Sustainability Now: Greening Your Company

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Thanks to Scott Vanderburg (President and CEO, Reliant Holdings), Andy Castiglione (President, WestAir), and Jillian Evanko (CEO and President, Chart Industries) for their contributions.

Sustainability, in a business context, seeks to prevent the depletion of natural resources, so that they will remain available for the long term. The United Nations (UN) has defined it more specifically as “meeting the needs of the present without compromising the ability of future generations to meet their own needs.” Public opinion, the scientific community, governments, and businesses (globally) are all slowly aligning around the fact that our natural resources and climate are being impacted by our actions, and we need to make some changes. There may still remain significant differences between these constituencies on how fast we need to move and how much to spend, but it is becoming clearer that action is becoming more necessary as we observe changes with respect to weather, ecological systems, etc. There are several companies that have been proactive in this space and have been on the journey of “greening” their companies. This article will first discuss broad and industry-specific sustainability trends, then share what some of these companies are doing in this space. We will also share some best practices for executives who are early in the journey in making their companies more sustainable.

Trends

Over the last three to five years, sustainability has arguably become a top priority for the majority of CEOs. In a survey of 2,600 CEOs by the UN Global Compact and Accenture, 98% of CEOs agreed that sustainability is core to their role. Another survey by the IBM Institute for Business Value found that 51% of CEOs say sustainability is a top challenge for their businesses, and in the same survey 80% of CEOs expect investments in it to deliver higher business results over the next five years. It is clear that sustainability has risen in importance and is expected to continue rising.

The headlining trend in this space is clearly NetZero commitments, which is the setting of targets to reduce or completely offset their carbon emissions to slow environmental impact. Since the UN’s Paris Agreement in 2016, approximately 160 countries are in different stages of commitment, from either pledges, documented policy, or being enshrined in laws. More relevant is that more than 4,000 companies, representing over a third of the global economy’s market capitalization, had by the end of 2022 set NetZero targets to reduce or completely offset their carbon emissions, according to the Science Based Targets Initiative (SBTI), a global project of nonprofits including the UN Global Compact. It is great that companies are making these commitments, but how many are moving from commitment to action? Well, Accenture in conjunction with the UN, has followed the 2,000 largest public and private companies globally over the last 10 years, examining both their sustainability commitments and their track record of reducing greenhouse gas (GHG) emissions. In 2023 it showed that the percent of these companies setting net zero targets has risen to 37%. However, among those disclosing their emissions data, approximately half continue to increase their emissions, 33% are cutting emissions but not fast enough, and only 18% are on track to reach NetZero by 2050. So, there is still some work to be done.

Being good stewards of our natural resources is very important to us and is part of our DNA as a company, since we have seen the depletion of national resources firsthand in this part of the country. However, we also recognize it needs to be done economically factoring in supply/demand and other business drivers.

Scott Vanderburg, President and CEO of Reliant Holdings

Another major trend is the acceleration of the regulatory environment surrounding sustainability driven by the Corporate Sustainability Reporting Directive (CSRD) in the EU and the Securities and Exchange Commission (SEC) in the U.S. The CSRD is expanding the range of companies required to disclose detailed information on how their operations affect the environment, social matters, and how they manage related risks and opportunities. Similarly, the SEC’s proposed rules on climate-related disclosures are expected to increase accountability and encourage more sustainable business practices. Several other trends such as Scope 3 emissions scrutiny, increase in mandatory disclosures, the desire to deepen integration with financial statements, and expansion beyond public listed companies are all gathering momentum with slight differences depending on the region of the world.

The rise of renewable energy (i.e., wind, solar, hydroelectric, etc.) and the increased focus on the energy transition has significantly grown over the last 5-10 years. As an example, in the US, Environment America reported that renewables provided 18% of total electricity generation in 2015, but that number jumped to 24% in 2020 and to 27% in 2022. In fact, electricity produced by renewables surpassed coal in the United States for the first time in 2022. On a global basis, renewables share of the power generation mix was 29% in 2022 and is set to rise from 29% to 35% by 2025, according to the IEA (International Energy Agency).

Applications and equipment technology are two areas that are garnering increasing attention in the sustainability space. Several new applications are in the planning, pilot, or full-scale testing stages targeting specific end-markets having high GHG emissions (i.e., steel, cement, petrochemicals, etc.), attempting to demonstrate solutions that significantly reduce their carbon footprints. On the equipment side, existing/developmental digital technology is being employed in different end-markets to improve monitoring, tracking, and scheduling of critical materials, resulting in optimized supply chain costs and reduction of GHG emissions.

For example, we’re seeing industrial applications using packaged gases evolving to increase use of digital technology – it [digital technology] has become cost-effective to incorporate on select packaged gases to better track cylinder contents on a near real-time basis. With some product lines, we’ve seen up to 30% reduction in supply chain costs while everyone benefits from an all-around lower carbon footprint.

