Hewlett Packard Enterprise – an Unexpected Leader in the fight Against Climate Change
Hewlett Packard Enterprise has made reducing greenhouse gas emissions a top-3 element of the mission for its supply chain and established a first of its kind supply-chain specific emissions reduction target. This memo dives into why HPE is emerging as an improbable leader in the fight against climate change.
Hewlett Packard Enterprise (“HPE”) is an iconic global firm in the final innings of one of the largest transformations in American business history. The company separated from its sister printers & PCs business in November 2015 and subsequently divested $20B worth of software and BPO services assets in 2017, leaving a business that primarily sells IT hardware [1]. This new business mix means the go-forward company is highly affected by energy prices, since its hardware products usually are operated in an “always on” mode for many years, making the “total cost of ownership” highly sensitive to electricity costs. Since coal generates roughly 40% of U.S. electricity, and is the U.S.’s top fossil-fuel source of greenhouse gases, electricity is central to the broader climate change debate [2]. Therefore, though not traditionally thought of as a business with meaningful environmental considerations, climate change and the associated regulatory regimes that govern fossil fuel use (particularly coal) are increasingly critical topics for HPE.
Management has realized that the best defense is offense in this arena. HPE is keenly focused on getting out ahead of climate change policy so it can avoid energy cost spikes caused by last-minute desperate regulatory measures (such as an emergency halt to coal-based electricity production) that could seriously impact both the cost structure and demand for HPE’s products, and ensure a smooth transition to renewable electricity sources. The supply chain is at the center of this discussion since HPE’s supply chain actually contributes more greenhouse gas emissions than the entirety of its operations. For this reason, HPE made “reducing global and community environmental impact” one of the three key pillars for its Supply Chain Responsibility mission statement in 2015 [3].
To take the lead on climate change prevention, HPE’s management is taking a multi-pronged leadership approach to limit its supply chain emissions, lead the transition to renewable electricity generation sources, and catalyze action by others through adherence to global climate change mitigation regimes. In 2016, HPE set new aggressive emissions reduction goals by establishing a first of its kind supply-chain-specific greenhouse gas reduction goal of 15% by 2025 (compared to 2015 levels) via science-based emissions targets at each supplier [4]. HPE is working with its suppliers to build tools for effectively reducing greenhouse gas emissions, and regularly evaluates those suppliers on progress toward emissions goals, with 90% of its suppliers currently having reduction goals in place [5]. Additionally, the company set out a vision to source 50% of its own electricity consumption from renewable sources by 2025 as a way to signal its willingness to “do its part” in the fight against climate change [6]. In support of this goal, HPE has established 13 solar power sites globally as well as a 144M kWh wind energy facility, which helped the company generate 28% of its electricity from renewable or zero-carbon sources [7]. Finally, HPE has publicly endorsed multiple large-scale climate change agreements including the international “Paris Climate Agreement” as well as the “Business Backs Low-Carbon USA pledge” which pressure governments to gradually shift to a carbon-light economy [8].
While HPE has set impressive goals for itself over the next decade, it has not yet adequately paired those ambitions with a shorter-term, actionable implementation roadmap. When any organization sets aggressive goals and doesn’t provide clear tools on how to achieve those goals, it can create mounting pressure to cut corners, so HPE needs to ensure it doesn’t create a system that leads to suppliers, employees, and peers “gaming” the system. One recommendation that may help with this is setting interim annual targets to have stakeholders make gradual progress rather than being tempted to try to back-load changes. Similarly, given how large and decentralized HPE’s supply chain is, HPE needs to play a stronger role in fostering supplier collaboration with one another via the creation of a supply chain council or strategic alliances amongst its suppliers. This sort of multi-party collaboration within the supply chain could unlock additional emission reduction potential via potential supplier co-location, sharing of shipment routes, or better communicate to reduce waste. Finally, HPE should develop and publish sets of “best practices” to facilitate knowledge sharing across its supply chain so that environmentally-focused process improvements discovered in one part of the chain can ripple through the rest of the supplier base rapidly.
Going forward, there are two key open questions. First, how can the company address the climate implications of its products in the aftermarket (i.e., after it has sold the product and it is being used by a customer), given that the level of GHG emissions generated from the use of its products by customers dwarfs that of its supply chain [9]? Secondly, should it start to more directly engage with policymakers to guide the climate change mitigation efforts in a direction that is most productive?
