Saif Hameed [00:00:00]:
Collaboration is hard because most companies have historically thought about this in pilot mode. They think about one pilot initiative and they don't think about how this initiative will scale. So, for example, they focus on one facility and they get solar panels on that one facility or one supplier. They focus on dairy farms in one specific location that they're buying. But the approach that they take can multiply. It can't scale. When you say it can multiply, you mean if I want to do this initiative ten times, it's going to be costing ten times the money? If it scales. That means, however, that every additional one of these that you do is cheaper.
Isobel Wild [00:00:45]:
I'm Isobel Wild. Welcome to the State of Sustainability, a show for professionals transforming corporate sustainability strategies, brought to you by Altruistiq. Hello. Welcome to State of Sustainability. Today we're going to talk about collaboration, and I know that this term is probably the most overused term out there, with many, many fluffy ideals about the potential for collaboration and collaboration being the silver bullet to all your worries. The purpose of this episode is to cut through that noise and actually talk about how to set up different types of collaborations for success. So maybe, Saif, just to get us going into set scene, what types of collaborations are out there at the moment and what are the most beneficial?
Saif Hameed [00:01:36]:
So I think in the corporate setting around sustainability, we're seeing three types of collaboration. One is in value chain collaboration, which means it's you and your customer, it's you and your supplier. And these are often one to one collaborations. Sometimes they're one to few, but more likely they're one to one collaborations. And there are quite a lot of these. I would say that they tend to base around Lighthouse cases for the most part at this point in the journey. There are also, let's say, peer competitor collaborations, which means that it's you and another company that you're a peer off, but you might compete with, and you basically figure, hey, there's something that we should do together. Let's make this collaboration happen.
Saif Hameed [00:02:21]:
And there are obviously a lot of pre competitive, a lot of requirements for you to do this in a way that doesn't trigger anti competitive behavior. And so very often you do this via an industry association, and you and the industry association and your peers and competitors come together and make something happen. The third, I would say, is kind of cross value chain collaboration, where it's you and your peers in another industry, another value chain collaborating, because you identify some common spaces for you to work together. I think all three are interesting, and frankly, there's a lot of they have in common.
Isobel Wild [00:02:54]:
So if you were to actually provide advice about how to scale those one to one collaboration points to be more industry wide, what are the kind of key considerations and the ingredients to making that work?
Saif Hameed [00:03:08]:
Well, so let's maybe start out at the basics. Let's take a model. Let's say you're in the business of buying cocoa or coffee or rapeseed or grain or some sort of material, and you want to collaborate with a processing partner, for example, that you're working with. I think the first thing is to sort of create the framing for the collaboration with this specific company. Are you trying to solve for just what you're buying from them, or are you trying to solve for everything that they're producing? And there are some advantages to solving for everything that they're producing, one of which is that you're just working on creating a larger pool of material for you to buy from. And that also means that as you grow, it becomes easier for you to have sustainable materials supplied to you. I think the next thing is, from an economic perspective, how exactly is this going to work? Is the supplier going to fund the intervention? Are you going to fund the intervention? Is that upfront cash that you're going to provide? Is there some kind of support in kind that you're going to give? So let's say, for example, you want to have heat pumps installed at this facility. You want to have solar power brought in to replace the grid power.
Saif Hameed [00:04:15]:
Maybe there are a few of these things that you want to bring in. We saw a trend two years ago, three years ago, where the customer would fund these by actually putting forward the cash for the intervention. There are a lot of companies that were never doing that, but there were some companies that were actually putting forward the cash. What we're now seeing is that as this starts to scale, the customer or the brand wants the supplier to hold their share of the bill. And that either means funding the whole of it themselves as it's supplier, or funding part of it. And that's called a co investment approach. There's another approach to that which I think is quite interesting, where the brand or the customer says, I have a financing partner on my side. It's a bank I work with, like a Nat west or JPMorgan, and they have provided me with a financing facility and I actually want to try and cover certain projects on my supplier side as well.
