Green procurement program development at Elia Group
By Philipp von Normann
Philipp von Normann is a Lead Consultant who currently works on a project at Elia Group to develop the Green Procurement Program within the Group Purchasing Department. Elia Group is an international Transmission System Operator (TSO) for the High-Voltage Grid in Belgium (“Elia”) and Eastern Germany (“50Hertz”). The Green Procurement Program has the objective to include sustainability criteria in tenders and the selection of suppliers, thereby contributing to the sustainability ambitions of Elia Group.
Greenfish: What exactly is your role at the client?
Philipp: My main role is being the go-to person for buyers to develop sustainability criteria for their public tenders. Every equipment, construction contract, or service they purchase is obviously different and has its unique product characteristics, market situation, etc. The potential to make a more sustainable choice varies drastically. While we discuss each tender individually, my job is to make sure that there is a strategy and a common link with our objectives. I also provide guidelines on the methodology and the necessary calculation tools to translate our ideas into measurable parameters.
I am also in charge of a project to increase the scope 3 maturity, that is, the level of detail in the calculation of our indirect emissions from purchases. Last but not least, I am in continuous communication with internal stakeholders and suppliers at both entities (Elia in Belgium and 50Hertz in Germany) to shape, explain and adapt the storyline and the way of working.
Greenfish: What are your focus points when you work on sustainability?
Philipp: The main focus is on greenhouse gases (mainly CO2 and SF6). It’s not because social aspects such as safety for the client and their contractors are not important but because there is already a long and successful history of working on these topics – which includes mechanisms to reward suppliers for going the extra mile. What is new, however, is the idea to take the carbon footprint of a product and making it part of your decision process – be that a technology choice you make for yourself or selection criteria in a public tender.
Greenfish: What are some of the challenges you face when implementing sustainability in purchases at the client?
Philipp: Challenges are manifold and resistance is omnipresent. I would split them into three categories:
First, there are the internal challenges. I think this is by far the most underestimated challenge and not all clients like to admit that. Let’s be honest: All of this is relatively new. Companies need to find a way to organize themselves around the topic. Then, a culture change must take place. I am sure this applies to all companies at a certain level, but with TSOs and DSOs the challenges are exacerbated. They are traditionally rather conservative, hierarchical structures that have had to think in long time spans – and for good reason! The pace at which new elements are introduced into an already complex puzzle (think of digitalization just to name one) can be daunting to some – especially since there is immense pressure to implement infrastructure projects for the integration of RES (Renewable Energy Sources) in both countries. Adding sustainability considerations to all of this is far from self-evident. It’s not something than can be conveyed in one meeting. It’s a marathon, not a sprint.
Second, there are legal and procedural boundaries. This is where, in the case of Elia Group, Public Procurement really adds an extra layer of complexity. Not everything that makes sense can automatically be done. To give you an example: Let’s say you want your tender to consider how many kWh of electricity were used for the manufacturing of the product you want to buy – and with what energy mix. The idea of course being that a supplier that uses less electricity should get an advantage. Sounds simple enough, right? But does the supplier have this precise information, and can he prove it? If he has to guess it or extrapolate it, that does not hold up in an EU tender and you risk claims from competitors. Until you have internationally recognized certificates that can be audited, your hands are somewhat tied.
Then, there are challenges from the market. As a buyer, you will always have to strike a balance between your needs and what the market has to offer. Most of the electrical materials that Elia Group buys is off-the-shelf and the power of a single TSO to influence R&D for new products is quite limited. The answer here is coordination among European TSOs. Then, for some services, you struggle even to find qualified suppliers. The question then shifts from what you could impose to what you want to impose. The list of demands is already long and the risk of losing suppliers is real.
How would you describe the general situation of electricity utilities today with regards to sustainability?
Philipp: Without a doubt, TSOs such as Elia Group are fundamental to the energy transition. Without expanding the power lines, substations, and systems we need to include RES, we don’t stand a chance. On the one hand, this means that sustainability is already at the heart of their core activity – great! On the other hand, for someone who is trying to push even further, that means it can be hard to sell the fact that they now also need to reduce CO2 in the way they build new infrastructure. You can make the argument that building a new power line faster or cheaper actually saves more CO2 than the improvement you are proposing. But that is not always true. Only a close look at the numbers will tell.
Greenfish: What expertise and profiles are needed for Green Procurement?
Philipp: First of all, I think that Procurement departments are generally well-placed to take on a leadership role in driving sustainability forward. This is because it’s where everything comes together, and buyers are used to dealing with the complexity of bringing different stakeholders together. So, the skills needed are essentially those of a buyer. It’s neither purely technical, nor purely commercial, and it requires a fair amount of political insight. Green Procurement is as at least as much about interaction with your internal stakeholders as it is with your external stakeholders.
Greenfish: How do you see the importance of Carbon Accounting?
Philipp: I know it can sometimes feel like the search for better data is time consuming – especially at an early stage when you need to still build your story and don’t know yet how each data point will be used – but I strongly believe this is the way to go for companies. It has been shown that companies that know more about their emissions are also the ones that will be the quickest to decarbonize. You cannot manage what you cannot measure. Also, I see a clear trend that legislators and public customers (c.f. the Dutch CO2-Prestatieladder) will push clients to look at their scope 3 emissions in much more detail. Spend-based calculation methods are only the first step here and it’s easy to see their deficiencies when it comes to setting KPIs and targets.
At Elia Group, we concluded that taking SBTs seriously means raising the bar in terms of scope 3 data maturity. In April, Elia Group announced a target of 60% scope 3 calculation based on physical data by 2023. This is very ambitious. Linking this to the CAPEX plan and project forecast will allow them to control their scope 3 emissions much more precisely. But there is still a lot of work ahead of us.
Greenfish: How do you see Supply Chain Resilience in this context?
Philipp: I guess during the COVID crisis we were able to observe the downside of a highly efficient, on-demand global supply chain. While Elia Group did experience minor delays in the delivery of electrical equipment, the overall impact on their projects was insignificant and most infrastructure projects were able to carry through the pandemic relatively unscathed. I think this speaks to the resilience of their suppliers, most of whom are local or European with a long history of collaboration. This has paid out.
I often feel like Supply Chain Resilience is presented as this idea that companies need to start investigating much deeper and trace everything back to the mine, sweatshop, etc. If you have considerable financial resources and specialise in a particular commodity, yes, that may be the case. But we all know that for so many purchases left and right, especially for SMEs, this is not always realistic. Instead, you have to rely on Eco Ratings, which are not perfect but probably the next best thing. And this is where Green Procurement comes in. If you consistently opt for higher-rated suppliers, you will strengthen your supply chain while sending a clear message to all of your stakeholders.
Greenfish: What is your advice for clients who want to get started with Green Procurement initiatives?
Philipp: I know the task can seem daunting and it’s hard to know where to start. The good news is you can take it step-by-step, and you don’t have to do it alone. If you signal to your suppliers that sustainability is important for you, chances are they have already invested in greener products and will be glad that you are finally planning to give them an edge over their competitor who has not done the same. You can make a big step ahead by rewarding your suppliers to have targets of their own. Your scope 3 emissions are their scope 1 and 2 emissions. And if they decarbonize, so do you.
The next step is to look at what you buy (and not just from whom). This is of course much more difficult. If Purchasing is in the lead here, a lot of internal effort is needed as this is likely to touch at the core activities of your company. As all this takes time, the most important thing is to start the dialogue and keep it going. We all have much to learn from each other. If you want to join the conversation, I am always happy to engage. Let’s talk!
Philipp Von Normann | email@example.com