Smiths’ 12% emissions reduction driven by linking bonuses to green goals – CSO

Smiths Group’s chief sustainability officer said pay incentives helped the company reduce its operational emissions by nearly 12% in the last year.

The FTSE 100 engineering giant announced that it has cut emissions from its operations – known as scope one and two – by 11.8% from July 2022 to July 2023.

In its sustainability report, the company said it also reduced emissions from its supply chain and the products it sells – known as scope three – by 4.8%.

This was achieved by improving energy efficiency by 8% and increasing the renewable portion of total energy usage to 70%, the report said.

Smiths Group has pledged to reach net zero for its scope one and two emissions by 2040 and for its scope three emissions by 2050 – a target it has submitted for verification by the Science-Based Targets initiative.

John Ostergren, Smiths Group’s head of sustainability, said linking a proportion of bonuses to decarbonisation has helped to drive this year’s efforts.

The firm has tied 10% of the annual bonus for around 6,000 colleagues to achieve a 4.5% improvement in energy efficiency and a 15% weighting of executives’ long-term incentive over three years to reduce operational emissions by 15-20%.

Speaking to the PA news agency, Mr Ostergren said: “With scope one and two, I’d say we solidly have momentum. Last year was a big year for us in terms of delivery.

“It also reflects the tailwinds that are naturally created when you put greenhouse gas delivery into incentive plans,” he added.

“So it’s not the only reason things are getting done but I would say the whole organisation is aligned to the delivery of these targets in a way that just wouldn’t be the same without that fact.

“We’ve aligned our long-term incentive pay in light with our scienced-based reduction trajectory so in order for people to get paid that bit of their bonus, we have to deliver those targets and it gets people’s attention.”

Mr Ostergren added that the company has a “pretty clear, simple roadmap” for its interim target of reducing its operational emissions by 50% by 2032.

He said: “Getting it done requires a bunch of projects but what the hurdle is, is to make sure we do the necessary planning, to make sure the execution is both effective and efficient.”

On other potential obstacles the firm faces, he said: “The honest answer is moving in the marketplace.

“We have great value in providing decarbonisation solutions for our customers and actually when I think of decarbonisation in the round that’s our biggest impact – what we do through our customers.

“And the faster we can move to commercialise those and deploy those technologies will by some large margin have the biggest impact.”

Some of the solutions Smiths Group is working on include the kit that goes into heat pumps, kits that reduce methane leaks in existing infrastructure as well as investing in green steel, hydrogen and carbon capture, usage and storage.

Mr Ostergren said: “When I think of barriers, it’s really a matter of speed-to-market with our solutions because these are things we can do and they’re things we can do today, and they’re things we must do today when you look at what we, the world, have committed to.

“We need to deploy the things we know how to do faster,” he said.

Mr Ostergern said the firm has recognised in the last two years that decarbonisation efforts must go beyond operations, adding that it will “define the future of our commercial success”.

“I’m proud of the things that our teams do when I look at it as an overall portfolio of what it’s delivered,” he said.

“It’s really hit all those primary levers of efficiency, electrification, low-carbon fuels, and carbon removal.”

Elsewhere, Smiths Group said it has reduced recordable injuries across its global plants and manufacturing sites by 26% and reduced lost-time injuries by more than 40%.

The sustainability report said the company has also increased the representation of women in senior leadership roles to 25% while more than 300 employees have participated in a leadership development programme.

Meanwhile, the firm launched the Smiths Group Foundation, which is committing an initial £10 million to support STEM-related charitable organisations that look to improve the world through smarter engineering.

In terms of the increasing politicisation of environment, social and governance (ESG) performance, Mr Ostergren said: “There will be noise in the political systems across the world

“However what is most interesting and encouraging to me is that I think that really matters less and less.

“The world and the financial markets are moving so fast to deliver the commitments that we’ve all made and we are dead serious in our commitment to net-zero and we know that our customers are as well and that’s what matters most.”