Saif Hameed [00:05:07]:
Maybe there's an asset financing approach that could be taken. And so the brand, the customer, leverages their scale and the way their balance sheet may be as well, to provide financing support to the supplier, but the supplier is still really paying. The cost is just that. They can benefit from lower cost financing. So there are a range of different options out there. And then finally, just to round off, I think what you want to then say is this thing that I've done in a one off case with this supplier, what would it look like if I did this across ten suppliers? Is it the same model? Do I come up with a case study and what the intervention was? Do I extend the approach to covering the costs, whether it's the supplier paying or the customer paying, or some sort of co financing? Do I extend that across all these suppliers, and do I want to do that only for certain categories of materials that I'm buying, or do I intend to do that more broadly?
Isobel Wild [00:05:56]:
And on this co investment approach, are you referring to pre competitive collaborations there, or are you referring to more of a landscape based approach where you're getting different accidents? So maybe like an NGO or other actors within a specific area that have vested interests, but don't necessarily compete with you as a brand or a company.
Saif Hameed [00:06:18]:
So far, what I've described does not necessarily trigger any anti competitive action. This is just you and your supplier, and you can collaborate with your supplier on a one to one basis. And there's nothing wrong with that when you start saying, hey, actually, my competitor also has the same interest here. Can my competitor and I club together or group together and provide some sort of joint incentive to a supplier? That's when you start to get into that gray zone where a lot of this is tricky. One way to sidestep that is to try and involve an industry association and say, actually, can we do this as a collective organization? Is the industry doing this? It's not just a couple of companies. There are still some controls and safeguards that you need to allow for, but that can become a little easier. Another approach to do this, which I think is likely to be the model for a lot of capex heavy interventions, is going to be, can I actually provide an offtake agreement to a particular supplier and my peers or my competitors also go ahead and provide offtake agreement. And it's not like I'm colluding with them and kind of saying, hey, guys, why don't we all do this together? It's just that I'm providing a pattern, and I acknowledge that my supplier can shop around that model to others as well.
Saif Hameed [00:07:29]:
So let's take the same example where I have a supplier that's going to be doing heat pumps and solar panels. And maybe there's something else. Maybe there's some funky use of hydrogen going in there. And so you say, hey, I'm going to give you an offtake agreement, which means that I'm going to guarantee that for the next ten years, I'm going to pay you a small premium for the stuff that I'm buying. And that premium is going to fund the capex for what you're going to do. This is happening right now, for example, on a lot of carbon capture and storage projects, which is they have a big capital requirement upfront. And the way that industry is supporting that is rather by then giving a grant or something like that, give it a long term purchase agreement, which the supplier can then leverage often and go and raise money against that. They can either go to the investor landscape and say, hey, I have ten years of demand locked in, or they can even sometimes go to a bank and say, hey, I have a guaranteed buyer.
Saif Hameed [00:08:22]:
And if they can take that same model to multiple customers, and multiple customers say, yes, I'm willing to give you this long term contract. Just having a first mover go and put that on the table for a supplier can be a big value driver for a supplier who's looking to do some sort of innovation. And I see a lot of that happening on the capex heavy side. Just providing that model is in itself not triggering any anti competitive behavior, but can be a big forcing action to drive collective behavior, if you will, and.
Isobel Wild [00:08:52]:
Take it maybe to the carbon accounting side of things. I think there's a lot of chat around the free rider problem and what happens if you're investing into supplier and then your competitor can actually take the rewards for that? How do you approach that?
Saif Hameed [00:09:05]:
Again, I'm making an investment in a collection of farms supplying a processor, and the processor is supplying me. The way that you would need to do this right now, from an accounting perspective, is you'd have to apply some sort of a mass balance based approach where you would say, hey, this is what I'm buying from the places that are impacted. This is how I'm apportioning that to a particular product that I'm selling to a particular customer. What we think is the most scalable way to do this is to have differentiated product carbon footprints, which means that what you're buying, you basically have a before and after. So you say, okay, great, I bought something from this collection of supply of farms, let's say. And last year, this is what the baseline looked like for what I was buying. Now, one of my customers has made a change or financed a change that has hit these particular farms. As a result, the baseline for what I'm buying has shifted.
