BT is adding a game-changing emissions reduction clause to supplier contracts

Holding any global temperature rise to below 1.5 degrees Celsius, the level needed to save the most low-lying islands from rising sea levels and ward off dangerous shifts in global weather patterns, depends on companies' getting to grips with their supply chains.

As the former U.N. climate chief and one of the foremost architects of the Paris Agreement Christiana Figueres told business leaders last month, getting to 1.5C will require "exponential progress" on emissions reduction. Supply chains offer that opportunity, she said.

British telecoms giant BT knows this and is banking on exactly that exponential power to help it deliver its ambitious goal of cutting supply chain emissions by 29 percent by 2030, as part of its Science-Based Target to cut its overall carbon emissions by 87 percent per gross unit of value by the same date.

Earlier this month BusinessGreen got an exclusive preview of what carbon cutting on this scale will look like, with an in-depth look at a pioneering new project BT is trialing to drive emissions reductions across its supply chain.

In a world first for supplier agreements, BT is deploying a new contract clause that will require suppliers to benchmark their emissions for the supply chain of products and deliver emissions reductions over the term of the agreement.

Chinese telco technology giant Huawei, a major supplier of network hardware to BT, is the first to trial the new clause. In 2016 it signed a fresh five-year contract with BT to supply networked products, with the new emissions clause inserted.

But even though BT has worked closely with Huawei over the years on the sustainability agenda, it didn't immediately jump at the chance to volunteer for this new pilot project, recalled Tony Roy, head of governance and sustainability in BT's procurement team.  

"Initially the reaction was very wary, because they didn't know what they were letting themselves in for," he admitted. "But once we worked up the concept with them, and what steps were going to be taken, they were quite receptive."

This was particularly the case once the "onerous" benchmarking was completed, he said — a task that required Huawei to baseline the emissions associated with supplying network products and identify best practice energy saving measures it could undertake, based on an international protocol.

"There was a fair amount of hard work that went in there on both sides," Roy told BusinessGreen. "But once having done that you can start seeing the opportunities. Having done the baseline, they spotted some of the opportunities straight away and wanted to fix them at once. And it was us who said, 'Hang on, let's do it in a methodical manner.'"

As it turned out, the exercise uncovered some fairly significant opportunities. All told, over the five-year course of the agreement, Huawei expects to save 131,000 tonnes of carbon dioxide equivalent (CO2e), savings worth 1.5 times the emissions associated with the manufacture and supply of the BT products. "It is even better than we originally estimated," Roy admitted.

Most of the savings will come from Huawei's suppliers switching to LED lighting, more efficient air conditioning and other energy-saving technologies. As well as saving carbon, this will deliver considerable cost savings for Huawei and its suppliers as well, a key driver in getting it to sign up to the clause, Roy said. BT reckoned the clause has delivered an 8 percent reduction in energy spend across the supply chain, with suppliers typically securing a return on investment on any upgrade investments within one year to 18 months.

But alongside the emissions and cost savings, the contract clause has another, very important impact. It catapults the sustainability discussions right to the top of the executive agenda in meetings between Huawei and BT, and also puts legal pressure on Huawei to press its suppliers further down the chain to make savings — something a CDP report from earlier this year flagged as an area where businesses are struggling to make enough progress.

"The reason we put it in the contract is because then it becomes a contractual obligation on the supplier," Roy said. "Contractual obligations are measured on a regular basis, so with some suppliers like Huawei there will be a monthly meeting where you measure a number of things that we have in the contract." Sustainability performance is now one of the key measures, he said. "On the monthly calls it will be 'Right, item No. 10 is sustainability — what are you doing about it?'" he said. "And what gets measured actually happens."

Gabrielle Giner, head of sustainable business policy at BT, agreed. "This has put sustainability on the executive agenda," she tells BusinessGreen. "That is what is different. It is in the contract, we are talking about it on a monthly basis."

With the BT-Huawei contract running until 2021, there is still some way to go before the pilot can be fully measured. But with such impressive carbon savings in the pipeline, BT is already looking to expand the scheme to its other suppliers, starting with its largest product manufacturers, where the emissions savings are likely to be most significant.

Meanwhile, Huawei is seeing where it can apply the learnings in its own supply chain. "As a long-term strategic partner to BT, Huawei was very pleased to be able to work with them on the implementation of this carbon saving initiative," the firm said. "The results of the approach have been excellent, showing a positive return for both Huawei and our suppliers. Huawei is now looking at how we can implement these methodologies in our supply chain and continue to collaborate with BT on further sustainability savings initiatives."

At the moment, the clause is a voluntary option for companies to opt in to, but eventually the aim is to make it a mandatory part of supplier contracts. "I want to get to a critical mass first, with at least 20 to 30 suppliers going," Roy said, explaining that BT also will need to assess the level of resource needed to measure progress from its side.

But this vision all depends on Roy and Giner being successful in signing up a host of other major suppliers — many, like Huawei initially, may still need a little convincing.

"Some suppliers are initially quite wary about this — that's the typical reaction anyway," Roy acknowledged. "Many huge global suppliers have said, 'Yes, this is unique enough for us to take part.' Others have said this will require a certain amount of investment, time and resource, so they've declined for now, but that could change in the next contract."

Support from other BT executives is proving important to addressing suppliers' concerns, Roy added. "It's not just Gabrielle [Giner] and I working in isolation — the buyers, the VPs, they are all completely on board with this," he said. "They bring about a lot of influence. So it's a two-pronged approach with the supplier." And perhaps once firms see the mutual cost savings potential delivered by the Huawei pilot, they will be knocking on BT's door to insert the new clause, rather than the other way round.

A few sentences of text inserted into a dense legal document might not seem at first glance like a particularly game-changing move from BT. But if the trial with Huawei performs in line with expectations, it is set to deliver a snowball effect right down the telecoms giant's supply chain. It seems BT might have hit on a formula for just the kind of exponential climate progress Figueres and her fellow green leaders are looking for.