OSRAM becomes climate neutral by 2030

The OSRAM Podcast: Episode #5 with Jochen Berner

Welcome to the Photonstudio, the OSRAM Podcast. My name is Dieter Schierer, I am an OSRAM employee in the digital communication department and I am very pleased to moderate today's episode. At the end of November 2019 you could read in a press release that OSRAM will be climate neutral by the year 2030. And barely two months later, our company was named the most sustainable light producer in the world at the World Economic Forum in Davos and even made it into the world's top 20 most sustainable companies in the Corporate Knights Rating. All this has aroused my curiosity because I want to know how we shape our climate strategy, why sustainable companies are attractive to investors on the capital market, what it means for a manufacturing company to be climate-neutral and why we chose the year 2030 of all years.

To answer these questions, I invited my OSRAM colleague Jochen Berner to the Photonstudio today. He heads the sustainability department at OSRAM and, together with his team, is directly responsible for OSRAM's success in the area of sustainability. I am very much looking forward to an exciting conversation!

Dieter: Jochen, it's great to have you with us in the Photonstudio today!

Jochen: Thanks Dieter!

Dieter: Your title is Head of Sustainability, which means that you head the sustainability department at OSRAM. How can one imagine your work?

Jochen: Our work can be divided into thirds. One third is very busy looking into the past. Here we look at how the company has behaved on certain issues and how we have worked. We then put this information into our reports. This can be the voluntary sustainability report, which is now a relatively large part of the formal annual report of OSRAM Licht AG. But it can also be in the reporting to customers. They are sending more and more questionnaires because they are interested in the way we manufacture our products. A very large part is also the subject of capital market communication. Here we provide information for investors who are interested in more than just financial figures. In the other two thirds of our work we deal with the future and sometimes with the very distant future. Here we look at what the world will probably look like in the future and what significance this will have for OSRAM. This may be technological, but it may also be that we see certain social developments. Or that we see that there are legislative initiatives somewhere that are changing the framework conditions of our markets. From this we try to deduce what it means for us, what opportunities it offers and what risks are hidden here.

Dieter: We saw and read a lot about sustainability in the press last year: Riding e-scooters, avoiding meat consumption, buying clothes made of recycled materials, etc. So my impression was that sustainability was at the top of the political agenda last year. How do you actually travel privately? You certainly don't go shopping with plastic bags as the head of the sustainability department, do you?

Jochen: In fact, it's going in that direction. I didn't have to make a contractual commitment to stop shopping with plastic bags, but when you deal a lot with issues like resource scarcity, working conditions and supply chains in your job, your job also has an impact on your private life. But I am interested in such issues anyway. That certainly became even stronger when I spent almost four years travelling in East Africa for OSRAM and was able to see first-hand many possible environmental impacts and also social issues. So it goes without saying that it did something with me. So I don't have to do anything, but I am already dealing with it. For example, two years ago, I started an attempt to do without meat, which surprisingly worked out very well. I also try to buy clothes with organic cotton, but not everything is organic cotton. I am already trying to orientate myself strongly towards it, both professionally and privately.

Dieter: At the end of November last year we were able to read a really great message in the press: OSRAM will be climate neutral by 2030! How exactly should we imagine this? We are an industrial company, we produce and have plants that consume electricity and emit CO2 into the air. So how can we actually achieve this goal?

Jochen: Perhaps the first thing you need to do is to briefly distinguish which part of the value chain is meant by this commitment. This is about our direct business activities, which are to become climate-neutral. If you imagine this in a picture, OSRAM would be a factory surrounded by a wall. All CO2 emissions within our walls, e.g. from burning gas, petrol or diesel, should be reduced to zero. But also emissions caused by electricity, i.e. when we buy electricity. Formally, the emissions do occur outside our walls, but they are attributed to our operations in the factories. We want to reduce emissions in these two areas to zero! A lot can be achieved by looking at what energy consumption can be avoided. In other words, what you can do without through better efficiency measures or by changing processes. Some things may not be completely avoidable, sometimes you just need an open flame for example, it is a bit more difficult to get it right. But we have switched over to 100 percent green electricity in the German plants as of January 1, 2020. So we have already taken these emissions out, but we are not yet ready with gas, for example. But there too, a lot is happening relatively quickly and green gas is now available. So it's our turn with Purchasing and our colleagues to take a closer look. But we have now made the commitment and the target is clear. But what this commitment does not include is everything outside our walls. In other words, emissions that are generated before us in the supply chain at our suppliers for the production of primary materials. And what it does not include are emissions generated at the customer's site through the use of our products. We are also working on both parts, but the commitment we communicated at the end of 2019 includes everything that is generated within our walls through the direct business activities of OSRAM.

Dieter: This means that the electricity used for production in our German plants comes 100 percent from renewable energy?

