Addressing value chain emissions

Our decarbonization activities span across the full value chain.  As a leading provider of energy-efficiency solutions, Danfoss is an essential partner in the green transition and decrease of value chain emissions. Value chain emissions, also known as scope 3 emissions, are the most significant part of Danfoss’ total carbon footprint, comprising of more than 99%. These emissions occur outside our operations – upstream with suppliers and downstream with the use of our products by our customers. We have set a stretch goal, going beyond our 15% science-based target, to reduce upstream scope 3 emissions by 25%.

In 2023, all our business areas developed 2030 decarbonization roadmaps, charting the path and levers to achieving our scope 3 targets. This is an important foundation for the execution of the decarbonization levers going forward. We will continue to mature and further refine these roadmaps.

The decarbonization levers for scope 3 are complex and often require innovation and partnerships along the value chain. We embrace this as an opportunity to collaborate with our business partners, suppliers, peers, and customers to achieve our shared goals of industry decarbonization.

Building robust emission data foundations 

As part of our continued efforts to decarbonize our products and value chain, we are building the foundations for an effective data architecture. We continue to engage with customers to identify their data needs and how we could support their sustainability journey. We have initiated several projects to further develop the consistency and transparency of sustainability data across functions, strengthening our internal processes and controls. 
 
To deliver accurate and up-to-date information about our products’ use-phase emissions and the corresponding avoided emissions, we collect information from our upstream and downstream business partners, such as the final end-user, country of destination, type of application, and carbon footprint. We continue to integrate our ESG data processes into our business infrastructure paving the way for third-party verified ESG reporting. 

Upstream emissions: Decarbonizing with our suppliers

Upstream emissions make up approximately 4% of our total carbon footprint. Our upstream decarbonization roadmaps include three key levers: low-carbon raw materials, circular economy strategies, and supplier commitments to decarbonization.

• Low-carbon raw materials: We selected three high-impact material categories to enhance our efforts on low-carbon production and increasing recycled content. Aluminum, iron, and steel were selected as they comprise more than two-thirds of our upstream emissions.
• Circular economy: strategies such as design for disassembly and recycling, increased recycled content, and re-manufacturing were identified as important levers in our roadmaps for decarbonizing our supply chain.
• Supplier commitments to decarbonization: We continue to work with sustainability data and performance improvements, rolled out to key suppliers. Our suppliers are important partners in helping Danfoss reduce emissions and make our products more sustainable.

We reached a significant milestone by establishing a procurement sustainability roadmap and a strong governance structure. The roadmap sets a clear path towards 2024 and outlines the key activities within procurement such as data transparency, increased knowledge and know-how, and key enablers to achieve our goals. We continue to engage with our top-emissions supply chain partners, identifying concrete opportunities for CO2 emissions savings. In addition, we continue to build data infrastructure to gain further visibility on emissions coming from the purchase of goods and services and assessing supplier decarbonization opportunities across segments.

Downstream emissions: Decarbonizing with our customers

Our downstream scope 3 emissions from the use of sold products account for around 96% of our total carbon footprint and amount to approximately 122 million tons annually. While the carbon intensity of the used energy decreases over time, we work to find ways to reduce the carbon footprint of our products, identifying levers to make them more energy efficient and optimize their use of energy. This calls for new solutions, ranging from business model innovation to product and market portfolio mix strategies. We also focus on establishing strong partnerships with customers to drive use-phase emissions down.

In 2023, the decarbonization roadmaps developed by our business segments included levers and opportunities such as: further investment in optimization and energy efficiency, transition to next generation technologies, and automation. In addition, our decarbonization roadmaps includes levers for products with indirect use phase emissions, which consume energy sources other than fuel and electricity. In 2024, we will further mature these roadmaps with best practices and learnings, explore other strategic levers such as new business models, and continue to grow our portfolio of solutions that enable the green transition.

Research and development 

Our product decarbonization strategy revolves around existing products as well as products in development. Given our products’ life cycle and the time from design to market entry, we identify short-term decarbonization levers while incorporating our climate targets into our long-term product development pipeline. As such we aim to integrate use-phase emissions as a key performance indicator in our product development toolbox. This will enable the development of a product pipeline consistent with our ambitious climate targets.

Avoided emissions

Avoided emissions are the measure of a company’s positive climate impact on society resulting from the use of its products and solutions. For Danfoss, our avoided emissions represent actual emissions reductions for our customers and end-users of our products. Delivering on this through energy efficiency, machine productivity, and enabling electrification is the core of our business.
In 2023, we developed an avoided emissions guideline to support the calculation and communication of avoided emissions in a credible way according to existing public standards and guides. We have also begun to pilot cases that measure avoided emissions on selected applications and sites. In addition, we included avoided emissions considerations in the new product development toolbox’. Going forward, we will finalize the pilots and continue to build a baseline from which to further increase Danfoss’ avoided emissions.