Marissa McGowan, Chief Sustainability Officer, L’Oreal NA Paul Moinester, Founder, Executive Director, Topo Finance Ann Tracy, Chief Sustainability Officer, Colgate-Palmolive Moderator: Molly Wood, Founder and CEO, Molly Wood Media; Co-chair, Fortune Impact Initiative
Category
🤖
TechTranscript
00:00All right, I am super excited about this conversation
00:04because I think we're gonna go in some unexpected directions
00:06and we're gonna try to be tactical
00:09because I think there is this sense
00:11whenever we talk about scope three
00:13that everyone goes, yep, it's really hard
00:14and we still haven't figured it out yet.
00:15So let's try to like make some strides
00:18toward figuring it out.
00:20I'm gonna jump right in with a conversation
00:22we have already been having, with apologies,
00:25about making sure that you understand fundamentally
00:29what your scope is.
00:30This is a question of nuance, focus, and new strategies.
00:33So Anne, talk about identifying and deciding
00:37what to focus on when you're looking at scope three.
00:39Yeah, sure, thank you and thank you for having me here.
00:44So scope three starts by breaking it down
00:47to its lowest level, granular,
00:49across your whole value chain.
00:51And Colgate, you probably know us
00:53from our oral care products, but also we have personal care,
00:57home care, and pet care products globally around the world.
00:59We sell in 200 countries.
01:02So we have a pretty broad footprint.
01:05And we've been measuring our reduction
01:07to greenhouse gas emissions as well as water,
01:11energy, and so forth for over 20 years.
01:14So we have a baseline.
01:15And with that baseline, we've been doing a lot of work
01:17to break down scope one, two, and three.
01:20So our footprint, and we're global, multinational,
01:24like L'Oreal, our value chain is,
01:28based on our products, is 15% upstream.
01:32So that's largely our purchased goods and services.
01:35It's the materials, it's the packaging
01:37that we buy to make our products.
01:40And then 5% our own operations.
01:44So our factories, some of our logistics
01:49in our own operations.
01:51And then 80% is when the consumer
01:54takes our product home and uses it.
01:55So every one of those 15, five, and 80,
02:00we have broken that down to very granular levels.
02:03So that took a lot of work.
02:05So that's step one is understanding
02:07your scope three at a detailed level.
02:10So if we wanna talk tactics,
02:13we're focused right now very much
02:15on that upstream piece, that 15%.
02:19And over the last several years,
02:21we have really grown and evolved our partnership
02:25with our procurement team.
02:28So their procurement team owns this.
02:30I mean, they're all over it.
02:32In fact, over those two years,
02:34they've formed a team within procurement
02:37called the Sustainability Procurement Team.
02:39It's about five people that are focused
02:42on our commodities, that are focused on our packaging,
02:46and working with suppliers on scope three,
02:49on reducing their emissions.
02:51And it's really interesting
02:52because we've broken those suppliers down.
02:55The top, I think, 200 make up 80.
02:59We use over 20,000 suppliers globally.
03:03But the top 200 make up 80 to 85, the 80-20 rule.
03:08So tactics, 80-20 rule, that works.
03:11Make up most.
03:11So we're focused on that first 200 suppliers.
03:15And it's very interesting
03:16because they really range in maturity
03:18in terms of where they are on their journey.
03:21So I'll leave it there, but that's where we're focused.
03:25Procurement as a partner is really critical.
03:27And that focus on upstream is super interesting.
03:32And then, Marissa, you, I think,
03:33have some good examples about focusing on the downstream
03:37and taking, again, some unexpected strategies.
03:42Well, thank you for listening to us talk about scope three.
03:46Similarly, we didn't wanna repeat ourselves,
03:47so I thought I would talk a little bit about downstream.
03:50But just to level set for the audience,
03:54I am the head of North America for sustainability.
03:57North America represents about 22% of L'Oreal's footprint.
04:02Of that in North America,
04:04about 50% is our packaging and raw materials.
04:08And then the next 30% is actually
04:10how we bring our goods to market.
04:12So that's digital marketing,
04:14point of sale and promotional materials,
04:16and our owned stores.
04:19So it's actually interesting.
04:20We had our initial SBTI in 2017,
04:24and this restated one showed us
04:26just what a huge part of our footprint
04:28actually bringing the products to market represents.
04:32So that's what, I mean,
04:33that's more than the 9% of our logistics and transportation
04:37or even the 4% of our business travel.
04:39So even just to level set that,
04:41so much of what we do
04:43is really how we bring our goods to market.
04:45So that was one of the big sort of learnings
04:47in this last iteration of our SBTI.
04:52I would say the tactical example I was gonna give
04:56of working on our digital advertising.
04:58So even just identifying who we are as a company,
05:01yes, we sell amazing products
05:02that hopefully you're all using,
05:04but we also are the fourth largest advertiser in the world.