Saif Hameed [00:10:02]:
I'm going to take that Delta between the baseline and the new baseline and I'm actually going to apportion that onto certain products only and the product carbon footprint for certain products only, which I'm selling to the customer that financed the change. The key thing to bear in mind is that this only works if you don't apportion any of that change to the product carbon footprints for your other customers, because that will be double counting. And also key is that this only really holds up if there's a common ledger where everyone can actually log these sorts of things so that there is no double counting because there's a massive incentive to double count.
Isobel Wild [00:10:40]:
And this common ledger is this. On the near term front, how far through are we of this differentiated PCF journey?
Saif Hameed [00:10:49]:
I think we're very, very early stages. And so from a technology standpoint, at Altruistiq, we built the technology to do the differentiated product carbon footprints so we can actually cover the accounting side of it. From a ledger perspective, there are different initiatives underway to try and develop this sort of a ledger. The value change initiative is one effort that is gathering some traction, which I think could be a really interesting one to watch.
Isobel Wild [00:11:14]:
Maybe back to this pre competitive collaboration point. You said it's pretty tricky, and I definitely know, I've heard from others, that obviously it's very time intensive and resource intensive. Do you mind outlining maybe some of the challenges around pre competitive collaboration? What are the big watch outs to be aware of?
Saif Hameed [00:11:31]:
I think that it's worth distinguishing whether collaboration in itself is hard. When you say pre competitive collaboration, you're basically assuming that this is collaboration that you're doing with a competitor, and that you're doing this in an environment where it can't really be linked on to any commercial action directly that you or your competitor are taking. So this is very specific. I think collaboration in general is a time consuming, difficult thing to do. Well, actually, it's worth indexing on that. I actually don't think the pre competitive layer on top necessarily adds complexity. I think it adds kind of clarity or focus where there are certain types of collaboration that is easier to do and that you kind of drive towards. But in general, collaboration is hard because most companies have historically thought about this in pilot mode, which is they think about one pilot initiative and they don't think about how this initiative will scale.
Saif Hameed [00:12:32]:
So, for example, they focus on one facility and they get solar panels on that one facility or one supplier, they focus on dairy farms in one specific location that they're buying, and they make sure that these are like the best dairy farms in the world. But the approach that they take is inherently not scalable. It can multiply, it can't scale. And the difference between those things is, when you say it can multiply, you mean I will have to spend just as much money every time I do this? If I want to do this initiative ten times, it's going to be costing ten times the money. There is no scale factor. That means that it multiplies. If it scales. That means, however, that every additional one of these that you do is cheaper.
Saif Hameed [00:13:15]:
Actually, let me give you an example. When we do supply chain engagement at Altruistiq, we are going out to a particular supplier, let's say it's a packaging supplier of a customer, and we are helping them onboard onto the Altruistiq environment to share data with a customer of theirs. Very often we will have another customer, another brand that wants to engage with the same supplier. And now that supplier already has an account and an interface to which they can share data with that new customer of theirs, that new brand that scales, the actual effort goes down the more of these that you do, which means that it actually scales. It's not a multiplying situation. However, if you're going to go out there and do solar panels on the roof of a particular supplier, every one of those you do is going to be just the same cost. Unless you start thinking about some sort of bulk purchasing or bulk financing, some implementation partners, unless there's some kind of actual logic to why the cost will be cheaper next time, what are the.
Isobel Wild [00:14:12]:
Building blocks to creating a scalable approach?
Saif Hameed [00:14:16]:
I think that it's not, to quote Sun Tzu on you, Izzy, but it's kind of like Sun Tzu says, every battle is won or lost before it has begun. This starts with planning, which means that you really need to think about where you want to focus for your intervention. Are you focused on certain categories of materials? Are you focused on those materials in certain locations, and are you focused on decarbonizing certain activities for the creation of those materials in those geographies, for example, these are already three filters that will give you a lot of clarity and focus around, for example, whether you are going to focus on electrification of last mile transport in London versus switch to bio based pesticides in Minnesota for a certain type of agricultural material. This clarity of focus of where you want to focus is the first thing, always the next is okay, great. If there are certain activities that I'm targeting for these materials in these geographies, what are the levers that I'm interested in using to decarbonize those activities? Again, is it electrification of last mile transport, or is it actually I want to change parcel sizes for last mile transport, both of which might target the same activity. You kind of really need to think about which levers, and then if I look at those levers, the intervention for this lever, what would scale look like for this take again, something which is about heat pumps or solar panels or similar. Those things can scale. If you think about what mass purchasing would look like, mass implementation would look like some sort of asset lease back model, what that would look like.
