Decarbonizing defence is a battle on multiple fronts
Reducing carbon is challenging enough; if your company manufactures ships, aircraft and tanks from steel alloys and carbon, powered by fossil fuels, it is a mountain to climb.
BAE Systems’ ambition is to be carbon neutral across its operations, Scope 1 and 2, by 2030. It has aligned its Scope 1 and 2 carbon reduction roadmaps to a science-based pathway of 1.5°C and set progress against this in both its in-year and long-term incentives
BAE Systems globally reduced Scope 1 and 2 GHG emissions by 16,705 tonnes CO2e, about 4%, between 2021 and 2022. GHG from employee travel (Scope 3 emissions), however, increased nearly threefold, up to 38,425 tonnes CO2e, as road and air travel returned after the covid pandemic, illustrating the challenge of Scope 3 emissions. The defence, aerospace and cyber security company has reported publicly on its approach to responsible business, including sustainability, since 2001.
Amanda Wood is Sustainability Director for Supply Chain at BAE Systems. She spoke at Sustainable Industry '22 in Manchester recently. She explains the company’s plans to cut carbon and reach net zero emissions in 2030 within its own operations and 2050 within its value chain is based on two principles: 1) embed environmental management and climate resilience in everything the company does, and 2) take a science-based approach to this work. “We have committed to science based targets, validated through SBTI (Science-Based Target Initiatives, validated by the World Resources Institute).
Amanda Wood, Group Sustainability Director, Supply Chain and Social Value - BAE Systems
How does BAE systems work with its suppliers to improve their sustainability and reduce their own carbon footprint?
BAE Systems recognizes that decarbonisation must be consistent across our ecosystem and that includes our suppliers, globally. The company works with around 19,000 directly contracted suppliers and spends around £10.5bn a year. We need to join up with our supply chain with a common approach to decarbonisation. Suppliers are engaged regularly, our missions are explained, and we give them all the outputs so that everything (that is not confidential) is shared. Close collaboration is the only way that we are going to achieve Scope 3 reductions.
“You do need to achieve a balance between placing demands on suppliers and supporting them to get to their journey – that is a fine balance because we all have a shared responsibility in this.”
In renewable energy, in our procurement policies we require our suppliers where possible to run their operations using renewable energy, but with that will come higher costs and we have to accept that. To support our suppliers, we will subsidize the carbon reduction plan for each of them. They do a carbon assessment of their footprint and not only will they get the data that shows the carbon footprint, but they also receive an improvement plan that's tailored to their emissions and to their own materiality. In effect it gives them a plan to address emission reductions in their own plants.
Our products have very, very long life cycles, this usually equates to very long-standing relationships with suppliers. This means when they commit to our sustainability ambitions, there is some form of incentivisation for them to do that.
Our supply chain is a global supply chain. So the 19,000 suppliers that we work with are right across the globe. We have four key markets in the US, the UK, the Kingdom of Saudi Arabia and Australia. And the interesting point there is that sustainability and decarbonisation can mean something slightly different in all of those key markets. And so it's very important that we make it relevant to the suppliers that are in each of those locations.
An example of a green supplier initiative is working with a Supplier and our internal Supply Chain teams, we identified re-use opportunities for components within the manufacturing of the F-35 combat aircraft, which we build parts of for Lockheed Martin. IAs a result, CO2 emissions associated with the production and transport of temporary fasteners, which secure components of the aircraft during the build process, were reduced by 50% between 2021 and 2022.
Reporting: How do you link your sustainability strategy to your corporate strategy?
The delivery of our products to our customers is values-performance led, and this links strongly to our sustainability agenda. Sustainability is becoming embedded in everything we do with oversight at all levels of the company starting at the top. We have a quarterly non-executive board meeting specifically around ESG, and it features heavily in our annual report.
Recently, our 2022 financial results reported all of these topics sat alongside the financial results, with three or four pages on our sustainability performance, showing this is important to us as business performance. There is appetite for this from the investor community, they want to see this and they want to see us make progress in this space.
I feel very fortunate at BAE Systems that we have so much support from the Board down to help us on this journey.
Global markets: Does your sustainability strategy differ much across your four key markets: The US, the UK, Australia and Saudi Arabia?
Each of these key markets have different constraints and legislations. For example, in the US, there is no real legislation passed on climate change. So there is a draft what we call a FAR that is out for consultation, which is probably at least two years from being implemented. Anything an American business chooses to do to decarbonise will hit their bottom line, because they are behind, while in the UK, climate change legislation is mature. The UK government provides procurement policy notes, there are clear targets and it’s a necessary practice.
In Australia, the legislation is there but it's not as stringent as the UK. In the UK, increasing your climate change practices will create a business differentiator and this makes you more competitive in Australia to participate. Finally, Saudi Arabia is very much at the beginning of their journey. There is commitment, but they are taking more of a “watch and see” approach. As a global enterprise, we must integrate all of the constraints and the pace of change in these places.
Investors: How does BAE Systems’ investor community affect your ESG policy?
Investor and pensions funds absolutely demand more ESG reporting at the top line. They want to know what commitments we have made. Also there are ESG rating agencies that our stakeholder community take very seriously – as a defence company, this presents challenges. We typically score low on metrics like ESG risk with these agencies, partly because of what we do and partly because of what information we are able to put in the public domain due to client confidentiality. This means we have to be very careful about ESG reporting, and we must be very purposeful so that it is beyond reproach.
How is your energy procurement changing?
