Energy Efficiency, Industrial, Industrial, Sourcing Renewables - January 25, 2017
Views from the top: Procter & Gamble sees success in linking climate, energy goals
Founded in 1837, Procter & Gamble Co. is one of America's oldest and largest companies. It is also the company behind some of the most well-known brands of consumer goods in the country, such as Bounty, Crest and Tide.
Having been in business for almost 180 years, it makes sense that P&G knows a thing or two about sustainability and forward-looking strategies. As for how this translates to its energy use, in 2010, P&G became one of the first companies to set a renewable energy goal. Though the company had for decades focused on energy efficiency, marrying its energy management program with its broader goals to reduce the company's impact on the environment, particularly as it relates to greenhouse gas emissions, resulted in the need for cleaner energy sources.
Today, P&G is ramping up its use of renewable energy to meet its short-term goal of reaching 30% by 2020, and, even after decades of energy efficiency work, continues to find new ways to curb its overall usage. In light of these accomplishments, Smart Energy Decisions recently sat down with P&G Global Climate and Energy Leader Steve Skarda — who is also a member of our advisory board — to learn more about the company's strategy. Below is a transcript of that conversation, edited for clarity and length.
Smart Energy Decisions: We have done these interviews with a number of people and I think you’re the first person who actually is in charge of both climate and energy together at a corporation, so we are interested in hearing about some of the unique perspectives you must have from doing that. So to kick things off, we were hoping you could just talk a little bit about the company’s decision to intertwine those two topic areas. When did P&G decide it wanted to get serious about climate, and when was the decision made to combine the two efforts?
Steve Skarda: We've been working on climate and greenhouse gas emissions for years. We issued our first public statement on climate change in 2001 and we’ve been disclosing greenhouse gas emissions since 2002. Although in 2010 we reached a turning point when we set our ambitious vision to use 100% renewable energy. Shortly after that, we announced our second generation climate goals, and just last year, we updated one of those goals to align with the science of climate change. To ensure we are doing our part to mitigate the impacts of climate change, we are committed to reducing absolute GHG emissions by 30% by 2020.
So in the decision to combine your energy management team with the climate impact goals, what were some of the steps that had to be taken in order for that to sort of meld together?
We had an energy team that had already made great progress. In fact, between 2002 and 2012, that team had reduced energy consumption by more than 50%. So the team was very active, functioning, and we had a very healthy program. We just added this new component, which was the focus on renewables with a new goal to use 30% renewable energy by 2020, and that’s about the time I came into the role.
The leadership team and structure was already in place, focused on conservation, and the new goal put us on a journey to really understand where renewables fit in. We had a significant amount to learn in terms of how we were going to achieve that goal in a way that was good for our business. So while we continued to work on conservation and improving our efficiency as the foundation of our overall program, the new renewable energy strategies continued to be driven by the same team. The primary change was that we brought in some new skills and additional resources to focus on that.
Building off that a little, it speaks to one of the questions that we’ve been asking many of t folks that have participated in this interview series, which is about the role of the energy manager and the evolution of that role at U.S. corporations. Can you talk a little bit about how that role has changed over the years at P&G in the context of all the shifting happening in the energy world broadly alongside rapidly advancing technologies?
I’m probably a little bit different than the average energy leader in the sense that I started with renewable energy. I had a background in electrical engineering and previously I had been working on leading power and controls work for our Family Care business, and so I moved right into renewable energy where I had a passion. And it wasn’t until a few years later, I gained additional responsibility, I ended up also taking over leadership of the overall team, including the conservation work.
But to answer your question in terms of how has that changed ... in a corporation as large as P&G, really most of my time today is focused on developing tools and then delivering those tools to the sites and putting them in place so that we can help site energy leaders deliver their results. The tools, methodologies and education changes over time as we are constantly innovating but my core role to bring that to the businesses has been consistent over time.
What I have seen recently, is the digitization of manufacturing really transforming our work on energy. We have more than 100 manufacturing sites globally, so we depend on online tools to help us collaborate across the technical communities to manage common systems and technologies across all our sites. We’re also innovating how we use data from our manufacturing processes to drive business decisions, and focusing a good amount of our time today learning how to apply advanced analytics to our energy and water consumption data in order to identify new opportunities to improve efficiency and drive out losses from our operation.
So as I look across all the focus areas that I have right now, nearly all of them, in one way or another, depend on a foundation of strong digitization or IT skills. So that, even just in the past five or six years, has been a pretty significant shift.
On top of that, you now have these climate and renewable energy goals as well. How have those played into everything?
In parallel to the work in conservation, the momentum and the change in renewable energy has been significant. So, if I could take a step back, and talk about our goals, we have a climate goal to reduce our greenhouse gas emissions by an absolute 30% by 2020. That’s aligned with what the Intergovernmental Panel on Climate Change says we need to be doing in order to prevent temperatures from rising above 2 degrees Celsius. So how do we deliver that 30% goal? It’s through both efficiency and renewable energy.
