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Buying renewables a 'no-brainer' for world's 2nd-largest brewer

SNL Image

Solar panels on the roof of Heineken's brewery in Den Bosch in the Netherlands.
Source: Heineken

➤ Heineken's head of energy says buying wind and solar power makes financial sense.

➤ Consumers demand sustainable practices, but investors need to see returns.

➤ Next step is to engage suppliers and customers to reduce emissions.

Heineken NV, the world's second-largest brewer, last year committed to switch 70% of its energy consumption to renewables by 2030, including both electricity and thermal energy. The company is joining a wave of early movers, led by technology companies and large industrials, who are increasingly signing so-called power purchase agreements, or PPAs, to directly buy the green energy produced by renewables projects.

Nicolas Clerget, Heineken's global category leader in charge of brewing materials, services and energy, is responsible for turning the company's renewables goal into reality. He spoke to S&P Global Market Intelligence on Oct. 2 on the sidelines of the RE-Source conference in Amsterdam about why the company is buying green, how investors are responding and why decarbonizing supply chains will be much harder. The following is an edited transcript of the conversation.

S&P Global Market Intelligence: Why is Heineken going green? Is it about sustainability or are renewables just cheaper?

Nicolas Clerget: The price of this kind of contract is, of course, one big element ... but we are doing it for sustainability. And the fact that we committed not only to renewable electricity, but also thermal, where there is far less solutions and much more challenge, [shows that]. The idea is that, at the end of the day, the consumers are looking for brands that fit their values. And we are a premium brand and people want, when they have good beer with us, that it is invested in the right way. So that's a primary objective. Yes, of course, financially it has to work, etc. But we are also ready to take risk. In some countries, we do not go with a positive business case but we go, from time to time, with hope and faith [and bet] that economics will change in the long-term.

What has your experience been so far?

It's a bit worrying how complex it can be and how long it can take [to sign contracts]. We have a pipeline of more than 200 projects for 2030. Including thermal and electricity we have already done 20 [deals] — we have today 18% of renewable energy [in our energy mix]. Going to the final end state will require a lot of time, resources [and] cost, of course. But at the end, what is good is that we are a company with a bit of a unique operating model. We are decentralized, so we have to engage, we have to explain how it works to 70 countries. We have to engage people locally so they start doing their own sourcing in markets where, until now, you have almost no solutions. We have to convince developers to follow us. We have very remote locations in some cases: We are in New Caledonia, Solomon Islands, Papua New Guinea, East Timor, the Caribbean. They are not your mature renewables markets. But everybody wants to do it. If you take a small island like New Caledonia — they want to have renewables, it's a good story. It's also important for their local environment.

SNL Image
Nicolas Clerget
Source: Heineken

What you have in some countries is diesel fuel and oil are [still] generating electricity. For that, going to renewable electricity is ultimately the right thing: It's cheaper, it's easier, it's also more reliable. So for us, it's a no-brainer. And we have a lot of [operations] in Africa, where we are going to deploy programs to have solar installations. But when you actually need to heat and you need to find solutions [for thermal energy], the industry is even behind what has been done in renewable electricity.

How much of this initiative is driven by your investors?

I think it all starts with the management and the vision. When we talked to our CEO, it was very clear that for him he wants real green energy. So we had a lot of debate about what is the right type of [renewable energy] certificate, and I think this is the right type of debate we need to have in the company. When it comes to investors, it definitely is something that is a push when it comes to, "Are you doing the right thing, are you engaging in the right thing?" We are very lucky to have a CFO who is really looking after that and doing constant business reviews.

We were in fact expecting a very negative business case at the very beginning of the program. So we've been very clear that this is not going to be a cost-saving program, this is clearly a more important pillar for the future of our company. Actually, so far, we are revising some of the business cases because we realize that the economics have changed quite a lot in two years. I think it's reassuring. In some countries, there's very good economics. So that would impact the [profit and loss] and reassure investors. In some countries, [business cases] are still negative, but I think this will follow.

What I believe is that corporates [will need to act] not only in the production environment, but engage with their downstream or upstream supply base — suppliers, warehouses or even customers — to group together a bit of an alliance, to say, "How do we partner to buy together at a faster rate?" Because it goes back to the issue of scale and time. And we've seen a few initiatives in different countries where suppliers are either proposing us to join, or we are inviting them to join some of our projects. And I think that's changing entirely the footprint.

How are you tackling that challenge in your own supply chain?

We are discussing at the moment the famous scope 3 [emissions] target, that's an ongoing discussion internally. And that will be something we are trying to design: how do we want to propose that, how does it fit with our supplier base? Scope 3 for us is packaging, raw materials, we have distribution, but we're also cooling. We supply fridges to pubs and bars, that's part of our footprint. And if we supply fridges, which are very intense on energy consumption, that's pretty bad. It can go very far.

There's [also] the challenge of manufacturing footprint. We have 179 sites. So what I need is actually a plan for 179 sites or [different] countries. When you take logistics, you talk about the number of trucks you have on the road, the plan for individual trucks — that's an enormous plan you need to have. So we go back to finding simpler solutions to scale. The challenges are going to become bigger and bigger if we go to that scope 3 environment.

So it will be keeping us busy for the next 11 years, at least. But it's very interesting. I think it's a unique opportunity in my lifetime to do this kind of transition. It's of course overwhelming from time to time — suddenly, you are in a very set foundation of something that is running very easily and you wake up and say, "What I have is in fact not the right thing and I need to entirely change." It's quite a big transformation to do, I think, for any company.