Reducing emissions and improving carbon offset is a priority for many OEMs and companies working within the automotive industry. However, some may be unaware just how much damage their whole supply chain emissions are doing.
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In some cases, 80% of a company’s overall emissions are due to activities down their supply chain. Finboot, a company specialising in blockchain solution technology is working with companies within the automotive space, helping them to achieve green supply chain management.
Finboot offers a traceability solution to automate environmental, social, governance (ESG) standards, sustainability credits record-keeping, create digital product passports, and manage sustainability declarations and certifications.
The company has also introduced digital traceability for effective management of production and manufacturing processes. This, it says, helps companies build a resilient supply chain prepared for the growth in demand for low-carbon, renewable and circular products.
We spoke to Juan Miguel Perez, CEO, and co-founder, Finboot, to discuss what green supply chain management involves, and what regulations are being put in place to assist.
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By GlobalData
Just Auto (JA): How is the company assisting the automotive industry achieve greener supply chains?
Juan Miguel Perez (JP): We have focused on how to introduce solutions in capital intensive industries, including the automotive sector. We looked at how to bring these emerging, powerful technologies into a sector that tends to be very complex – and sometimes even very adverse to onboarding these new technologies.
We managed to simplify and provide a solution which is easy to implement and largely focused on supply chain traceability. We realised that one of the biggest challenges that organisations have when it comes to traceability is tied to their sustainability and decarbonisation efforts.
Not just in automotive, but also in other capital-intensive industries, most of their emissions in general – up to 80% and in some cases over 90% – come from their supply chain.
With such a gigantic portion of your environmental footprint coming from the supply chain, the only way you can decarbonise your industry is by collaborating with supply chain partners, helping them, gathering data and then measuring what your total output is.
What is green supply chain management?
Green supply chain management is all about introducing eco-friendly, low carbon practices that look to mitigate environmental impact, while at the same time maintaining operational efficiency. We need to move towards a sustainable economic model, one that needs to be environmentally sustainable, but also needs to be financially sustainable. That’s what green supply chain management is all about.
The automotive industry requires traceability, transparency and strict secure record keeping throughout the supply chain.
The automotive industry requires traceability, transparency and strict secure record keeping throughout the supply chain. This is our focus: to help our clients capture the relevant data, so that their environmental claims are backed up by evidence.
The whole ecosystem that we’re trying to build helps our clients meet their own targets.
What is the issue with government-set decarbonisation targets?
Circle back to 2016. The Paris Agreement gets signed, a first major move of governments around the world to say we’re going to decarbonise the economy by 2050. That then has an immediate consequence, back at the end of 2016, beginning of 2017, with multiple organisations setting out their own decarbonisation targets, and that included targets for 2025 or 2030.
It was about generating company roadmaps to net zero, with much discussion of strategies to decarbonise. Several players in the automotive industry have also set their own targets. Fast forward to today, and everyone realises that it’s a lot more difficult than just setting a future target.
Also, a lot of the targets from the Paris Agreement were actually voluntary targets. What happens with voluntary targets, and what unfortunately we’ve started to see, is that people can backtrack on voluntary targets.
What clients are involved with this already?
We had already been tracing the production of low carbon fuels, the production of circular steel, the production of low carbon materials.
One of our clients is Gestamp. They produce steel components for the automotive industry. What they’re trying to do is use scrap material that they produce.
Scrap historically has been underutilised and now what they’re doing is introducing more processes, so that we can reinsert that into their supply chain, as recycled steel. This creates a circularity loop and they offer that information to their customers as well. The automotive manufacturers will be able to see that evidence and minimise their own carbon footprint because they are purchasing recycled steel.
Would you say the introduction of EVs is helping decarbonise the industry?
We need to decarbonise mobility as a whole; automotive electrification has obviously been a major part of that. But we always come back to the fact that for EVs to be carbon neutral, the traceability of materials and battery materials very much comes into play. Battery passports are getting more standardised. We are working to enable both the global battery alliance and the standards for battery passports so we can achieve decarbonisation through electrification.
The other angle is that it’s not a singular approach. Electrification of vehicles alone is not going to get us there [to net zero]. That’s why a lot of our clients in the energy industry are introducing innovative fuels that are compatible with existing infrastructure and are also net zero emission fuels.
They are creating innovative fuel solutions that are also low in in the carbon or environmental impact across all the transport sectors.
Explainer: the path to net zero emissions in Automotive
Where are you seeing decarbonisation efforts really shaping up?
What we’re starting to see is largely led by Europe. Europe is certainly at the at the forefront of ESG regulation, but other countries are starting to come through as well. You’re seeing movements in the UK, Canada and even in the US and China; there’s are many initiatives on industrial decarbonisation.
If we just look at Europe, initially, you already have things like the CSRD (Corporate Sustainability Reporting Directive), which forces large enterprises to report on sustainability. That, in principle, is only for large enterprises, but it will have an impact on the entire supply chain.
What’s happening is the large players that need to report realise that some of the data that they need to report needs to come from down their supply chain. So they need to pressure smaller groups to get the information required. A lot of these are small suppliers, so we need to help and arm them with the right tools, so that they can collect that data and information. If they don’t, the higher tiers will have no alternative but to remove them as a supplier, which will cause disruptions in the supply chain.
If they need to significantly reconfigure their supply networks, it will likely drive-up costs. It means major companies cannot afford not to help their supply chain network in understanding their emissions and meeting compliance standards.
CSRD was just the beginning of that earlier this year when the European Union approved CSRD corporate sustainability due diligence directive. It states that as a European manufacturer, and as a European vendor, you are responsible for the due diligence of your supply chain, to make sure that the information that you’re given, the environmental claims, are correct. It also includes the social claims in terms of labour laws and human rights.
You’ve also got regulations such as EUDR, which is the European deforestation relation which comes into effect in December. It will impact the automotive industry because anything in chemicals (such as renewable chemicals that are used in the automotive industry), will need to have a permit. While you’re not directly liable, again, it’s another regulation that comes into force and it’s going to affect them.
Then another play from the European Union that is interesting is the Carbon Border Adjustment Mechanism. This will impact any suppliers outside the EU and the carbon footprint of those materials and components that are coming from outside the EU. So that needs to almost have a carbon passport to make sure that it doesn’t surpass the emission threshold.
If you don’t have the carbon information of the parts that are coming into the EU, trace and verified, ultimately that can drive up costs significantly for these organisations. All these regulations will have a big impact on cost if they’re not managed correctly and they will have an impact on profitability as well. For example, you can have products locked in and retained by customs, which means your production is delayed. That’s especially a worry for automotive companies with their lean production and just-in-time manufacturing processes.
How will the auto sector reach net zero?
