Corporate Sustainability Strategies: A Siemens Case Study

Siemens is one of the world’s most prominent companies and Europe’s largest technology conglomerate. With 430,000 employees, $77 billion in revenue and industrial manufacturing, the company naturally has a major impact on greenhouse gases emissions emitting 4.53 million tons CO2e.

Siemens and Climate Change

Siemens has acknowledged the importance of climate change as one of the most important challenges facing humanity, alongside world poverty and access of all people to proper sanitation and energy.  This perspective has helped the company’s manufactured products eliminate 15 times the company’s total emissions.  Investing €2 billion annually in research and development, Siemens has a hefty 30,000 environmental technology patents and offers efficient solutions that better combat climate change.

The company’s goal is to become a leader in climate change reduction by improving the performance of customers through efficient products. In fact, it has proclaimed to media that it has the most environmentally-friendly industrial technologies portfolio.  Further, Siemens has publicly embraced the need to address climate change and energy efficiency into its operations, communications, cross functional boards, product development and its membership at non-governmental organizations.  Beyond this, Siemens has set tangible targets for the future: its leadership expects by 2011 a 20% increase in energy efficiency and a 20% reduction of global carbon dioxide emissions.  Given the company’s size, global research and industrial technology solutions, the company has a strong platform to impact climate change.

Central Question of Inquiry

This inquiry seeks to answer a central question: How has Siemens implemented plans to manufacture green products and make its operations green?  Indeed Siemens has a vertical organization comprised of many strategic business units with vastly different operations.  This question delves into how a very diverse conglomerate like Siemens has integrated climate change among its units.  Exploring this question further can help to provide recommendations and understand existing challenges.

Analysis on Siemens’ embracing climate change

Siemens’ overall stance and message on climate change is that climate change fits into a larger discourse on serious challenges facing humanity and the socially responsible corporation.  Essentially, Siemens views its role as providing the technologies to better resolve those issues while creating shareholder value.  Its management acknowledges the seriousness of climate change to human life, without neglecting the complexity of issues.

Another consideration is advancing a sustainability campaign mirroring that of its competitors, which have largely incorporated climate change into their sustainability goals.  For example, Phillips (EcoVision) was one of the first competitors to launch major global PR efforts to demonstrate its green credentials to publics and customers.  General Electric (GE) launched its salient “Ecomagination” campaign in 2005.  ABB had a slogan “Power and productivity for a better world”.

Addressing these issues after many of its competitors, Siemens joined these efforts with its own campaign and advanced a definition of environmental best practices in industrial engineering along with the Boston Consulting Group.  They arrived at the definition ““Environmentally intelligent products and solutions” that apply to “significantly superior environmental standards in comparison to the installed-base average”.  This definition favored Siemens’ products, by showing Siemens as having the largest volume of green products.  With Siemens’ definition, Siemens claims €19 billion versus GE’s €13 billion and Phillips’ €6 billion.  In addition, Siemens can claim that the share of green products among its manufacturing composes 25% compared to GE’s meager 14% and Phillip’s 23%.

Examining Siemens’ Green Initiatives

Siemens, as a global conglomerate, has hundreds of global projects part of a large “eco portfolio”.  This paper will only illuminate several most recent international projects, with the purpose of showing how different business units are combating climate change in diverse ways.  Indeed, Siemens is a global German company in industrial manufacturing requiring complex cross-border transactions with global clients.  Thus, analyzing its operations in the United States is within the international scope of this analysis.  Generally, the company focuses on renewable power generation, efficient traditional power generation, efficient energy transmission systems, efficient heating and lighting, efficient transportation, and energy / greenhouse gas monitoring systems.

Siemens Power Generation (SPG) is focused three key solutions.  First, it embraces Carbon Capture and Storage (CCS) in coal power generation longterm.  The approach is based on increased efficiency in Integrated Gasification Combined Cycle Plants (IGCC) pre-combustion carbon capture.  Siemens’ management expects that this will be ready for wide scale commercial use by 2014.  Secondly, Siemens is focused on Post-Combustion Carbon Capture by optimizing current solvents and processes, and incorporating the unit into the energy facility.  For Siemens, the overall post-combustion capture system involves another stage to remove CO2 and is particularly used in retrofitted older power plants.   Also, Siemens is a member of the CASTOR project under the European Commission, which is committed to lowering the cost of Post-Combustion Carbon Capture to 20-30 € /t CO2.  Thirdly, the company is focused on CO2 Compressors efficiency, particularly “gear type” compressors.  Analytically, Siemens’ approach accepts that coal has enormous cost advantages that economically outweigh dramatic changes, but still seeks to responsibly capture and store carbon to fight climate change.

