S04E01 - Setting the Stage - Why Manufacturing Holds the Climate Key

S04E01 - Setting the Stage - Why Manufacturing Holds the Climate Key

Welcome to the Supply Chain Dialogues, Season Four, Episode One. I'm Daniel Helmig.

You know, when I started my doctoral research three years ago, I thought I was simply going to validate what we all believed to be true about supply chains and climate action. I expected to find that better measurement standards would lead to better emissions results, that cost-benefit analysis would support climate investments, and that stronger regulations would drive real change. Boy, was I wrong...

What I discovered through surveying the German discrete manufacturing industry turned most of what I thought I knew upside down. And that's exactly what this entire season is about.

For the first time, we're going to take you through the complete journey of rigorous academic research - from hypothesis to hard truths - and show you why the conventional wisdom about supply chain climate action is not just incomplete, it's often completely backwards.

Today, we're setting the stage. Why did I choose German manufacturing? Why does this research matter? And what makes these findings so shocking that they challenge decades of climate policy and business practice?

Amy, my AI co-host, is back to help us decode the data and translate academic findings into actionable intelligence.

As always, you can reach us at dialogues at helmigadvisory.com with your thoughts, or search the website helmig advisory one word dot com to find all transcripts on our website. Now, let's dive into why German manufacturing companies hold the key to understanding global climate transformation.

Daniel, before we get into the surprising findings, help our listeners understand the scope of what you studied. When you send your research questionnaire to fivethousand fourhundred companies, what exactly are we talking about here?

Let me paint the picture. We're talking about the heart of German industrial power - companies ranging from small 50-person operations to industrial giants with over 10,000 employees. Automotive, electronics, mechanical engineering, aerospace, medical technology.

The numbers are staggering when you think about it. Of the 248 companies we surveyed, 131 of them - that's more than half - generate over one billion euros in annual revenue. Another 102 companies make more than 50 million euros annually. These aren't startups figuring things out. These are the companies that make the stuff that makes the world work.

Cars, computers, machinery, medical devices - if you've used it, worn it, or driven it in the last year, there's a good chance it came through one of these supply chains.

And why focus specifically on German companies? What makes Germany the right lens for understanding global supply chain climate challenges?

This is where most people get it wrong, Amy. Everyone assumes you need to study companies globally to get global insights. But that's like trying to understand gravity by dropping objects in a hurricane. You get chaos, not clarity.

Germany gave us the perfect laboratory. Same regulatory environment, same cultural context, same institutional pressures. When you control for those variables, you can actually see what drives real change versus what creates corporate theater.

And let's be brutally honest here - if German manufacturing companies can't figure out supply chain climate action, nobody can. These are some of the most technologically advanced, well-resourced, systematically-thinking organizations on the planet. They invented the printing press - Time Life magazine called it the most important invention of the second millennium. The automobile, the diesel engine, X-rays, the MP3 format that revolutionized digital music. And now? They're pioneering Industry 4.0 - the concept of smart, interconnected manufacturing that's reshaping global production. SAP, the world's largest business software company, is pushing into quantum computing. Germany just built Europe's largest quantum computer. These aren't just products, they're entire technological paradigms that Germany creates and exports globally.

But here's the thing that really matters: Germany isn't just any manufacturing economy. They're Europe's largest economy, they've got some of the world's most advanced sustainability regulations linked to the EU, and their manufacturing tradition runs so deep that if you can understand what works and what doesn't work there, you've got insights that apply everywhere else.

Let's talk about the scope of the climate challenge these companies face. You focused specifically on Scope 3 emissions. Can you explain why that's so critical?

this gets to the heart of why this research matters. Most people, including most executives, think about emissions wrong. They focus on what they can see - the smoke coming out of their own factories, the electricity bill from their own operations. That's Scope 1 and Scope 2 emissions.

But here's the actual reality: for most manufacturing companies, 70 to 90 percent of their actual climate impact comes from Scope 3 - everything that happens in their supply chain, upstream from suppliers and downstream to customers.

Let me put this in perspective. You could make every German factory run on 100% renewable energy tomorrow - Scope 2, solved. You could eliminate every bit of direct emissions from manufacturing processes - Scope 1, done. And you'd still have only addressed 10 to 30 percent of the actual problem.

The real action is in the supply chain. The steel they buy, the transportation they use, the components that come from Asia, the way customers use their products. That's where the climate gets won or lost.

But surely the European Union has regulations addressing this, right? What's the regulatory landscape these companies are operating in?

this is where it gets really interesting, and really frustrating. The EU has this massive regulatory machine focused on climate action. As of 2024, companies have to navigate over 40 different sustainability-related regulations and directives. Forty!

But here's the kicker - almost all of them focus on Scope 1 and Scope 2 emissions. The very emissions that represent the minority of the actual problem. It's like spending all your time organizing your sock drawer while your house burns down around you.

The regulatory framework is what I call "territorial thinking." It's based on the idea that if we just control what happens inside our borders, we'll solve climate change. But supply chains don't respect borders. When a German car company sources components from Asia, those emissions don't magically disappear just because they cross a border.

So you've got this bizarre situation where companies are spending fortunes complying with regulations that largely miss the point, while the real climate impact - Scope 3 - operates in a regulatory gray zone.

This sounds like a massive disconnect between policy and reality. What drove you to investigate whether companies could actually achieve net-zero Scope 3 emissions by 2040?

That's exactly the right word - disconnect. I kept seeing this gap between the corporate announcements - every company has a net-zero target these days - and what was actually happening in supply chains.