While P&G has continued to grow our volume, we’ve been able to decouple growth from GHG emission with a focus on efficiency. But, that alone is not enough to deliver the kind of greenhouse gas emission reductions that we need. So that’s where renewable energy comes in, and I think more and more companies are starting to see that as well.
You mentioned your 30% renewables by 2020 goal, which I believe P&G first announced in 2010. That was about six years ago, and so much has changed regarding the economics and feasibility of renewables since then. It seems like especially this year and last year, we’ve really seen a lot of companies follow suit in making similar renewable energy targets. But in 2010, that had to have been a really groundbreaking goal. So we are curious how P&G was thinking about that goal at the time. Obviously, it was something you saw rolling into your sustainability objectives, but what gave you the confidence at that time to pursue that renewables piece?
It ties back to the conversation in terms of the vision that was being developed in 2010. We just spent a lot of time consulting with external experts. One that comes to mind is William McDonough, who often talks about sustainability goals, and the coaching he gives to companies is this concept of, “we don’t want to think in terms of doing less bad,” which is sometimes what ends up happening in the sustainability space. What we really want to focus on is how we’re going to do good, or do more good.
And that’s how the vision of 100% renewable energy, as well as many of the other sustainability goals that we have, came to fruition.
Along those same lines in terms of our renewable energy goal, we already recognized that climate was a concern and was something we needed to address. So our vision simply made sense. That short-term goal to use 30% by 2020 was what we felt was the right step to ensure that we were making progress toward the vision.
And I think you’re absolutely right; at least within our sector, I know for many years we were the only company that had talked about or had a public goal on renewable energy. Many had greenhouse gas reduction goals, but only a handful had renewable energy goals. Since then, we’ve seen a many more companies start to show significantly more interest in renewable energy. And I think the reasoning is similar to our own: When we think about the kind of greenhouse gas emission reductions that we need, it can’t happen with energy efficiency alone.
So related to that is P&G's 2015 announcement of your deal with EDF Renewables for power from the Cooke County, Texas, wind farm that just entered commercial operation. One of the things I noticed about P&G's news release at the time the deal was first announced was that it named some of P&G's big brand name products and explained how the deal allowed the company to essentially power those brands with renewable energy. In terms of that communication strategy, and the parts of it that were aimed at consumers, we are curious how you think about your customers and what they want from your products?
As we think about sustainability and renewable energy in a company the size of P&G, we realize it is our responsibility to be working towards reducing the effects of climate change. Our brands, which are really the core of our company, touch more than 70% of the world population. We have operations in 180 countries, we employ people in regions all over the world, and we partner and work with thousands of other companies. So we feel a responsibility.
It’s also a business opportunity. We spend a lot of money, but as I look at the time since I’ve been in this role, since 2010, we’ve been able to save more than $500 million through our work in energy. Some of that is renewable energy, although a lot has been through conservation and combined heat and power.
Then, ultimately, it’s also a better way for us to serve our customers. We know that they care about brand performance and sustainable performance. So, our objectives have always been to design products that delight the consumers, while also maximizing the preservation of resources. If you go back to our mission as a company and our overall objective, it is to improve the lives of the world’s consumers now and for generations to come. For generations to come, that speaks to the work that we’re doing in sustainability.
Circling back to energy efficiency, I know P&G has been working on that for a very long time, and I hear from many companies that the more you do energy efficiency, and the longer you’ve been doing it, the harder it gets to really drill down on cutting back. So, I was just curious what are your challenge areas there and also what you see as the biggest opportunities in energy efficiency.
Well, I’m really excited because we just announced that we achieved our 2020 target to reduce energy consumption by 20%. This is 4 years earlier than we committed. To your point around “the more,” you know, you often hear that once you pick the lower hanging fruit it gets harder and harder. There is some truth to that. But in 2012, we were using half the energy we did 10 years earlier, and it would have been easy to feel like there wasn’t much opportunity left. But now we are here in 2017 talking about how we’ve reduced 20% since 2010. So even though there are times where it can feel like we’ve done all there is to do, the truth is there’s always opportunities in energy efficiency. We are constantly innovating, and I expect we will never run out of work to do in this area.
While I think all the way back to early 2000, I'm sure there were folks saying it would be difficult to make significant improvements in the efficiency of our processes, but the truth is we do continue to implement innovations every year, and we continue to deliver new and additional energy efficiency targets every year. So, I usually don’t get overly concerned when I hear folks saying, ‘gosh, I don’t know where else to go,’ because the technology is continuously changing, we’re continually developing new tools, and I expect that those energy efficiency trends will continue well into the future. Even though we’ve achieved our 2020 target, we’re not going to stop.
So are you looking at setting new energy efficiency targets then, as you’ve met the target early?
When we set the targets in 2010, it was 'deliver the decade,' and so everything was really focused on 2020 goals. And you're seeing a lot of other companies round up to either five-year or ten-year targets that revolve around the decade. So it makes communicating to a broader audience a little tricky if we were to modify that target now. So we will come out and announce new goals, but the timing has not been determined yet.