05:08So we're seeing that come through in the footprint.
05:10So we started working on digital media
05:13and the campaigns that we do
05:14with probably some of our retail, e-tail,
05:17and media partners who may be in this room.
05:20And what we saw was very quickly,
05:22there was actually low hanging fruit.
05:24So we just did a mess with Lancôme TikTok campaign
05:28that if you haven't seen, please check it out.
05:30But we used a tool to let us actually
05:35decrease our emissions 41%
05:37versus a campaign of the same size and quality in the past.
05:40And that was things like shrinking file sizes,
05:43making fewer takes,
05:44transmitting fewer takes over to our partners
05:47who were actually, in this case, TikTok, putting it on.
05:51And we just didn't even realize that we could do all that.
05:54So I think scope three can be seen as a monolith.
05:57It's actually, like Anne said, breaking it down
06:00and then looking at areas of opportunity
06:02to bring business transformation to new groups.
06:04In this case, our CDMO,
06:06or our Chief Digital Marketing Office,
06:08and also then engage new partners like TikTok
06:11and some of our advertising partners.
06:14Before I come to Paul, actually,
06:15I wanna follow up on this question of SBTI
06:17and how it changes and helps you evolve
06:20your scope three strategy and realization.
06:22So can I come back to Anne on that?
06:24And then maybe you can talk a little bit more about that.
06:26Yeah, and we first, we got our,
06:29so we have a target to be net zero carbon by 2040.
06:32And to get SBTI approval for that target
06:37and your plans to get there,
06:40you work with them, it's science-based,
06:42it requires you to have interim targets.
06:44And we first got that approval in, I think it was 2022.
06:49And we were the first multinational
06:51global consumer goods company to receive that approval.
06:55And since then, other companies are joining, which is great.
06:59It's not easy, and Marissa can tell you.
07:02It was very difficult, a long slog of a year
07:05of back and forth with them.
07:07But one thing I wanted to add to what Marissa said
07:10was the importance of tools, digital tools,
07:13and investing in those tools.
07:15So she mentioned, I think it was called the Impact Plus.
07:19So for Upstream, we are in the process
07:22of implementing a tool called Watershed,
07:25which will help us to better track all of that data
07:30coming from the suppliers.
07:32It's immense, it's massive.
07:34And we have been doing this very manually,
07:36and that's untenable, we can't do that.
07:39Barely do it for 200 suppliers, let alone 20,000 suppliers.
07:43And then another tool we're putting in place
07:45is called M2030, which is a different platform
07:49that helps bring companies and suppliers together
07:53to work jointly on things like renewable energy projects
07:56and things like that.
07:57So the tools and the platform and the digital piece
07:59are really critical.
08:02And then of course, keeping with our theme
08:04of sort of evolving learnings,
08:05there are things that are hiding in your backyard
08:08that you did not know about,
08:09and that is where Paul comes in.
08:11Talk about what you're doing with Topo Finance
08:14and the magical scope three reduction
08:18that you could literally implement almost overnight.
08:20Yeah, thanks.
08:21And yeah, so Topo Finance is a nonprofit organization.
08:26We essentially are pioneering the field
08:28of climate-aligned treasury management.
08:30So that's a very wonky term, but to break that down.
08:33And don't call it that.
08:34Yeah, I know, I know.
08:35Terrible framing, terrible framing.
08:37But so, no matter if you're an individual organization
08:42or a multinational company, everybody,
08:4495% of Americans have banks,
08:46all companies have huge banking partnerships.
08:49And essentially, corporate treasury
08:52is kind of always sat outside the bounds
08:54of your company's climate objectives and goals.
08:59But what we sort of started looking into
09:01and what we found was that
09:02there's actually a huge emissions lever,
09:04excuse me, huge source of emissions,
09:06but also a huge climate lever
09:07that is the thing that's hiding right in your backyard.
09:09And so we developed some pioneering data and methodology
09:12that basically allowed us to figure out
09:14that for many companies,
09:16we spend a lot of time working in the tech sector,
09:17so companies like Microsoft, Apple, et cetera,
09:20their banking and investing
09:21is actually generating more emissions
09:22than everything else they're doing combined,
09:24scope one, two, and three.
09:25And the reason why is because for those companies
09:28and for a lot of companies
09:29that have a lot of money sitting in the bank,
09:32that money doesn't just sit there accruing interest.
09:35Banks take your deposits
09:37and then they lend it out across the economy.
09:39And the emissions generated by that is enormous.
09:41So banks, their lending is generating 700 times
09:44more emissions than everything else they're doing combined.
09:47And about 20% of all the money
09:49that's deposited in large US banks,
09:52when the Wall Street banks lend that out,
09:55that's flowing to the world's most carbon intensive sectors
09:57and generating massive emissions.