Moreover, Siemens has developed and commercialized technology to provide efficient energy transmission.  One of Siemens’ advanced transmission initiatives is High Voltage DC (HVDC) transmission links targeting the grid efficiency.  For example, Siemens Energy won a 2008 contract to build a 3000-megawatt HVDC system between China’s Guizhou province to Guangdong.  The project, in conjunction with Chinese partners, consisted of developing a system that could transport energy by 800 kV transmission voltage.  The benefits were reductions in Greenhouse Gases by more easily connecting remote power plants.  This boosted the amount of energy into the grid and simultaneously made energy transmission more efficient.  Another similar Siemens HVDC project in China connected a hydroelectric dam from Yunan province to Guangzhou and Shenzhen.  In China, the alternative would be coal power.  Likewise, the benefits of efficiently connecting a renewable energy source to more remote areas without building polluting coal power plants were significant.

Furthermore, wind renewable energy is a major part of Siemens’ eco-portfolio. Siemens Energy builds wind turbines, claiming to have globally 1,800 megawatts of offshore wind capacity installed or on order as of late 2008.  One major project off of Denmark’s seacoast was its 2008 Rodsand II wind farm contract with E.ON to manufacture 90 wind turbines.  To be completed in 2010, the turbines will provide 207 megawatts. Another major project in Sweden is Siemens contract to build Wind turbines for a vast wind farm by the Vattenfall company. The project will generate 170 megawatts.  Beyond turbine manufacturing, Siemens also ensures turbine efficiency through vast research and modeling worldwide.  To these ends, Siemens operates wind turbine R&D centers in Denmark, Germany, the Netherlands and United Kingdom.

In Colorado recently, Siemens opened a US wind turbine research center in collaboration with the National Wind Technology Center (NWTC). The facility, focused on researching and developing better turbines, will distribute wind technology research to Siemens’ other centers worldwide.  Additionally, Siemens Energy is working with Lawrence Livermore National Laboratory to provide laboratory atmospheric modeling.  This can help boost wind farm efficiency, which is plagued in some cases by 20% differentials from actual performance and initial forecasts.  Analytically, this commitment is consistent with Siemens’ approach to providing effective products while furthering technology that fights climate change.

Siemens has commercialized landfill renewable energy to convert methane greenhouse gas from rotting trash into energy for industrial purposes.  Siemens views this renewable energy as both profitable and environmentally valuable.  For example, the Three Rivers landfill in South Carolina partnered with Siemens building technologies to treat the gas for usage as fuel.  Siemens then worked with Kimberly Clark, which treats the gas and consumes it for its own purposes.  This process reduces fossil fuels by harnessing existing waste.  As the process took place over a distance of several dozen miles, it also boosted transmission efficiency with Siemens advanced energy transmission technology.  At the same time, it provided economic benefits to the purchaser Kimberly Clarke, who can purchase the energy from Siemens at a much lower cost than from traditional electricity. The reduction from this Siemens project has removed the greenhouse gas impact of 41,000 cars from the road, according to the EPA.

Energy-saving retrofitted improvements by Siemens Building Technologies are another major part of Siemens eco-portfolio.  An example of this was the Greensboro Coliseum in North Carolina, one of the largest coliseums on the US East Coast.  Siemens was contracted to retrofit energy-saving lighting systems, water saving systems and large modifications to the heating ventilation and air conditioning (HVAC) system.  The renovation cut energy consumption by 25%.  Water and natural gas usage fell 50%. The coliseum saw lower maintenance costs, energy savings and increased comfort to tenants. This Siemens project will have the effect of eliminating 530 cars’ carbon footprint.

Efficient transportation is another facet of the eco-portfolio. Siemens’ hybrid drive systems, sold to bus manufacturers globally, are comprised of an ELFA system which optimizes energy usage.  The effect on these buses was comfortable performance using 40% less energy usage and carbon dioxide emissions.  As they often run in urban areas, the buses can also boost urban air quality and reduce the impact of smog.  As a result of the systems, the Clinton Climate Initiative inducted Siemens Energy and Automation Inc because of the wide scale implementation of over 1,000 hybrid-drive systems in cities worldwide.

Another part of Siemens’ plan to combat climate change is membership in non-governmental organizations (NGOs).  Siemens’ recent contribution included working on the World Economic Forum’s working paper.  Siemens is also a member of the top companies of the Carbon Disclosure Project’s Climate Leadership Index.   Another key membership is The U.S. Climate Action Partnership (USCAP).  Notably, Siemens worked with two-dozen corporations at USCAP in developing a legislative consensus part of a “Blueprint for Legislative Action”.  This membership suggests that Siemens supports climate change legislation to 80% emissions reduction cuts in 2050 back to 2005 levels, and a cap and trade emissions scheme.  GE, a direct competitor, is also a member showing that competitors view climate change seriously and conveying their own green credentials to publics.