Saif Hameed [00:16:00]:
You can conceive what this looks like at scale before you go and do the pilot. The best way to do a pilot is to think, what would this look like? Big picture. And then actually, if I look at the big picture, what variables does big picture success depend on? Let me now do a pilot to test one of those variables. Like think back to your science class at school. A good lab experiment is one which tests one variable at a time and keeps the other thing static. So what I'm testing is either going to be the technology, can the technology work? And I'm testing this pilot. In this pilot, I'm testing the use of this technology, or can I collaborate with the supplier? Is this a good supplier for me to be collaborating with? The technology is proven. I want to test supplier mindset, adoption behavior, etcetera.
Saif Hameed [00:16:47]:
Or is it something else that you want to test with this pilot? And then if you get that right, then the pilot hopefully proves success and then you can scale, because you already have the pattern in mind for what this looks like at scale. And you know, what the scaling mechanisms are. And the scaling mechanisms are likely going to be something around cost and financing, or potentially data and analytics or potentially implementation risk, for instance.
Isobel Wild [00:17:12]:
It seems clear from that that a lot of the groundwork for a successful framework of collaboration happens internally and like around the internal setup and everything you mentioned there in terms of resourcing collaboration projects as a pilot and as a scalable project, what's your advice for getting buy in and budgeting it appropriately and getting the right team members on board to enable a long term sustainable success of a collaborative project which might need to roll out over quite a few years?
Saif Hameed [00:17:46]:
So I think it is again useful to already scope out what would this look like four or five years down the road? Is the intention that the brand, for example, should continue to fund this sort of intervention long term. And actually, I think very few finance teams will be fully comfortable with that, unless there's some logic on how you can monetize this as well. And most companies don't have that logic on how you're going to monetize this. If I take the example of, let's say, a brand with many products in the portfolio, they might find that actually there is one product that is a premium product. They can actually lean forward quite a bit and do something much more innovative and keep that innovation going long term on their own cost or on their own dime. But for most companies, there's a limited ability to just keep funding interventions in their suppliers. So you're probably going to have to think about how this moves over to some sort of business as usual model, in which case you're going to say, well, actually, what are the non monetary incentives that we could put forward? And maybe the non monetary incentives are, do we give more volume to a supplier? And we say, we want you to do these five initiatives. And actually the advantage for you as a supplier is you're going to get much more volume out of this.
Saif Hameed [00:19:00]:
We're going to require you to co invest in these initiatives, but the volume plays what you have at stake, and then the supplier can do their own analysis. Now, maybe for the co investment or the pilot, you need to get some funding from your side to make this work. But then the business case should be internally one around alternatives. What is the opportunity cost? If I don't do this, what will I have to do otherwise? Do I have to do much more in other parts of my value chain or much more in other parts of my operations? And actually, if I get this pilot off the ground, this thing funds itself because the supplier will do whatever I need to to get the volume plate that I'm offering. So it is always going to come down, I think, to an opportunity cost.
Isobel Wild [00:19:38]:
And maybe to dig into that a bit more. It seems like there are some key areas that you should think about to collaborate on and maybe other areas which perhaps are better owned solely by you. Could you expand a bit on what those perhaps maybe look like? And if there's a. I hate to say it, but is there a general rule of thumb?
Saif Hameed [00:19:58]:
I think we've talked about this before, but like, there's a business hat and an environmental hat that you can kind of wear on this. And I think that from the environmental hat, everything should be about collaboration. We're not going to save the world on our own. No one company is. Collaboration is the name of the game. That said, I almost never wear my environmentalist hat, as you know, Izzy. And so with my business hat on, what I would say is I think most companies should find good mechanisms to try and ensure that the ecosystem does as much of the work for them. And I think that means providing the right incentives for the ecosystem to do that.