But 2040 isn't some arbitrary date I picked. The Paris Agreement target of 1.5 degrees? We're basically there. The climate science triggering this research reveals alarming trends. Global warming reached 1.26 degrees Celsius in 2022, increasing at an unprecedented rate of over 0.2 degrees per decade. More recently, the renowened Copernicus Climate Change Service reported that 2024 was 0.72° degrees warmer than the 30 year average until 2020 and 1.6 degrees warmer than the pre-industrial level, making it the first calendar year to exceed 1.5° degrees celsius above that level. These accelerating trends demonstrate that the window for effective climate action is rapidly closing.

If companies are serious about preventing catastrophic climate change, they need to move much faster than current regulatory timelines suggest.

Most EU regulations don't even require comprehensive Scope 3 reporting until the late 2020s, let alone actual reductions. But the physics of climate change doesn't care about regulatory timelines.

So I wanted to test whether companies could leapfrog the regulatory approach and achieve net-zero Scope 3 emissions by 2040 - sixteen years ahead of many regulatory targets.

The question was: what would it actually take? And more importantly, what's stopping them right now?

Let's talk about your methodology. How do you study something this complex across 248 companies?

This is where academic rigor meets real-world complexity. I partnered with the the German BME - that's the Federal Association for Supply Chain, Procurement, and Logistics in Germany. Greetings and thank's go out to their former CEO Gundula Ullah, and the MD of the BME Marketing GmbH, Mirjam Zeller, whose support enabled the comprehensive data collection that forms the foundation of this research.

Their members aren't just random companies. These are BME members, which means they're already thinking seriously about supply chain management. If anything, this sample should be biased toward companies that are more likely to succeed at supply chain transformation.

We sent surveys to 5400 companies and got 248 complete responses. Now, 4.59% response rate might not sound impressive, but for specialized sustainability research, that's actually quite good. Most comparable studies get 1-2% response rates.

We performed multiple regression analysis, used control variables for company size, industry sector, geographic distribution, the full statistical arsenal.

But here's what makes this research different: I wasn't trying to prove a theory. I was trying to test whether the things we all assume work actually work.

Before we get into the shocking findings in future episodes, what should listeners understand about the significance of this research?

this research matters because it's the first comprehensive quantitative study to test whether current approaches to supply chain climate action actually work. And I mean work in the real world, not in theoretical models or case studies.

We tested three fundamental assumptions that underpin billions of euros in climate investment and decades of policy development:

First, that better measurement and reporting standards lead to better emissions results. Second, that cost-benefit analysis supports climate investments. Third, that stronger policies and regulations drive real change.

These aren't academic questions. These assumptions drive how companies allocate resources, how governments design policies, and how investors make decisions.

And what we found... well, let's just say that we've been doing climate action backwards for the past decade.

That's quite a claim. What makes you confident these findings will translate beyond Germany?

Because the fundamental dynamics we discovered aren't uniquely German, Amy. The regulatory complexity, the economic evaluation frameworks, the organizational challenges - these are global phenomena.

If anything, German companies should be the best case scenario. They have more resources, better technology, stronger regulatory support, and longer-term thinking than companies in most other countries.

So when we find that even German companies struggle with current approaches, it suggests the problems are systematic, not circumstantial.

Plus, I've been an executive working on supply chain transformation for two decades, across every industrialised continent. The patterns we found in the German data match what I see in corporate boardrooms and shop floors from Italy to Asia to the Americas.

The difference is now we have statistical proof of what practitioners have suspected but couldn't document.

What should listeners expect as we go through the rest of this season?

we're going to take you on the complete research journey. Episodes two through four will walk through each hypothesis - the standards paradox, the economic assessment trap, and the policy irrelevance crisis. These aren't just academic findings; they're game-changing insights that explain why so much climate investment produces so little climate impact.

Then we'll explore two paradoxes that completely upended my expectations: why bigger companies with more resources actually struggle more with climate action, and why companies with global operations outperform local champions.

After that, we'll translate the research into actionable recommendations for academics, policy makers, and business leaders. Because understanding why current approaches fail is only valuable if we can identify what actually works.

This isn't about criticizing people's efforts. Everyone I surveyed is trying to do the right thing. This is about identifying why good intentions and smart people are trapped in systems that work against climate action rather than for it.

Any final thoughts for listeners as we begin this journey?

I'll leave you with this: if you're a business leader who's frustrated that your sustainability investments aren't delivering the climate impact you expected, you're not alone. If you're a policy maker wondering why more regulations aren't translating into faster emissions reductions, you're asking the right questions. If you're an academic studying supply chain sustainability and finding contradictory results in the literature, welcome to the club.

What we discovered through this research is that the problem isn't lack of commitment or resources. The problem is that our current approaches - measurement systems, economic frameworks, regulatory structures - are fundamentally misaligned with the goal of rapid emissions reduction.

But here's the good news: once you understand why current approaches fail, you can design approaches that succeed. And that's exactly what the rest of this season is about.

This sounds like essential listening for anyone serious about supply chain climate action. Thank you for setting the stage.

And a thank you, dear listener, either dialing in for the first time or listening throughout the last three years.

In our next episode, we'll dive into our first shocking finding: why measurement and reporting standards - the foundation of current climate policy - actually correlate negatively with emissions reduction.

I hope you'll join us for what promises to be a paradigm-shifting conversation about the standards paradox.

Stay safe, be bold, and see you in two weeks.

These are the Supply Chain Dialogues, produced and copyrighted by helmig advisory in 2025.