In looking at the back half of this decade then, are there any lessons learned, whether it be from renewable energy or energy efficiency, that you think are going to be valuable to P&G as you go forward and into the next decade?
I think renewable energy is probably the area that we’ve learned the most over the last five years. I would say our strategies evolved quite a bit. When we first started, we were focused on bigger, better and faster.
We knew that in order to achieve that 30% goal we were going to need to do large-scale projects. So that’s really what the ‘bigger’ was. We also recognized that if we were going to be successful long-term, we needed to achieve that goal in a way that was going to be good for our business. That was what the ‘better’ was focused on. And then ultimately, the ‘faster’ was we needed an organization that was all aligned against a single strategy.
When I came into this role I could go to different plants and regions and see lots of different people independently trying to find solutions, and sometimes working in different directions. We really needed to bring that all into one cohesive team and move together in the same direction, and we were able to do that. And that strategy served us well, but I would say it’s evolved quite a bit.
One big thing we learned was about where we want to invest our resources -- and really I mean both our people and our capital -- we want to invest in what we’re really good at, and that’s making the very best consumer products. If I fast forward to today, all of the projects that we developed in those early years that we’ve come back and now announced, nearly all of them ended with strategies where we have a partner, someone who specializes or has a core competency in energy. They’re the ones that are building the projects. So whether it be Constellation who is our partner building a biomass facility in Albany, Ga., or EDF who’s built the wind farm in Texas with us, we work together to find the right solution.
I work in engineering so the focus we had was very technical: Where are the renewable resources relative to plant locations? What do the financial deliverables look like? How can we find that really unique opportunity that takes an average project and makes it better than average? All that work still happens, but we also recognize that it nearly always ends up leading us to a place where we have a third party working closely with us.
And I think that’s where the change that we’re starting to see externally is happening, too. If I look at the World Wildlife Fund and the World Resource Institute and the Corporate Buyer's Principals, in terms of what do corporate energy buyers look for in renewable energy, nearly all of us start in that same place. It makes sense to work with utility partners who can continue to do what they do well and that provide us with reliable, and low-cost energy. But what we need to do now is also make sure that’s coming from renewable sources.
So, that’s kind of where we are. We started from a place where we were looking to try to develop this on our own and are now moving to working with partners to help develop renewable energy. This is where I envision the future is going to be. It makes sense for our utility partners to focus on the renewable energy, and for us to focus on what we’re good at, which is making brands consumer love.
That answer folds into our last question. There’s been this back and forth about what utilities need to do to help their large customers, especially as it related to renewable energy. We have seen some utilities start to slowly change the way that they work with their large energy customers and get better at providing clean energy, but that hasn’t necessarily been true across the board. Given what you just said, it seems like things are working better for you, but we were just curious how those relationships have evolved and are they getting better in terms of meeting P&G’s wants and needs.
When I look at the utilities and the amount of change that has happened in their business in the last three or four years, it’s just incredible. And I think we’re really at a turning point in terms of renewable energy where I would have looked three or four years ago in a conversation and the elephant in the room was that utilities weren’t in a place where they all believed that they could deliver renewable electricity to buyers in a way that was going deliver financial value. Ultimately, the feeling was renewable electricity was just simply too expensive.
Just a few years ago when we were engaging with utilities they were very clear that, yes, many of their corporate customers were interested in renewable energy but I’m not sure we had a strategy for how we might meet those needs working together. I remember one conversation … it was a meeting convened by WWF and WRI between corporate energy buyers several regulated utilities, and leaders from the Edison Electric Institute.
The corporate energy buyers said ‘we have these renewable energy goals and we are committed to achieving them, there’s no question about it, and it may seem like five years from now is a long way off, but it’s actually not much time. We prefer to work with you as our partners, but we’re going to meet our commitments.' And you could kind of see the light bulb go on when they realized, ‘our buyers want us to be delivering this with them, and they’re going to do it with or without us, and we want to do it with them.'
And so, for me, the story of that one meeting was really kind of reflective of what I’ve seen happening in the industry. I give a lot of credit to groups like WWF and WRI and the utilities who are coming together to think about what does that future look like. We are starting to just now see some new and innovative products from the utilities, including those in regulated markets, to help better meet the needs of customers looking for renewable energy.
We’re going to be working closely with our utility partners to get that same low-cost, reliable energy that we’ve always gotten from them, but to also have the option to have it sourced from renewable energy.
Any last thoughts or issue areas you think are important to discuss?
Something I want to close on is that as other companies think about where they’re going on sustainability, I would encourage my peers to look at the science, and really understand what the experts say is necessary to prevent temperatures from rising above 2 degree Celsius. Think about what that means to your specific company. There’s a great website: Science-Based Targets. That’s a great place to start. It’s going to require all of us; all of us in the corporate world, our government partners, our utility partners. We all need to be working toward the same common goals. And so I encourage other companies to think about their energy goals, and greenhouse gas emission goals specifically, in terms of the science and what they can do to really be delivering those common goals we all have together. We can’t do it alone.
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