Saif Hameed [00:20:39]:
So what I would focus on as a business is giving clarity on what I'm going to make available for you, whether you're a supplier, for example, or a distribution partner. What is the pie available? Is it more volume? Is it a longer term contract? Is it something else? The next thing I would do is say, what action? Now that I've given you the incentive, what action is it that I want you to take? And let me be very specific. Maybe the action I want you to take is I want you to innovate on this particular dairy based raw material that you're providing me with so that you can create a lower emissions alternative. And that's an R and D agenda that I expect you to undertake. Okay, fine. I've told you what I need you to do. Now let me tell you how I'm going to grade you to unlock the incentive that I've dangled in front of you from the action that I've required you to take. A so provide some sort of a framework on how you're going to identify what grit looks like.
Saif Hameed [00:21:33]:
And that's actually, I think, where most companies right now are breaking down. They don't have much trouble figuring out what the incentives are. Frank, it's not rocket science. There are only three or four options here. It's simple. It's not that hard for them to identify the type of activity or behavior change or whatever it is that would be required. That's also not rocket science. What is typically a lot harder is attribution and demonstration of what change looks like in my scope.
Saif Hameed [00:21:59]:
Three, for example. And that, I think is an interesting technology problem, which we're solving at Altruistiq, but the industry is still a little behind on, which is how do you take this intervention that a supplier did at your behest, and how do you have the before and after picture on that, and how do you link that up into the scope? Three data for the customer or the brand, or the principle that is requiring that activity change in a way that that principle can then monetize effectively or link back to the incentive. So you can say, hey, you reduced my scope three by x thousand tons, demonstrably. And I have the pcf to prove it from before and after the change. And I have the evidence that it is the change that drove the difference between PCF A and PCF B, and therefore you've unlocked the incentive that I offered. That is actually the really interesting hard part, and I think that's a technology challenge.
Isobel Wild [00:22:54]:
How do you see technology solving that challenge?
Saif Hameed [00:22:57]:
There are a number of different components, but it goes back to something we were just talking about, which is the differentiated product carbon footprint. And I use differentiated in a few ways. One is differentiated by time. What did this product carbon footprint for this thing that I bought as a customer, what did this look like before change and after change? You also want differentiation because you want to know that this is the product carbon footprint for what I bought. This is something that your sale order system, as a supplier of mine and my purchase order system have matched together. And we know that this is the stock keeping unit that I bought, actually, and therefore we also know which facility it was made in. We know what went into it, et cetera. That whole data pack exists on my supplier side, and that differentiated pcF, the before and after pcfs are basically available to me.
Saif Hameed [00:23:46]:
That is the technology part. The next bit is actually maybe a little easier, maybe a little harder, depending on what software you're using. But for us, the next bit is, can you actually seamlessly slot this into the scope three such that it changes the scope three numbers. There are a few other bits and bobs which are relevant here, like for example, some sort of proof of origin. Is there a demonstrable proof that it came from this place? You want to have some sort of proof that the intervention was responsible, because otherwise you just know what changed. You don't know what caused the change. So some sort of proof of the intervention as well. So a few of these other bits combine to give you that richness of picture.
Isobel Wild [00:24:22]:
Sounds like a really exciting area and impactful area of innovation. I think I would also love to draw on actually what you're seeing in the market as a whole. And I know previously at our event last week you were saying that people are catching up and lots of businesses are now getting on the same page around sustainability ambition, sustainability targets. How are you seeing this impact collaboration? And how are you seeing the first movers perhaps collaborate now with the fast followers?
Saif Hameed [00:24:53]:
Let's start with the first movers. Unilever has famously been one of the first movers on this sort of thing. The way that Unilever was approaching this a couple of years ago is they would actually try and finance the physical separation of materials, which means a separate processing plant for some materials they're buying such that they can have full traceability and demonstrable change, because they know exactly what's going into that facility that is harder to scale, because again, it multiplies, it doesn't scale. Every time you want to do this, it's the same cost. Then the next thing is, well, actually, if we're trying to do this in a data sense from accounting terms, we need to be able to also have different systems able to speak to each other. And so one of the things that unilever did was they collaborated very closely with WBCSD and Pact, which, of course, we know well, to try and define standards for what PCs should look like, how PCs should look like in an organization creating them, and how they should be shared across organizational boundaries. The next challenge that they run up against is, well, to connect the PCF from a supplier to the PCF on my side, as a component part, I need to be able to match those sale order codes to purchase order codes. And that's actually somewhere where this packed API schema breaks down a bit.
