We cannot fumble the grand transition

The path to net-zero is hard already. Backsliding will make it impossible.

Earlier this month, I noticed an FT column that captured a development I have been watching with growing unease. In just the past few weeks, Shell has reneged on its climate commitments , while financial giants including Invesco and JPMorgan exited the Climate Action 100+ coalition of investors. Meanwhile, the US’s SEC was forced to seriously water down new corporate reporting rules.

There are several reasons for this backsliding: governments are wavering in their green commitments following stiff resistance from the affected industries, and companies are realizing that cutting emissions is a long game that extends far beyond the usual time horizons used in company planning. Legal and financial concerns also play a role. For some investors, particularly pension funds, the threat of litigation for allegedly violating fiduciary responsibilities is discouraging capital investments in the climate transition. Meanwhile, the current lawsuits in the U.S. that seek to derail basic transparency on emissions underline just how veraciously those who fear short-term losses are opposing the necessary transformation of our economies. Meanwhile, regulatory divergence puts pressure on companies to pick a lane and discourages them from making commitments.

We simply cannot afford such lethargy and backsliding when every tenth of a degree of global warming counts.

A global temperature rise of 1.5 degrees will create huge yet hopefully surmountable challenges; a global temperature rise of 3 degrees, however, would be catastrophic , slashing the yields of major crops, devastating biodiversity, and increasing instances of flooding and drought.

There is only one way of averting this: every company needs to cut its emissions in half every ten years – by adapting its technology and processes, as well as switching to renewable energy sources – and to offset its remaining emissions via credible means. At Bayer, we are proud that we are on-track to achieving this with an absolute reduction of 42 percent in our scope 1 and 2 (i.e. “direct”) emissions by 2030. Measures like our shift to renewable energy, and our €500 million investment to improve energy efficiency in our own plants, are driving this success.

Scope 3: the ‘other’ emissions

But as matters currently stand, keeping our own house clean – looking only at our own Scope 1 and Scope 2 emissions – isn’t enough. Companies that are serious about reducing their overall carbon emissions must make look beyond their direct footprint and reduce their Scope 3 emissions, too – those nebulous “other” emissions that occur in the upstream and downstream activities of a company’s value chain. Scope 3 emissions include the emissions of all goods and services (materials, components, transportation) which a company purchases from its suppliers, as well as all emissions associated with customers’ use and disposal of its products. These “behind-the-scenes” emissions often contribute up to 90% of a company’s overall emissions footprint – which is why they are mission-critical to our and others’ net zero objectives.

Measuring and reducing Scope 3 emissions is a complicated process. Not only does it require navigating a complex web of supplier relationships, but it also requires companies to scrutinize their activities in two directions simultaneously: backwards and forwards. Looking backwards means looking at the emissions generated in a company’s own operations and by their suppliers. To reduce these, we need transition. Looking forwards, on the other hand, means looking at the emissions generated further down the line by our own products and services; to reduce these, we need transformation.

Transition and transformation are intrinsically linked and co-dependent.

Innovation begets innovation, so if we slow down the transition, we will also reduce the transformative opportunities it brings – societal, environmental, economic – making it even harder for us to limit rising temperatures. Vaclav Smil writes about this powerfully in Grand Transitions , noting that such a slowdown is usually further aggravated by societal forces that fear losing out in the wake of a successful transition – precisely what we are seeing playing out right now.

Partnership is key to Scope 3 reduction

Companies need to remain hopeful and ambitious in their climate commitments. At Bayer, we struggled with achieving our Scope 3 targets in 2022. Against this backdrop, we were therefore all the more excited to see things take a turn for the better: as we announced in our most recent sustainability report , we are on track to meet our net-zero commitments in Scope 1, 2 and 3 emissions (the report also explains our science-based targets and how we’re going to meet them).

This progress is in no small part due to our collaboration with players throughout our value chain.

Our Scope 3 emissions are another company’s Scope 1 and 2, so our role is to collaborate with our partners and suppliers to reduce their emissions. That means working with them to buy material, services and goods with the lowest carbon footprint. Initiatives which we have already been implementing at Bayer HQ – circularity, recycling, reducing business travel, less waste, commuting more sustainably – are those that we will now help our partners to achieve.

Our Scope 3 Decarbonization Accelerator is helping ramp up our efforts. With the Accelerator, we first identified the suppliers that account for the largest share of our Scope 3 emissions, before taking some basic steps to achieve swift reductions, and publishing a code of conduct to guide our suppliers’ sustainability efforts and targets. We are now codifying many of these into contractual obligations.

Simultaneously, we are driving supply chain cooperations like the Together for Sustainability Initiative, and incorporating an engagement plan into the Accelerator to boost suppliers’ buy-in on emissions reduction, share insights on carbon reduction strategies, and provide them with training and tools. This year, we remain focused on strengthening our supplier networks in this way, with the ultimate goal of making sustainability concerns a crucial part of our decision criteria in sourcing.

Corporate players must double down on commitments – and on implementation

We are in the minority to be even measuring our Scope 3 emissions , let alone implementing such targeted measures to reduce them. While we are proud of this distinction, it also feels likes there aren’t many doing the same thing. In all climate-related activities, a company cannot effect widespread change by itself no matter how big it is. Everyone must do their part. In an ideal world, of course, all corporate players would minimize the emissions from their own operations. This would greatly simplify the reduction of Scope 3 emissions and free up the innovation and investment resources required to unlock new low-carbon solutions and value chains (exemplified by CoverCress , for example – which benefits farmers while also allowing airlines to reduce their greenhouse gas emissions). But we are not there yet.

So for now, corporations need to double down on commitments to achieving science-based climate goals, primarily by finalizing and implementing comprehensive climate transition and adaptation plans.

At Bayer, we are working on this. It is not easy to identify a best practice – currently, different companies’ plans vary significantly in terms of structure and content – so as we finalize and implement the Bayer transition plan, I invite my community of readers to share their ideas and thoughts on what a robust and ambitious transition plan should look like.

We’re all in this together.