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[1] Hewlett Packard Enterprise, 2017 Securities Analyst Meeting (Palo Alto: Hewlett Packard Enterprise, 2017), p. 3, 5.
[2] Michael Grunwald, “Inside the war on coal: How Mike Bloomberg, red-state businesses, and a lot of midwestern lawyers are changing American energy faster than you think,” Politico, May 26, 2015, https://www.politico.com/agenda/story/2015/05/inside-war-on-coal-000002, accessed November 10, 2017.
[3] Hewlett Packard Enterprise, Supply chain responsibility: Our approach, p. 2, https://www.hpe.com/h20195/V2/GetPDF.aspx/c03742930.pdf, accessed November 2017.
[4] Hewlett Packard Enterprise, Living Progress Report: 2016 Positions, Policies, and Programs, p. 12, http://h20195.www2.hpe.com/V2/GetDocument.aspx?docname=a00015938ENW, accessed November 2017.
[5] Hewlett Packard Enterprise, Living Progress Report: 2016 Data Summary, http://h20195.www2.hpe.com/V2/GetPDF.aspx/c05155022, p. 11, accessed November 2017.
[6] Hewlett Packard Enterprise, Living Progress Report: 2016 Positions, Policies, and Programs, p. 10.
[7] Hewlett Packard Enterprise, Living Progress Report: 2016 Positions, Policies, and Programs, p. 17.
[8] Hewlett Packard Enterprise, Living Progress Report: 2016 Positions, Policies, and Programs, p. 10.
[9] Hewlett Packard Enterprise, Living Progress Report: 2016 Positions, Policies, and Programs, p. 16.
Really interesting! As you mention, the “always on” mode makes cost of ownership higher and also increases electricity waste. I see an opportunity for Hewlett Packard to educate the end users of its hardware to better manage their devices in order to both decrease the cost of usage as well as decrease their own environmental footprint. HP could work with the software providers that operate on its devices to enforce certain settings or prompt users to shut down/take other actions that would lead to more sustainable usage.
I really liked the analysis – I think that energy is the next frontier for most of these companies. However, since HPE is an integrator rather than a producer (i.e. sourcing its processors from intel, storage from WD or others), one must assume they won’t be able to control much of their suppliers / vendors, as they supply the entire industry. To make such an impact, HPE with their peer companies such as Dell and IBM to push on suppliers to reduce electrical consumption from the supplied equipment. Moreover, I think that HPE can play a big role by coupling their products with renewable energy sources. HPE can provide data centers that are powered by renewable energies, by partnering with renewable energy firms, strengthening their mission to reduce GHG even further.
Great analysis! It is so key that HPE is emphasizing their own energy consumption. An electric car is not clean if the electricity it uses is generated by burning coal. In the same way, HPE can still be harming the environment (and their own future bottom line) if their electricity is not generated renewably.
To address your second question, I think HPE should directly engage with policymakers to guide climate change mitigation efforts. Particularly in areas where HPE is a large employer, they should lobby their representatives in both houses of Congress both Federally and at the State Level to demand that action be taken in order to protect their long term interests. This translates to constituent jobs, which representatives are incentivized to protect. They can increase their lobbying power by partnering with other large companies in their districts who also have a measurable financial interest in minimizing climate change and mitigating it’s effects.
After losing its way over the last decade, it seems to me that HP is finally beginning to focus on a business that they can continue to compete in effectively, and I’m glad that they are thinking holistically about the business they’ve decided to pursue. Although I see no problems with them striving for such aggressive goals, I do worry that the organization might not be stable enough and ready to commit to such changes, and therefore I see their stance on climate change as a gimmick to produce goodwill.
However, I do think that HP has an opportunity to be innovative, develop a competitive advantage, and decrease long term costs in the space by hiring a sustainability officer that can set metrics and drive organizational and cultural change, by building hardware that can be more energy efficient and more durable, and by offering services/data centers that run on clean/renewable energy.
Very interesting findings and great analysis. It is hard to imagine HP being one of the pioneer in sustainability issue. The goals they set seem to be aggressive but it looks like they are on their way. However, given the intense competition in IT space, I would doubt if they can exert high requirement along the value chain like what IKEA did. It should probably involve policy makers or industry associations to have more significant influence. After all, sustainability is an issue that cannot be dealt with by any single enterprise without the intervention from a higher perspective.