Jochen: Exactly, I can't go into too much detail about that now, but the electricity is mainly generated by hydropower. So it comes from renewable sources and produces no emissions.

Dieter: Okay, I understood that, so the electricity is 100 percent green. And are you also a consultant for production processes? So your team looks at certain production processes to look for potential savings? Or is it no longer your responsibility?

Jochen: At some point, the limits of our responsibility as a sustainability team are reached. When it comes to implementation, the local business units are in demand. But we also have a central team that does environmental management and provides very concrete advice. Here there are opportunities for efficiency programs that can be started centrally, but also in the plants themselves. In other words, there are many possibilities and many people involved in this process. I might have to make a brief comment on green electricity. Here it is important to understand that it was relatively easy in Germany. In other countries, where the availability of green electricity is much worse, it is of course more difficult. In addition, we are also active in countries where you can't have much influence on the electricity and have to take what you get. There are other ways of offsetting these emissions and therefore the time horizon we have chosen. These 10 years are not self-running, they are sporty! They require a lot of effort from engineers when it comes to efficiency. These years also depend very much on purchasing, which is very committed to this topic when it comes to exploiting this market potential in the first place. Where can I get what at what price? What is economically feasible? What are other possibilities? This can also be in-house production or there are also companies that participate in wind farms. So there are also many possibilities how to procure it. It's not so easy to just flip a switch or buy another tariff, but behind it there are quite a lot of efforts of many dedicated colleagues.

Dieter: That explains why the target was set for 2030 and not 2021. You meant that everything within our walls we can directly influence. But there are many primary products and certain parts that we purchase from our suppliers and process further. Do we have no influence at all or how does that work?

Jochen: The further away the supply chain is from us, the more difficult it becomes to maintain transparency here. However, purchasing has obliged our suppliers to meet certain criteria for years. These include governance issues, compliance issues, anti-corruption, but also working conditions or the ban on child labor. There are a whole range of social criteria and, of course, environmental management systems that must be met. That means you can already exert influence. That would now be the level of the framework agreement and then you can go even deeper and request concrete data. I can give you an example from us as a supplier: Here we were recently confronted by a customer who wants to have the entire supply chain CO2-free. They want us to provide them with data so that they know what emissions are associated with the purchase of our products. And we act in the same way towards our suppliers.

Dieter: You explained that well, it is actually clear that our customers also want to know how sustainable we are. And how sustainable OSRAM is can be seen when you read the press releases from January 2020. Every year at the World Economic Forum in Davos, the most sustainable companies in the world are honored by the Canadian research company Corporate Knights. As the most sustainable company in Germany, OSRAM has managed to make it into the top 20 worldwide. And correct me here if I'm wrong, but we are ranked 11th and in addition, OSRAM could be happy about the award as the most sustainable light producer worldwide. Can you explain to us what kind of awards these are and what criteria are checked here?

Jochen: Indeed, we have received these awards! Each award has its own focus and the evaluation is based on its own criteria and weightings. In addition, there are many rankings and ratings in which we also participate and do well. As a rule, all three major areas ask questions. One is the environmental area, where these evaluators want to know: what are our management systems like? What are our goals? Do we supply data and make it transparent? Do we report to the outside world only progress or also setbacks? Can we explain them? What does a long-term trend look like? That's what they all have in common, environmental issues and social issues. You mentioned some of them earlier: Let's start with the supply chain, working conditions, freedom of association, child labor and so on and so forth. And then there's the governance part. It's about salary levels, the proportion of women in management and the broad workforce. There is also the part about compliance, anti-corruption and bribery. And out of this whole bouquet of KPIs, at the end of the day, there is an evaluation. And what that evaluation looks like depends, of course, on the question and the weighting. Of course, the various rankings and ratings are different, which means that you get different scores depending on the rating.

That sometimes causes a bit of confusion. But if you look more closely, you can understand why, because some focus more on environmental issues and others more on governance. But basically it is usually a rather complex evaluation methodology. One difference with the Corporate Knights Rating, for example, is that it is cross-sector. In other words, we are compared here with automotive groups, pharmaceutical companies, etc. In other rankings and ratings, on the other hand, we are compared with companies that do similar things to us.

Dieter: This award is proof that we have done good sustainability work in recent years and are now doing so. Our competitors were also DAX-listed companies, so you can be proud of the work we have done, right?