Additionally, Siemens has built a sustainability board of executives to convey messages to publics and manage sustainability efforts throughout the organization.  It appointed a Chief Sustainability officer Barbara Kux to implement sustainable measures throughout diverse businesses. While the Sustainability board’s role is to coordinate sustainability efforts, little information is available about the board’s efforts.

Future Outlook

Siemens has acknowledged the impact of the Global Recession on its businesses performance. Siemens’ stock from April 2008-09 lost approximately half its value but remains stable as of late April 2009 around $65 per share.  Yet the company predicts its “environmental portfolio” will account for nearly €25 billion of global revenues by 2011, based on 10% annual anticipated growth.  Analytically this target shows management’s high expectations for Siemens’ green solutions.  According to PricewaterhouseCoopers, Siemens products’ impact by 2011 is projected to slash emissions by 275 million tons, equaling the total emissions generated by six of the world’s largest cities.  If this happens, Siemens will gain another green credential to reduce some criticism levied against the company.

Challenges & Criticism

Fang Zhou extensively studied Siemens’ sustainability commitment.  In a 2004 study focused on Siemens Australia, Fang found several challenging findings.  Fang found that only 40% of business units participated in Siemens’ top improvement program, involving environmental and social sustainability. The reason was that employees considered it too general, unclear and wasteful of their time.  Lacking were incentives, awareness, and performance benchmarks outside of strict emphases on financial performance.  Put bluntly, Fang proclaimed, “The results indicated a significant gap between what is important for Siemens and how well Siemens is performing in terms of environmental and social sustainability.”  Essentially, Siemens needs to better harness and optimize its human resources to achieve its goals.

Experts have taken issue of Siemens’ definition of being green, particularly because it was favorable to Siemens in showing publics a stronger commitment to combating climate change.  Specialist Gunter Schoech at GL Group raised his concern. Siemens offers combined gas and steam turbine. His point was how could it be considered green when this turbine system will still annually emit 2 million tons of carbon dioxide.   His analysis was that it could be considered green only in the sense that it offers efficiency gains over the past generations. Siemens would have to claim explicitly that it is 2% more efficient than the last generation of turbines.

Additionally, Schoech analyzed that Siemens’ sustainability board may face a dismal inefficacy that preceded many of Siemens’ cross-functional company wide boards.  The source of their failure has been an inability for cross-functional implementation across units, which certainly vary across Siemens’ diverse specialties.  He hypothesized that in the past there were not sufficient incentives and motivation to work together among units for sustainable solutions, similar to Fang’s aforementioned findings.
Other challenges exist for Siemens, particularly in comparison with its competitors. Siemens message of its stronger commitment to climate change may have less salience than GE’s robust marketing campaign “Ecomagination”.  To this day, Siemens’ initiative does not have a salient slogan or messaging program to convey to publics a commitment to climate change unlike GE and ABB.  Instead, publics see climate change on the Siemens Youtube channel, a point of contact with consumers and businesses, as only one of many other issues that Siemens is addressing.

Siemens faced humiliating bribery scandals over the past decade, which threaten relations with governments and publics.  First, the company participated in the Oil-for-Food program and was alleged to have paid surcharges to Saddam Hussein’s government.  Secondly, Siemens was in the spotlight for €1.3 billion in corruption scandals in the past few years.  Thirdly, the company was forced to pay a fine of $300 million to a court in Germany due to corruption abroad.  Siemens also faces a lawsuit in Chattanooga for poor design of a sludge treatment plant.  Other scandals involve funding AUB, a rival trade union, to disarm its primary rival trade union, IG Metall Union.  On April 23 2009, the Defense Department Criminal Investigative Services raided Siemens Medical Solutions’ offices in Pennsylvania following an awarded military imaging contract.  Thus, Siemens needs to build trust not only for its climate initiatives but also for its ability to win government contracts.

Publics are also not fully satisfied with Siemens’ commitment.  While Siemens ranks highly in its policy stance, Climate Counts calls Siemens a “Striding” company that still has a lot of work to do outside of its strong 2007 gains.  In fact, Climate Counts gave Siemens unsatisfactorily half marks in transparency (6 out of 12 points), internal usage of energy (23 out of 56 points), and internal carbon auditing (14 out of 22 points).  Furthermore, Greenpeace has questioned how forthright Siemens was in disclosing and eliminating harmful chemicals from its operations and manufacturing.  For example, Fujitsu-Siemens has not promised to disclose chemical usage and has not committed to eliminate polyvinyl chloride (PVC) and brominated flame retardants (BFRs).