09:59And so what we found is that not only
10:02is this a huge source of emissions,
10:03but it's also this incredible climate lever
10:05because for companies like L'Oreal and Colgate
10:07who are working really aggressively
10:08to reduce all of their emissions,
10:09so much of your work is outside of your control.
10:12But because of the invisible hand
10:13that the financial sector plays,
10:15flowing money across the economy,
10:17it's actually the best tool possible
10:19that companies have is actually
10:20to reach their scope three emissions,
10:22is to go and talk to their banks
10:24and get their banks and the other assets
10:25that they have under management
10:27to be flowing towards climate solutions
10:29rather towards accelerating all of the things
10:31that are happening right now
10:32in terms of where money is flowing
10:33and the impact it's having on the climate.
10:35And does it also include potentially
10:37just using different banks?
10:38I mean, there's maybe only so much conversation
10:40you can have with your bank
10:41about how to use your corporate cash, I would imagine.
10:43Yeah, I mean, so to steal a term from Phil earlier,
10:49banking is boring AF until you actually realize
10:52the impact that it has.
10:54And so I'm a nerd, I've come into the banking world
10:59from the world of politics.
11:00But if you go and you look at a company's 10K,
11:03what you're actually, which is their financial report,
11:05what you actually see is a roadmap
11:07to decarbonization of the global economy.
11:09Because it's not just the money that's sitting in cash,
11:11but it's everything else.
11:12It's the municipal bonds.
11:13And so how can you be using green municipal bonds
11:16that are going towards climate resilience
11:17and climate adaptation in a town like Atlanta?
11:20How do you, we need to decarbonize the housing stock.
11:22Companies have millions and billions of dollars at times
11:24in mortgage-backed securities.
11:26How do we use those as a vehicle
11:27for decarbonizing the housing stock?
11:29And corporate debt securities, et cetera.
11:31All of these things are these potential vehicles.
11:33And so there's this really fascinating paradigm,
11:36which is we spend all this time thinking about
11:38climate technologies that we need to be adapting.
11:40How can we change things culturally?
11:42But really, it's actually the wiring
11:44in the financial system that needs the most innovation.
11:46Because we need to move over $200 trillion
11:49into climate solutions over the next 30 years.
11:51And the best way to do that is to use the money
11:53that we all have.
11:54There's over $7 trillion in corporate cash right now
11:56in this country, and it's generating indirectly
11:59about what represents about 20% of all emissions in the US.
12:03And so if companies can step up
12:06and start engaging with their banks
12:07and start working with their banks
12:08to really drive innovation,
12:10not just in terms of where that lending is going to,
12:12but also how we're viewing all these different
12:14multiple financial products,
12:15it really is this boring but very fascinating way
12:18to rewire the world to drive climate transformation.
12:21I mean, honestly, aren't all the best solutions
12:23like kind of the boring hardware?
12:24Yes, exactly.
12:26Sorry.
12:27Except Fusion, which is super sexy.
12:31This raises this question for me about,
12:33as we're talking about breaking these problems
12:35into their component parts,
12:36and engaging with different parts of the company, right?
12:39Like you wouldn't have necessarily thought,
12:40oh, I have to engage with my art department
12:41on smaller file sizes.
12:43Now I have to talk to the CFO's office more than I ever did.
12:47When you hear this, like how does it imagine,
12:49I'll start with you.
12:51How do you imagine re-engaging
12:53with different parts of the company
12:54to have different conversations
12:55to uncover all of these levers potentially?
12:58Well, I love the opportunity.
13:00I think as a practitioner and a team leader,
13:04you always have to be conscious
13:06that when you're moving into a new area,
13:08so it could be engaging your finance teams,
13:10which I know in Anne's case,
13:11you have a great relationship, we do too,
13:14but maybe not on this conversation.
13:16And it may not involve treasury,
13:17or we may historically work more with the controllers
13:21than the treasurers.
13:23So just being conscious
13:24that you're gonna have to start the conversation
13:26from the beginning.
13:28Probably it's not the same conversation
13:30you had a few years ago
13:31when you started engaging other parts of your business,
13:33but it is starting over.
13:35And I think I see it with my teams,
13:36where they get frustrated
13:37that they're having the same conversations,
13:39but I say, but you're reaching broader audiences
13:41and new audiences.
13:43And as a result,
13:43we need to understand their aspect of the business,
13:46their challenges, their needs,
13:47so that we can co-create solutions
13:48to do things like decrease emissions and file sizes.
13:52And they love it too,
13:54because it's actually less work for them
13:55rather than 150 renderings of something
13:58you can do maybe 75, right?
14:00So there are a lot of opportunities.
14:03I think you mentioned earlier, Molly,
14:05this idea of actually seeing Scope 3
14:09as a window into something.