Jochen: Indeed, we can be proud of it! We wanted to celebrate this in the team, but then we had to deal with several appointments and now this home office story came up. But you can drink to that with an apple spritzer. You just shouldn't overrate it, it's a fine line. This is a snapshot, mostly based on the figures and the status from the last financial year. We are changing as a company, as you can hear from other podcast episodes. We are in an insane dynamic! The new fields of technology bring with them completely different problems, but also opportunities in terms of sustainability. This means that we must continue to stay on top of them. We must not overestimate this, but we can still celebrate. I think that's something important anyway, and perhaps also something that characterizes our work, that we often argue about risks when we enter into discussions, but actually always look for the opportunities. In other words, we shimmy backwards from a very optimistic and positive picture of the future that we have and wish for and then look at what we have to do to make that picture a reality. And it is totally fair to think about shopping streets. Just to see what the topic of climate change means. That has a lot of negative effects. But it can be a huge opportunity for us if we manage to build products whose footprint is ultimately lower than that of our competitors over their entire life cycle. Our firm belief in this discipline is that there is a desirable picture of the future, that we can envision it today and from which we can derive backwards what we need to do today.

Dieter: Perhaps a somewhat provocative question, but sustainability is at the top of the political agenda and every company now has a sustainability department. But isn't it the case today that the companies that are not so sustainable are at a financial disadvantage because they are not invested in as actively? Larry Flink, the last CEO of Blackrock, warned about the sustainability aspects of large companies. And isn't it rather that we no longer have any choice but to act sustainably?

Jochen: Yes, I agree with you on the one hand, but there's a little tone in there that I see differently. We already have a choice if we are ready to go under. In other words, I can think about how this topic will develop further? How are the conditions on the capital market changing? Larry Fink, by the way, is one of those people who can certainly take criticism because Blackrock, as the world's largest asset manager, also has investments in fossil fuels and also supports arms deals, because he hasn't gotten out of all that yet. After all, he is no longer starting to invest in them. But that is one voice and he is right in that he is actually doing this from a very clear business calculation. He's sure that the world is changing and that climate change is real and that biodiversity is declining and that the oceans are being overfished and so on and so forth. By the way, a very important indicator is the social inequality worldwide. This means that some people are getting richer and richer, but most people are not gaining the same amount of wealth. These are all such issues, he sees them and he sees them as a systemic risk. In other words, if the economy does not change, then at some point the raison d'ĂȘtre will no longer be there. He is absolutely right on this point.

But one must also say that this is still the largest asset manager in the world. This is not an NGO or anything like that, he is doing this out of a business calculation. That in turn makes him relatively likeable to me. And he also helps us in our internal discussions, because we do not make sustainability an end in itself, but it is of course about being successful as a business enterprise and earning interest on the capital entrusted to us. It is our social task to create jobs, to pay people, to grow and to yield interest. And in this respect I like this way of thinking. Now this does not have to be private, but the logic behind it is a very clear logic of business relevance.

Dieter: Jochen, in addition to the climate goals, there are also the 17 SDGs, the Sustainable Development Goals. And I know that our corporate positioning with the four areas of competence, mobility, security, human well-being and networking is also closely linked to these Development Goals. How does this come about?

Jochen: When we repositioned the company at OSRAM, the SDGs were basically the input providers. We took a look at which ones we could focus on and what we could achieve with our technologies. And these areas fit perfectly with our corporate positioning. By the way, this link can also be seen quite clearly in Sustainability Magazine.

Dieter: With all the topics and tasks you have to deal with, what do you enjoy most about your work?

Jochen: What I find great, of course, is this extreme variety of topics. We jump from the topic of human rights to the topic of climate strategy, which are totally different issues. That simply gives me a lot of fun. And what I personally find extremely great is this systemic view. That means simply looking at what is linked to what? What changes when I turn a set screw? It gives me a lot of pleasure to work my way into it and to exchange ideas with colleagues from various disciplines in order to set the right course for a sustainable future for the company. In other words, it means that we really do make a concrete contribution to society, and in the end all employees can go home with a good feeling. That's what I really like about my work!

Dieter: Right now we are experiencing a very turbulent time. The extent of the Corona crisis and its consequences for the global economy are becoming increasingly clear. Volumes in the production facilities have been at a standstill for several weeks and sales are collapsing. Do you see the danger of people saying that climate in 2019 was very important, but now we have to see that we make money again? And we will only meet the climate targets when we have time and money again? How do you see that? Where is the development heading?

Jochen: I actually think it would be a mistake to present these two things as separate entities. Broad alliances of politicians, civil society and business leaders are now joining forces to demand that the millions in aid money be tied to climate targets and climate protection.

Dieter: Jochen, it only remains for me to say thank you for your time in the Photonstudio and the interesting conversation about sustainability at OSRAM. Thank you!

Jochen: Thank you very much for the interesting questions and the nice conversation!

In this episode of the Photonstudio Jochen explained how we shape the sustainability work at OSRAM and how we manage to be completely climate neutral by 2030. You can listen to this and all other episodes of our podcast on iTunes, Spotify, Soundcloud and Google Podcast. If you would like to know more about OSRAM's sustainability strategy, read the online version of our sustainability report at www.osram-group.com/sustainability. Enjoy it and see you next episode in the Photonstudio!

OSRAM's climate management report and further information on sustainability