How digital transformation drives sustainability: The fast lane on the road to industrial carbon neutrality
Global warming risks are difficult to address because they are long-term in nature but require short-term action to reduce their impact. As a result, governments across the globe are now imposing targets on manufacturing industries that will force a transition to a low-carbon economy. Industrial organizations, according to the Environmental Protection Agency, are responsible for at least 21% of global greenhouse gas emissions. Therefore, they are under pressure from both consumers and governments to rapidly achieve emissions reduction targets. As a result, many companies are looking to digital transformation as a possible approach for achieving those goals.
Companies in Asia Pacific show high awareness of climate-related issues. According to CDP Global, half of the 2,511 companies (54%) that report through CDP are integrating processes for identifying, assessing, and managing climate-related issues in their overall risk management. Australia and New Zealand have the highest rate (58%) of companies that report using climate-related scenario analysis to inform their business strategies, followed by Southeast Asia (53%), suggesting an emerging leadership across the sub-regions in Asia Pacific. Such sustainability-driven changes will require reallocation of capital, a reevaluation of industrial processes, and a rapid acceleration in digital transformation. Those industrial organizations who fail to adjust to this new world will likely cease to exist.
Why digital transformation and sustainability work hand-in-hand
At Schneider Electric, sustainability has long represented a core corporate strategy pillar. Since 2005, we’ve saved our customers an estimated 120 million tons in CO2 emissions. Schneider Electric experts work with supply chain partners to identify and extract energy savings and sustainability benefits throughout the entire product creation, delivery, and support lifecycle. In recognition of Schneider Electric’s performance in the realm of sustainability, Corporate Knights, the world’s largest circulation magazine on clean capitalism, has recently named Schneider Electric the #1 sustainable company on their Global 100 index. We attribute much of this success to our ability to digitize our operations. Schneider Electric earns 70% of its revenue selling sustainable solutions, while 73% of our investments are directed toward developing newer, even more sustainable solutions.
Many of our industrial customers have asked us to share our expertise in both sustainability and digital transformation to help them address both their greenhouse emissions and business transformation challenges. As we approach these organizations, we help them (1) to implement digital transformation pilots and (2) to focus on the longer-term strategy of acceleration and scaling of these transformations.
Tactics and strategies for transitioning to high sustainability
The fundamental process of facilitating these transitions to more digitized and sustainable operations involves ambition-related workshops, digital maturity benchmarking, sustainability prediction model development, and a focus on generating exceptional experiences for customer personas. Such exercises reveal the answers to questions such as:
- “Do you have an agile business?”
- “Can you improve return on investment?”
- “How do you manage assets?”
- “How sustainable are your operations?”
These tactics then support the traditional business strategy pillars of efficiency and profitability, reliability and performance, and safety and security – and then add a fourth core pillar: sustainability and business transformation.
Using data to meet 3 major challenges
Implementing these defined strategies is accomplished by focusing on three challenges and on the ways data capture, data consolidation, and data analysis can help overcome the business obstacles that these challenges represent:
- Marrying sustainability to Industry 4.0-5.0 – End-to-end manufacturing processes are the drivers that create the data that stakeholders need to make improvements. The extraction and analysis of this smart data via digital technologies helps to reduce emissions by not only addressing process inefficiencies but also by revealing sustainability opportunities. In most organizations, the current symptoms of insufficient data include manufacturing delays, substandard product transportation, inefficient processing, unnecessary inventory, unneeded product movements, product defects, and over/under production. Forward-looking organizations are finding ways to use the same digitization-enabled methodology to focus on sustainability improvement.
- An acceleration in emissions reductions – The year 2030 is only nine years away. Many industrial organizations have already calculated whether they will achieve government-mandated sustainable targets by then. Any shortfall will result in either significant fines, or in substantial purchases of carbon credits to avoid those fines. On the other hand, industrial organizations that achieve highly sustainable operations will find themselves in the driver’s seat. Blackrock, an international investment management organization, points to strong evidence that companies with better environmental, social, and governance (ESG) profiles, outperform their peers. Tesla, a leading manufacturer of electric cars, is already generating billions in supplemental revenues through the sale of environmental credits (Tesla has brought in $3.3 billion from regulatory credits over the last three years, with $1.6 billion — just under half — earned in 2020 alone). Companies have been focusing on sustainability projects with short payback time. It is time to take bold steps and look to business projects that have a medium- to long-term return on investment.
- An assimilation of digital transformation – Sustainability and digital transformation benefits go hand-in-hand. To reach true carbon-neutrality, businesses require digital transformation. That’s because the new data generated through digital transformation results in corporate creation of new processes that drive higher efficiency, agility, and sustainability. Digital transformation drives business growth enablers such as real-time visibility, predictive and machine learning, detailed performance analysis, IT/OT convergence and synergy, and the deployment of data-enabled IoT platforms. The rewards of improved data quantity and quality include access to the precision management techniques that enable high sustainability operations.
For more information
To learn more about how your company can embark on a journey that embraces the benefits of sustainability-centric business practices and true digital transformation, read our blog series and contact Rik De Smet.