Andy Castiglione, President of WestAir

“Greening” Initiatives

The industrial gas and related industries are often the “late adopters” when it pertains to implementing new business trends or technologies. However, with regards to sustainability, they are viewed as being leaders especially with regards to hydrogen’s increasing importance in this space. One of the greening initiatives the major players in our industry have implemented was to not only make NetZero commitments by 2050, but also publicly share interim commitments to track progress. For example, Linde has set a target of 35% reduction in absolute GHG emissions (Scope 1 & 2) by 2035, Air Liquide a 33% reduction target in absolute emissions with an inflection point around 2025, Air Products 33% reduction in Scope 1 and 2, and Scope 3 CO2 emissions intensity by 2030, and Taiyo Nippon Sanso 32% reduction in GHG emissions by fiscal year end 2031. All very consistent with interim checkpoints to make sure they remain on track.

One of the most ambitious and sustainable business practices is investing in renewable energy. Amazon may be best known as the world’s largest e-commerce company, but it is also the world’s largest purchaser of renewable energy, with a goal to power 100% of their operations with renewable energy by 2025….and they have already reached 90%! Now, we may not be at Amazon’s level, but we have some great examples and progress in our industry such as Messer-US who announced in 2022 that they are constructing an ASU that will operate substantially off of energy supplied from an onsite solar panel array (scheduled for a Q2 2024 onstream), and Desert Mountain Energy who shared at Gasworld’s 2023 Helium Summit that they have successfully integrated a 1.4MW solar array into their Helium Recovery Plant in the Holbrook Basin. However, one of the best long-term examples is WestAir Gases, an Independent Distributor based in southern California, who has been incorporating solar energy into their operations for over 10 years. The California solar industry has been active since the 1970s and has become the United States’ leading producer of solar energy. And with strong community support, declining solar costs, and state mandates to increase the use of renewable energy, WestAir has been able to leverage the state’s commitment and incentives to increase its commitment to solar and be more sustainable.

We use solar on most of our facilities – initially justified by grants and some reduction in power costs, and now our justification has shifted to lowering power costs; it has enabled us to run operations cost-effectively during extraordinary rate hike periods which occur regularly.

Andy Castiglione, President of WestAir

Distribution is a big part of the industries’ cost stack and GHG emissions. The pressure is on globally with heavy-duty vehicles (HDVs) accounting for over 40% of freight emissions and are responsible for up to 80% of the increase in tailpipe CO2 emissions over the past two decades. As a result, decarbonizing heavy-duty transport is emerging as a priority objective for local/national governments to meet transport decarbonization goals. Norway, the UK, EU, and California have all proposed or implemented bans on the sale of new diesel HDVs between 2030 and 2040. In response the majors have announced a few initiatives, with Air Products and Cummins agreeing to work together to accelerate the integration of hydrogen fuel cell trucks in the Americas, Europe, and Asia. Following a successful demonstration and pilot phase, Air Products plans to convert its global fleet of approximately 2,000 trucks to hydrogen fuel cell zero-emission vehicles.

Air Liquide and Total Energies recently announced the launch of TEAL Mobility, a joint venture to create the leader in hydrogen distribution for HDVs in Europe. TEAL Mobility aims to develop more than 100 hydrogen stations over the next decade (and about 20 this year), creating the first transnational European network of this size. Linde and Daimler Truck, over the past few years, have jointly developed a new process for handling subcooled liquid hydrogen, and dramatically improving the safety, speed and simplicity of hydrogen refueling. When compared to gaseous hydrogen, this innovative approach allows for a higher storage density, a greater range, faster refueling, lower costs and superior energy efficiency. These announcements all have great potential for improving GHG emissions in our sector, but they are still a few years from implementation.

Another company working with OEMs to help reduce their carbon footprint is Reliant Holdings, one of the largest independent CO2 producers in the United States. In addition to focusing on fuel economy which has resulted in miles per gallon (mpg) improvements of up to 20% in some areas, they are securing CO2 sources closer to their customer base (resulting in fewer miles driven), utilizing a blend of CO2 supply sources including biogenic CO2 and evaluating the use of non-traditional CO2 sources (i.e., anaerobic digesters) which have a lower carbon footprint than traditionally produced CO2.

A big part of our business is helping our customers use our products (CO2) more efficiently. Lowering the amount of liquid CO2 used to make dry ice, incorporating recycle, and sharing that knowledge with customers and helping them operate their dry ice facilities more efficiently helps to lower their carbon footprint.

Scott Vanderburg, President and CEO of Reliant Holdings

Sometimes the initiatives are the simple things that you find not only in manufacturing but in an office/administrative environment as well. Things such as encouraging more comprehensive recycling solutions beyond paper (i.e., plastics, glass, metals, e-waste, etc.), LED lighting conversion and leveraging motion sensors to reduce energy consumption, and so much more. These ideas all start with your employees, and to develop a culture passionate about sustainability, it generally begins by having a clear strategy and making sure sustainability is a key focus in everything the organization does. In addition, it is critical that all employees understand what sustainability is and its synergies with the company’s activity and their work. Chart Industries has demonstrated this approach by tying a portion of executive compensation to achievement of sustainability objectives, incorporating a sustainability “lens” on every new investment made and leveraging employee ideas on global sustainability committees to drive ideas through their respective organizations as well as share best practices globally.