Saif Hameed [00:26:10]:
So let me actually try and fund the development of technological innovation to solve that problem. Now, we were actually excited to win the grant for that, and so we're now building this out with unilever and pact and digital catapult, so that this will be our approach that we take will be generalizable for the industry. But that, I think, is a good example of how an industry leader can actually sort of go and drive and drive change. So you see, that's a great example of how a first mover can really go out there and catalyze change. And this is obviously more on the data and analytics side, but similar principles apply to other technologies as well.
Isobel Wild [00:26:50]:
There seems to be so much potential here and so much excitement around what collaboration can create. I think a big issue, from what I've heard from people, is actually finding the right suitable partners to collaborate with and being able to identify perhaps even other companies who are using the same supplier or other companies who are working or supplying from the same area. How would you suggest to navigate this?
Saif Hameed [00:27:16]:
I'm actually going to be totally contrarian and also avoid answering the question, Izzy. And I'm going to say, I think there is actually too much talk about collaboration. There's this old maxim, which is, if you want to go far, go with others. If you want to go fast, go alone. And to be honest, I think it's time to go fast. It'd be nice to go far, but it would be, frankly, a lot nicer to go fast at this point. And I think that when an organization can identify exactly what it wants to do in a way that scales, I think it should push on the gas. And maybe that means collaboration or maybe it means direction.
Saif Hameed [00:27:56]:
And direction may still happen with your suppliers and partners, but it just means you're saying, look, I actually know what the answer is. Here's what I think the answer is. Here's what I'm going to do. Who's with me in doing this? Rather than saying, hey, let's all come together and hatch a big plan? A nice example, I think, of direction versus collaboration is McCain's with the Regen ag program that we've talked about on this podcast. You can call it collaboration, but I actually say that it's a very powerful example of direction, which is McCain's knows exactly what they want to do on this topic. They have a great in house agricultural team. They have identified what needs to happen. They've identified how to monetize it on their customer side.
Saif Hameed [00:28:39]:
The strategy is clear. They know how they're going to implement it operationally. And now it's about, hey, we're running ahead with this program. Our doors are open to any supplier that wants to come on board with us on this program. But this is the program. And I think that's fantastic. I think I would rather have ten of those, frankly, or 100 of those, versus a lot of big kind of Kumbaya moments around collaboration.
Isobel Wild [00:29:04]:
I think, actually, Arla is another great example of that. And I think Camilla actually spoke about they have been really fast and they have been very dynamic in how they have approached carbon reductions. But now they're at a point where they've made a lot of the impact changes that they can within their direct supply, and they now need to help encourage other businesses and other players in the dairy industry to catch up and able for them to then make their other changes. And I think there just seems to be a huge variety in the market of people who are at that stage and trying to encourage others. And I know Charles Cohn made a great reference to it at an event we had over a year ago where he was saying to take out the mortgage on the initiative and then other people pay the rent as it goes forward. But I think it's like an interesting market trend to watch at the moment on that stuff. Are there any other kind of concluding thoughts or advice that you would give to listeners on this fluffy topic of collaboration that we've tried to unfluff here.
Saif Hameed [00:30:04]:
I think that, having said this myself just over this episode, I do think the two bits I would take away is this value of clear direction over general collaboration. I can't stress this enough. I think the Charles Kahn Patagonia example is a great one, again, of knowing where you want to go and then letting others know that you're going ahead with that. It's kind of like when a lot of people have tried to figure out which restaurant to go to and someone just says, hey, this is where I'm going. If you want to go, let's go. Otherwise, we can spend an hour talking about this and this other piece around. Think of things that scale rather than things that multiply, which I actually stole from someone at a conference a year ago, and it stuck with me because it really resonates. I think those are probably the two things that I would look for people to take away from this.
Isobel Wild [00:30:52]:
Those are two great pieces to end on. Saif, thank you so much. And to listeners, thank you for tuning in. We do have a lot of resources on this, on our status sustainability platform, so definitely have a look there. We'll add some links to the show notes. Thanks for listening. Bye.