Making renewable energy a habit for IKEA suppliers

Andreas calls himself an optimistic, cynical person. And that’s because while he notices the many issues that impact the climate, he prefers not to overlook them. Seeing the challenges is the first steps towards finding the solutions to addressing them, he says.

So, about 18 months ago, IKEA decided to take concrete steps to secure that our supply partners only use renewable electricity. Andreas knew suppliers had to buy into the commitment. But the challenge was to find a way that would require little effort from the suppliers and even become a habit for them.

To the right, Andreas Ahrens, Head of Climate at IKEA.

After several rounds of discussions and a one-year-long pre-study, a plan began to take shape. IKEA decided that it will start in 2021 by offering its suppliers in Poland, China and India 100 per cent renewable electricity by extending them green electricity contracts, which have been chalked out with energy providers.

“The key lies in turning plans into habits. Because if you don’t turn it into a habit, you will need to make decisions every day actively. And I think that’s exhausting. So, when you buy green electricity, you don’t need to figure out ways to avoid the climate impact on a daily basis,” says Andreas.

The pre-study showed that most IKEA suppliers could not generate all the renewable electricity they needed on-site. They have to buy it from the grid. Also, while the intent to adopt renewable electricity was very much there, it was difficult for these suppliers to access it. Some operate on a small scale, while a few others believed renewable electricity is too expensive.

There was also another strong reason to make the shift. Achieving 100 per cent renewable electricity in these three countries could help save 670,000 tonnes of CO2 emissions per year, which is equal to 3 per cent of the total climate footprint of the IKEA value chain.

“We want to become a sustainable business, and addressing climate change is an important part. This means that together with our suppliers, we want to take the necessary steps to limit climate change to 1.5°C. On the supplier side, one of the first steps is increasing the use of renewable electricity. And, suppliers are willing to make the change to renewable electricity, and hence, we are taking this step,” says Andreas.

The strategic climate goals, coupled with IKEA suppliers’ need for renewable electricity, set the ground for IKEA to bring green energy to suppliers’ doorsteps.

Supporting IKEA Suppliers

To help the suppliers get access to renewable energy, IKEA launched a program in June 2021 to negotiate affordable Power Purchase Agreement, PPA, contracts with renewable electricity providers. This will enable suppliers to consume 100 per cent renewable electricity in their production.

One good part for suppliers is that they do not need to make changes or investments. They only need to sign a new electricity contract. But there are other advantages too.

“If suppliers do not switch to renewable electricity, it’s very likely that they won’t meet their climate goals, which will impact the strategic fit with IKEA. Hopefully, that communication can make its way work through enough suppliers. It’s also likely that renewable energy is more affordable. So, price development and climate footprint will be two key performance indicators that will be in green instead of red for a supplier,” says Andreas.

Also, IKEA will help subsidise loans if suppliers need investments to generate renewable energy on-site (electricity, heating, cooling & fuels) through solar panels and boilers. In December 2019, IKEA committed 100 million EUR in financing to speed up the shift to renewable energy.

Climate positive

The IKEA vision has always been to create a better everyday life for the many people. But, unfortunately, climate change threatens this, both for people today and for generations to come. Recent years have been the hottest to date, and we have already reached more than 1°C above pre-industrial levels.

IKEA is committed to the Paris Agreement and to contribute to limiting the global temperature rise to 1.5°C above pre-industrial levels. This includes becoming climate positive by reducing more greenhouse gas emissions than the IKEA value chain emits while growing the IKEA business. To achieve this, IKEA is working towards 100 per cent renewable energy throughout the entire value chain and beyond.

“If you look at the situation we’re in now, climate change will hit people in vulnerable and poor communities the most. It’s a huge human rights crisis. So, if we want to stay true to our mission, which is to create a better everyday life for many people, we need to do our utmost to limit climate change to 1.5°C. And, since we know fossil energy is the main cause for climate change, we need to strive towards 100 per cent renewable energy.”

By 2025, IKEA plans to reach 100% renewable electricity in the top 10 supplier countries. Why is IKEA launching this program now?

“When I started ten years ago, renewable energy was expensive; it was not for the many. We mainly considered energy efficiency at that time. But the world has changed, and we’re now seeing wind energy and solar power being cheaper than all other types of electricity generated from fossil fuels, for instance. Now the price is right. It’s also a change at IKEA. In 2017, we approved our climate goals, and from then, we have worked in specific parts of the business, step by step, to secure that we build ownership of the climate agenda.”

“About 18 months ago, we thought if our suppliers have such a difficult time accessing renewable electricity, what can IKEA do to make a difference. So, we created a pre-study, and the result of our pre-study was that we realised we could make a difference by negotiating PPE contracts for our suppliers by bundling volumes, size and scale.”

Will the use of renewable energy become a mandate for suppliers in future?

“In the long term, we are headed towards that. It’s part of the requirements of the new version of IWAY, the IKEA supplier code of conduct that we are about to roll out. The advanced criteria state the supplier needs to consume 100 per cent renewable electricity. So, it’s not a mandatory requirement today, but you will find that we are indicating renewable energy will be a minimum requirement in the future.”