I’m so impressed with the ideas and energy from our participants coming out of our 6 global Sustainability committees. Being self-formed, you know the individuals have a passion for this space which is great. For example, our Zero waste team has generated ideas to improve recycling, reuse, and waste management procedures globally as we strive towards ‘zero waste’.

Jillian Evanko, CEO and President of Chart Industries

Best Practices

Sustainability is a space whose levers seem to be changing frequently, but at the same time there are some “tried and true” best practices employed by companies, both within and outside our industry, which can help get companies started on this journey.

  • Educate – As you know, knowledge is power. So, the first step is getting knowledgeable about what sustainability is all about, what it means for the environment, your people, business, and of course your bottom-line. Unfortunately, there’s noise and politics in this space, so you need to educate yourself on the facts, the local/national regulations, and what your customers are expecting from you now and in the future.

It is important that you remove the politics and your own business bias from the analysis. Then understand your use of natural resources, specifically transportation and energy, and define the carbon footprint of your business, prior to any goal setting.

Scott Vanderburg, President and CEO of Reliant Holdings

  • Assess – Take a closer look at your operations and products. At a minimum, your business should be in total compliance with any laws or standards already in place, but research cost-effective ways to improve compliance, leveraging preventative and innovative techniques being employed today. This overlaps with the previous step but also assess/research global issues such as global warming, energy and fuel crises, and ecosystem decline to see whether your practices are a contributing factor. This will help guide what sustainability goals you set in terms of improvement. During this step, obtain employee input and support, and self-reflect by asking some “tough” questions such as what strengths does my business bring to the table that can play a unique role in sustainability, or do the companies I work with produce large amounts of waste/pollution?

It’s crucial to understand the market where you operate, and what’s happening with customers, suppliers, and regulations. Once you have that clarity, you’ll need to invest and unfortunately, there are no shortcuts and payback is low to start — but you will be setup for success in the medium to longer term.

Andy Castiglione, President of WestAir

  • Strategy/Vision/Goals – Sustainability should not be something that is separate from the business strategy. It should be part of, and instrumental in, helping to achieve the desired business outcomes. The goal is not simply to have a great sustainability strategy but rather a corporate strategy that includes sustainability as a core component. This adjustment in strategy must be led by the CEO and senior executives, have clear reasons and vision aligned with your business strategy, and be supported by specific sustainability goals/KPIs. Know what you want to achieve, and how you will measure your progress. For example, if your target is net zero by 2050, you will want to define what “periodic” progress towards that goal looks like, which is what each of the Industrial Gas Majors is attempting to demonstrate…so far. Existing processes such as capital allocation, R&D funding, portfolio management, and others may need to be “tweaked” to reflect this increased focus on sustainability.
  • Implement & Monitor – Prior to implementation, it is critical to create a clear data baseline to underpin each goal, establishing a system of record to document and monitor your progress. Assess and select which data you need to collect from around the business (i.e., areas like assets, distribution/storage facilities, and other infrastructure), so you can fix your current baseline and measure progress against your KPIs. Then launch your goals by aligning your organization, and creating a single system of record to track progress towards your goals. Prior to this step (and sometimes during it), it may become necessary to change policies and practices to further incent behavior to achieve goals. In addition, as with any transformation, communicating and celebrating progress will also be key to keeping people engaged and supportive.

When we began our journey, we got a lot of value from benchmarking and best practice sharing with other companies who were further along. One of the key takeaways for us was to set small, achievable goals that we could build upon.

Jillian Evanko, CEO and President of Chart Industries

When it comes to best practices for incorporating sustainability into your business strategy, there are many external sources for information/assistance. Some examples include most every global/regional management consulting company (McKinsey, Deloitte, Accenture, EY, etc.) which have dedicated Sustainability practices, Industry/trade associations, Non-Profits focused on sustainability (i.e., SBTI), and many state/provincial/regional governmental authorities. The options appear endless, but clearly the best place to start this discussion/journey is at your Advisory/Executive Board level and with your strategic customers/partners.

Next Steps

It is very clear that sustainability is no longer a buzz word amongst CEOs/Presidents but has risen to the point of being a top priority item. Multiple surveys of senior executives indicate that companies are making the commitment, but a minority percentage are taking bold action and tackling our environmental challenges now. Fortunately, our industry is an early adopter in the sustainability space, thanks in part to its portfolio of products (i.e., oxygen, hydrogen, nitrogen) that have been addressing environmental challenges at manufacturing companies for some time, and are being put forward to help address some of those challenges in the future (i.e., hydrogen). If you are early in your sustainability journey, this is a great time to engage your circle of advisors, and begin planning how to best engage in this space for the benefit of your company. I would not wait too long since companies/competitors are already attempting to leverage this space for their benefit. Are you ready to get started?



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