14:10So having set the first SBTI in 2017,
14:14and then our revised SBTI being validated in 2024,
14:18I think the most interesting thing
14:19was actually seeing the shifts in the market.
14:22So if you look at our footprint,
14:24it shows that digital media is significant
14:27in a way that it wasn't seven years ago.
14:30I think on the flip side,
14:32we're seeing the increased importance of brick and mortar,
14:34which we all thought after COVID,
14:36oh no, it's just gonna be e-commerce.
14:38That's not the case, right?
14:40So it's also interesting to look at
14:41as a window into who we are as a business.
14:44So we're both a producer of product
14:46and a marketer of products.
14:47And wow, let's see how the business landscape
14:50has shaped or shifted,
14:51which in some cases, it really hasn't.
14:53It's still brick and mortar.
14:55And in other cases, it really has
14:56in terms of reaching the consumer through digital.
14:58So I know I went off a little different from the question,
15:01but I think it's just a neat,
15:04talk about nerd, Paul, we're on a Scope 3 panel.
15:07This clearly excites me.
15:09We're all a bunch of happy men.
15:10We're here with our people.
15:14So similar to Marissa,
15:18in order to tackle Scope 1, 2, and 3,
15:21every person in the company has a role to play, everyone.
15:25I joke at our strategy,
15:27I'm the master of none, keeper of all,
15:28because I feel like I have to keep my arms around everyone.
15:31So every function.
15:33And our understanding relationship roadmaps
15:36with different functions are at different stages.
15:40For me, and this is,
15:41we're wrestling with how to best do this,
15:43but I think education is critical as a first step.
15:47But pleasingly, just to focus more on
15:50the finance, our finance function,
15:54which includes the controller, the treasurer,
15:56the CFO himself, et cetera, audit team,
15:59who are now auditing ESG elements across our businesses.
16:03We have been really building that relationship.
16:07I would say our procurement team is the most mature,
16:10but finance is quickly following.
16:14Pleasingly, we are engaging our treasurer.
16:17We are now looking into,
16:21I love what Paul,
16:22we've already agreed to talk after this,
16:24because it's amazing what he's uncovering, as we said.
16:28We're looking into things like funds
16:31that directly impact our target.
16:33So things like a water equity fund
16:35that will help us with our target
16:37to reach people with fresh water.
16:39We have a target like that.
16:40So these are good funds,
16:42but what he's talking about
16:43goes much deeper and broader than that.
16:46So I have a treasurer who's very interested in that,
16:49and she and I have been jointly working on something
16:51called an impact investment framework to help guide us.
16:56And it's basically a decision tree
16:57on what we do want to invest in, what we don't,
17:00how to use our cash.
17:01But again, this whole idea of engaging banks
17:04broader than that is something I'm sure
17:06she hasn't really thought of.
17:08We have a lot of cash, so how do we best put it to work?
17:11Yeah, and it's a really common thing.
17:13And I mean, we go and we're actively engaged now
17:16with companies with over $600 billion in cash
17:18and investments, helping them align their banking
17:20and investing with their climate values.
17:21And almost to a company, this is new.
17:24And it's part of what makes it so exciting
17:26is it's this new powerful lever
17:27that you didn't know was there before.
17:29And so a lot of the work that we do actually
17:31as a non-profit is we provide free advising
17:34and consulting services to these companies.
17:35And so if you're a company out there
17:37that wants to tackle this, please find me after the call.
17:40At paul.topofinance.org, you can email me.
17:43But we, just to plug it a little bit,
17:46on the stage, you have to take the shot when you got it.
17:48But.
17:48Shoot your shot, man, shoot your shot.
17:50But a lot of the things that we do
17:51is really just having and setting up
17:53these initial conversations, because this is new education.
17:56And so the sustainability team doesn't really understand
17:58how the treasury team functions.
18:00The treasury team doesn't understand
18:01the sustainability side of this.
18:01And so, so much of what we do
18:03is setting up those initial conversations
18:05and creating alignment around it.
18:06But also really understanding that the treasury function
18:09is foundational in all of this.
18:11And that this isn't about divestment.
18:12This isn't going and yelling at your banks
18:14and saying, we gotta get out of fossil fuels.
18:16It's really about developing a supply chain partnership,
18:18just like you do with all your other supply chain partners.
18:20And just taking that same lens of,
18:22how do we add a climate lens?
18:25How do we add a social lens to our banking
18:26and investing on top of our core needs
18:29for liquidity, services, et cetera?
18:30Amazing.
18:31And I have to end it there, but I will note,
18:32and Paul will probably tell you later,
18:34that future regulations are likely to address this topic.
18:36Yes.
18:37Thank you so much.
18:38Thank you. I appreciate you.
18:39Woo!