Recommendations & Evaluative Conclusions

Siemens is a paragon of a company that sees environmentally-friendly products as a way to fight global warming while becoming more efficient in its own operations.  With fewer inputs to make more outputs, Siemens is providing shareholder value and environmental benefit.  Its strategy has not limited revenues or jeopardized its operational integration; on the contrary, it has grown them to the extent that Siemens’ management is proudly proclaiming that 25% of its eco-portfolio will come from environmentally-friendly products by 2011.  With collaboration with governments and prominent NGOs, Siemens is quietly building goodwill for stakeholders concerned with climate change.

The major issue lies with Siemens optimizing its commitment and implementing a unified effort across diverse business units.  Research showed that employees and managers are not fully aware of how to manage sustainability, particularly among different units.  As a result, the efficacy of Siemens’ efforts may not be at their potential.  As suggested earlier, Siemens’ cross functional sustainability board may be ineffective because of the past failures in similar boards at Siemens.

There are several recommendations, according to Fang Zhou who extensively conducted fieldwork research on sustainability among Siemens employees.  First, Siemens needs to develop both management’s awareness and skills to be socially responsible.  Secondly, it needs to provide robust performance metrics that can be audited for proper implementation.  Thirdly, incentives need to be improved.  Fourthly, communications need to better assert Siemens’ visions to stakeholders.  Lastly, sustainability needs to be integrated into strategic planning and global strategy to better balance performance, operational excellence and sustainability.

Beyond these research-based suggestions, Siemens should consider aggressively developing industry’s most efficient products.  Efficiency is a major paradigm in industrial products because of (1) climate change, (2) the global recession’s emphasis on efficiency and (3) rising energy costs. Companies with the most efficient products can develop competitive advantages.  Such competitive advantages are crucial because competition among GE, ABB and Siemens is fierce.

Additionally, publics are less aware of Siemens’ commitment to climate change, in comparison to GE’s initiatives.  Siemens self-defined metrics show the company to be the best in its class with efficient products and having one of the largest annual investments in environmentally friendly products.  But its communications message are not as salient as GE’s.  This leads back to the issue of optimizing and enhancing the sustainability campaign’s implementation.

Furthermore, although Siemens is transparent about its activities, that has not prevented publics like Greenpeace from questioning its disposal of dangerous chemicals.  As Siemens Power Generation embraces Carbon Capture and Storage (CCS), the company should consider clearly defending the merits and safety.  This is because anti-“clean coal” organizations are making claims in mainstream television and online media.  Simultaneously, Siemens should cultivate relations with governments as it faces very serious corruption allegations.  Not doing so can jeopardize its aims in combating climate change.

With an optimized effort at implementing further efforts throughout different businesses, Siemens can optimize a currently robust climate change effort and simultaneously deliver superior value to customers and investors.

Data

Exhibit 1: Siemens Power Generation company witnesses major profits and growth in providing efficient energy transmission due to the ageing US power grid. 

The overall message to shareholders in this speech was that Siemens advanced technologies are not only contributing to profits, but also upgrading the grid to fight inefficient energy transmission impacting climate change.

The chart shows a red spike showing a ballooning need to replace ageing infrastructure, and Siemens can fulfill that need with efficient grid solutions.

Highlighted summary of data:

• According to UBS and Siemens, the major needs for “replacement” of European ageing infrastructure in 2012, 2016, 2018, 2026 and 2030
• The value of European replacements range from €5 billion to €26 billion per year

Source: Siemens Publications.

 

Exhibit 2: Siemens Power Generation demonstrated to shareholders how it has maximized the division’s profits. 

Indeed this measure of success shows how incorporating environmentally friendly products in power generation can benefit the bottom line.

Highlighted summary

• Revenue growth rose by 15% CAGR in 2008
• Return on Capital Employed (ROCE) rose by a hefty 80%
• The division’s profit rose by 40% CAGR

Source: Siemens Publications.

 

Exhibit 3: Financial Contribution of power generation to Siemens’ bottom line.  The table shows how businesses targeting climate change are contributing some of the highest contributions to Siemens’ bottom line.

Highlighted summary of Siemens’ Green Businesses’ growth:

• Renewable Energy – 38% adjusted growth in orders from 2008 – 2009
• Drive Technologies – 16% adjusted growth in orders from 2008 – 2009
• Building Technologies (e.g. green retrofits) – 3% adjusted growth in orders from 2008 – 2009
• Power Transmission – 1% adjusted growth in orders from 2008 – 2009
• Power Distribution – 6% adjusted growth in orders from 2008 – 2009

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