precision to the calculations and the measurements versus making significant assumptions.
(08:01)Speaker 2
Yeah, it’s a good question. The way that I’ve thought about it is. So you have scope one, two, three. Scope three is always going to be, for most businesses, is going to be the majority because, again, it’s expensive expanding beyond, like, the four walls of your operation. So within scope three, you’ve got like 14 different emissions categories. And the first step is really to, you know, spend a little bit of time. You can probably do this internally, understand the rules of what should go where. You’ll be able to make a, you know, a rough assessment to say, you know, these are our three buckets that we should really spend time on because that’s going to be 90% commission. So why waste time on something that is going to be less than 1% or is going to be 0.1% when you know, you’ve got this category that is going to be 90%? So that would be, what you would start with is you do a smaller assessment to say, okay, let’s spend a couple of weeks or a month really understanding the business. And just based on public metrics, you’ll be able to say, well, we do a lot of customer transportation.
(09:05)Speaker 2
We’re an e commerce company, and we’re going parcel to millions of different people. That’s probably going to be a category where most of our emissions are coming from. Let’s focus on that. So that’s where we would probably understand the scope a little bit better before jumping into a full blown assessment of the whole supply chain.
(09:24)Speaker 1
And so what’s driving this? Right. Why, like, obviously, there’s a lot of the movement to take care of the, you mentioned Earth day, but to take care of this planet and recognizing that organizations have obviously an immense footprint on it, but why are we talking about this now? What’s driving it? What organization would spend the money? Because what you’ve described so far is, well, and I don’t know if you put thought into this, but would that enable organizations to become more profitable, more perform better, or are they doing it for other reasons and spend that money? Like, what’s driving it?
(10:13)Speaker 2
Yeah, I’m sure there’s many things that are driving it. There’s probably three. Like, when I think about my own understanding of it, I think, I think there’s three. Well, I’ll say two things and then I’ll say a third thing after. So the first one is like, consumers care about this, right? And so ultimately, you know, if, if I have, you know, door a, I don’t care about the environment publicly saying that they don’t care about the environment. Door b. We just. The statement, you know, we want to be a sustainable company. There’s going to be a lot of people that are going to choose b over a. So that’s one I think there’s consumers are saying, hey, I actually care about this. So what are you guys doing about it? Because I can go spend my dollar somewhere else.
(11:02)Speaker 1
So the people are not buying only the product, but they’re buying the products supply chain.
(11:06)Speaker 2
Right. Second thing is there are more regulations coming and there will be more. And states like California are further ahead where they’re starting to see set more standards around companies of certain sizes being required to publicly disclose. Again, public companies of a certain size publicly disclose their emissions. So if your emissions are terrible or they’re worse than what you’ve been saying they are, that’s gonna rear its ugly head. So there’s gonna be pressure to ultimately be as accurate as possible. Right. So those are the two things on that. I think typically you’re not saving money doing these things. Like if you’re apple and you’re doing a once a year carbon accounting study with a big consulting firm, that doesn’t matter to you. But if you’re making a giant change to your supply chain for a greener solution, usually that’s going to hit.
(12:02)Speaker 1
It’s going to be more expensive to put in place. Yeah.
(12:05)Speaker 2
The exception to that is, and this is important in our world, is transportation. So when we do a network assessment, nine times out of ten, the winning network is going to have less transportation. We’re trying to reduce the number of miles that we have to drive, which will also reduce emissions. So in some way, that is the one area where, hey, when you do a network assessment with lid, you can also understand that that is going to be the better solution for sustainability for your transportation network. But most when you’re thinking about designing a building that is going to be carbon neutral or net zero, that’s always going to be more expensive than the cheapest option.
(12:53)Speaker 1
And back to the two things you brought up. So on one side, it’s a marketing approach. A corporation can say, well, I’m making these statements and I’m making those changes because I think I’m going to attract more consumer, but that alone is not enough. And that’s why, well, we have governments that actually need to put pressure, not pressure, but measures in place and laws to force companies. You said you were going to bring up a third thing.
(13:21)Speaker 2
I was just going to say the third because we were talking about what’s driving it and whether it’s like it was sort of two questions, like what’s driving it? But then like, is it profitability? And the third thing was what I was just saying before about transportation, which is that like that is typically not going to increase costs. It’s going to improve, it’s going to reduce your transportation expenses and it will be better for your sustainability report or carbon emissions report. But that’s, you know, those are few and far between those opportunities, you know.
(13:58)Speaker 1
Good. So I’m sure you’ll keep an eye open on these science based measurements or programs. It’s definitely interesting and definitely going into that direction. As you said, the market demands it and it becomes a necessity. So looking forward for a part two.
(14:17)Speaker 2
Yeah.
(14:18)Speaker 1
Anything else you want to add on this?
(14:19)Speaker 2
No. I hope you get to enjoy the nice weather while you’re out in LA.
(14:23)Speaker 1
Of course. Thank you very much.
(14:24)Speaker 2
All right.
(14:24)Speaker 1
Thanks, Jeff.