The switch to renewable energy is a big success for reducing our emissions. We have compiled all our energy requirements across our UK footprint and have put these under what we call PPA, power purchase arrangements, with a bias towards renewable energy – this has increased our use of renewable energy more than 50% in the last five years.
Solar power panels have been installed on several big sites, including in Samlesbury.
It is inherently difficult for heavy industry companies like BAE Systems to decarbonize. What are the biggest challenges?
There are always challenges associated with decarbonisation, irrespective of your industry. With both our suppliers and customers, time, cost and quality are common measures of performance. Our customer – typically governments – wants their product on time, delivered to budget and right first time and the specified quality. And all of that now must be wrapped with a layer of sustainability. That will probably affect the time and probably cost a little bit more but will not compromise the quality. One would argue it would make a better product. This means finding an acceptable balance point. Often, we know where our customer is with defence spending: they want product quickly and they have a finite budget. And so it can be really challenging to build a more sustainable product and reveal the cost and time impacts of that.
Specific supplied products: Can you discuss a component product that has had challenges that you have managed to resolve?
The supply of semiconductors is well-documented. Our Electronic Systems sector is the business unit most impacted by the global shortage of microelectronics, as well as by labour and staffing shortages inour operations and across our supply chain.
We have had some recent success working with a several suppliers to look at the specification of our semiconductors’ supply chain, to see what we can change to make supply more readily available and more sustainable. How would a different supplier base affect cost because, ultimately, most semiconductors come from four countries: Taiwan, South Korea, Japan and the US. Can we make both resilience and price better for our customers? So we've been looking to change out of certain materials to some that are more sustainable, which can assure better continuity of supply that way.
Lifecycle engineering: Is there a product category where you've made some progress on lifecycle engineering?
We are trying to improve design for manufacture and recycling – effective lifecycle engineering – in all our business divisions.
One area where we are absolutely putting climate action at the forefront is in FCAS, Future Combat Air System Concept & Assessment, the new Tempest aircraft. That programme is being designed with sustainability at the outset. For example, the Factory of the Future in Lancashire that will assemble Tempest will use advanced manufacturing technologies such as additive manufacturing also mean that we are creating less waste as a by-product compared to traditional subtractive methods.
There are confidentiality agreements covering the publication of details of materials and tech used in Tempest. One of the biggest carbon levers for all our aircraft is around sustainable fuel. The biggest difference in operating these aircraft is to adopt a much more sustainable fuel product.
Waste management and water usage
During 2023, BAE Systems will establish Group targets for water use and waste management. The targets will be disclosed in 2024.
BAE Systems recognizes that waste management is highly important. With waste, while we are not perfect we are looking for continuous improvement in our manufacturing processes and all of those supporting upstream and downstream processes around this.
In our Military Air & Information business, on a particular aircraft platform we ran a fasteners project that successfully reduced the use of fasteners by 33% over two years. We reworked the process to reduce waste, worked with the supplier, including packaging, to reduce waste and recycle more of the product. Here, several small things have resulted in a in a significant reduction in outsourced product.
Water consumption
On a group level, mainly through reducing abstracted water and recycling, BAE Systems reduced its water usage by nearly 50% between 2021 and 2022.
| 2022 (M3) | 2021 (M3) |
Mains | 2,409,896 | 2,270,390 |
Abstracted | 5,968,417 | 14,186,391 |
Total | 8,378,313 | 16,456,781 |
Recycled | 728,911 | 951,847 |
Biodiversity
We are probably at the beginning of that journey compared to other ESG actions. We are conscious users but we are not yet taking actions in the same magnitude as we are targeting emission reductions.
In Scotland, closing of the Bishopton Royal Ordnance Factory in 2001 has led to transforming the 2,400-acre brownfield site into a sustainable community where housing and infrastructure have been built alongside green spaces and the natural environment.
Each stage of the development seeks to create open, natural spaces, re-use and recycle materials, promote walking and cycling, protect and enhance ecological biodiversity, and support the local economy.
Sustainable fuels
BAE Systems is working with its UK customers to understand their future fuel transition requirements, including the economics of when best to transfer to sustainable fuels, while continuing to understand the scalability of sustainable fuels and interdependencies on new product development.
In the UK, the RAF has committed to moving to sustainable and synthetic fuels for aircraft by 2040.
Synthetic training
BAE Systems is using virtual and augmented reality (AR/VR) technology to train pilots and engineers, to reduce flying hours and emissions. In 2022, it supported the Typhoon Force flying 6,336 synthetic missions, which would have burned 34,380 tonnes of fuel, releasing 107,600 tonnes of CO2, had the missions been flown live.
Conclusion: What could make a big and exciting difference to BAE Systems’ sustainability plans looking ahead?
The absolute emphasis now is on net zero and decarbonisation, and that's really important. But I think very quickly, these green credentials will become a license to trade – it will no longer be an option. We are also looking at nature and biodiversity further, to see what we can do.
BAE Systems is also committed to making a positive difference to the people, communities, regions and countries we operate in. And I think this is where we will continue to have a major impact in years to come, as we grow in existing and new markets. For example in 2022 in the UK, we spent £180 million on education skills and training, and £1.4 billion in research & development. This year we are recruiting 2,600 new apprentices and graduates – an increase of 40% compared to last year.
All too often people can lose sight of the “S and G “ in ESG, the social and governance piece because, I think many people think that Net Zero or climate change “equals sustainability” ― but you need all three to succeed to be a sustainable enterprise.
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