A Belief to Let Go Of: Decarbonization Saves Money

by Kim van der Weerd created 2023-01-30T14:09:58+07:00
Reflections from January’s Supplier Meet-Up

At last month’s Supplier Meet-Up, we tried out a new format: one supplier volunteered to share a challenge they’re dealing with while the rest of the group helped explore possible courses of action.  

The challenge shared this month related to an all-too-familiar topic: how hard it is to finance decarbonization. The supplier shared that they’d identified a machine that could significantly reduce their emissions and was technically applicable to 90% of what this company makes.  However, the capital cost was 600% higher than the conventional machine. Further complicating matters, the new machine would also increase operational costs by 200%. Their clients might be prepared to accept a 5% or even 10% price increase but, in this case, an even steeper price hike would be required. Their clients were unlikely to accept.  

As this supplier shared their dilemma, knowing smiles flickered in across the screen.  Several people expressed that the key to getting brands to help finance this kind of investment came down to finding the right individuals. “You have to find the right person within the brand, the individual willing to take a risk and a step outside their comfort zone. Build a relationship with them. And then let them advocate on your behalf internally.”  

Someone asked whether the machine could be used to build a consumer-facing brand. The example of Circulose was cited: this is an expensive component but because it has brand recognition at the consumer level, people are willing to pay for it. 

Another person asked whether the city or country within which this supplier produces has set public climate targets. If so, could the supplier reach out to policymakers about financing the investment – on the basis that it would contribute to their emissions goals? 

Someone else suggested an inward-facing approach and reframing how the company evaluates return on investment. For example, if investments were generally expected to generate returns within a standard timeframe, then the reasonable timeline for a sustainability-related investment should be equal to the standard ROI timeline + 2 years.  

Mass procurement was also thrown out as a suggestion. Were there other production facilities operating in a similar geography that would also benefit from this new machine? Or could the supplier partner with downstream suppliers to co-pitch the innovation to the brand? 

In a similar vein, someone suggested liaising with the machine manufacturer directly: if this machine has the potential to be broadly relevant to the textile sector and if this supplier were able to support that expansion as a test/pilot case, could this be used to negotiate a lower price with the machine manufacturer? 

Then the conversation turned to carbon pricing. Had anyone in the group actually included the cost of carbon emissions in their prices? And had anyone in the group successfully negotiated with their brands to build the cost of emissions into price negotiations? Not really.  

It was at this moment that the conversation shifted to the elephant in the room: existing financing mechanisms are inaccessible and inadequate. The group expressed frustration that the general perception seems to be that it’s possible for decarbonization-related investments to lead to cost savings if only suppliers put more effort into figuring out how.  Meanwhile, the reality is that brand and retailer purchasing practices will determine whether a particular innovation will scale and become financially viable.  

It's with this sentiment in mind that I’d like to put forward a thought: it’s time to let go of the belief that decarbonization will save suppliers money (or is cost-neutral). It’s time to let go of the idea that suppliers can self-fund decarbonization. It’s time to let go of the belief that what’s good for the world is always also good for business (at least in the short term). Instead, we need to collectively embrace the belief that decarbonization will happen when the financial risks are shared equitably. 

Are you a Supplier interested in joining these private, off the record, monthly conversations? We’d love to have you. Apply here.  

Read about past meetups here.