Colgate-Palmolive (Colgate), a household name in over 200 countries, is a global leader in oral, personal, and home care, as well as pet nutrition. With a market value of approximately $66.8 billion and 830,378,790 shares of common stock outstanding as of January 2023, the company's scale and scope are truly impressive. But beyond its commercial success, Colgate has also emerged as a trailblazer in corporate sustainability, demonstrating a commitment to renewable energy and carbon neutrality that sets it apart in the industry. “Because our Colgate brand is in more homes than any other, we can – and will – create a healthier, more sustainable future for all,” Noel Wallace, Chairman, President and Chief Executive Officer of Colgate-Palmolive, said in a 2020 statement. “We view environmental and social stewardship as enterprise-wide catalysts for growth, and we’re committed to raising the bar and ensuring sustainability is integrated into all aspects of our company – from what we make to how we work to how we go to market.”
A Commitment to Renewable Energy
Clearly Colgate's commitment to sustainability is deeply ingrained in its business and growth strategy. “At Colgate, we are acting with purpose to reimagine a healthier future for all people, their pets and our planet – and we have established a robust organization-wide commitment to ambitious, science-based emission reduction targets,” added Ann Tracy, Colgate’s Chief Sustainability Officer. The company's 2025 Sustainability & Social Impact Strategy outlines ambitious goals, including achieving net zero carbon emissions by 2040 and sourcing 100% renewable electricity for global operations by 2030.
This past September, Colgate made significant strides towards these goals. The company signed a 20-year virtual power purchase agreement (VPPA) that’s expected to cover 100% of its U.S. electricity needs with renewable energy. This move was part of a broader Renewable Energy Master Plan (REMP), which aims to guide the company towards its target of 100% renewable electricity across operations by 2030.
In regards to the VPPA, Tracy noted that “[we’re] committed to making progress towards our ambitious Net Zero goals, and we are pursuing this important priority through innovative and diverse ways that are proven and measurable. Renewable energy agreements are a valuable part of our renewable energy master plan and will help us achieve our targets.”
The VPPA is a relatively big departure from Colgate’s initial renewable energy procurement approach. Vance Merolla, Senior Vice President of Global Sustainability at Colgate described the company’s original renewable energy procurement approach this month to SmartBrief’s Sustainability Smart Pod. It begins with a focus on onsite generation, of which they have 17 sites with onsite solar, utility green power and Renewable Energy Credits (RECs). By the end of 2022, approximately 52% of Colgate’s global electricity consumption was sourced this way. Merolla explained that while these solutions have worked well for Colgate, the issue is that none of them scale well. Colgate doesn’t have a large enough physical footprint to deploy enough onsite solar to cover its electricity consumption. Utility green power isn’t available everywhere so that prohibits wide use of this option. And traditional, unbundled, RECs don’t help add new generation to the grid. Therefore, a VPPA like the one Colgate has entered into, however, creates additionality by financing new renewable energy generation.
Colgate takes on these sustainability issues with what Tracy calls a sword and shield approach. “Shields are the things we have to do,” she said, pointing to areas such as responsible resourcing where there may be reputational risks involved, or because regulations, tax law and other factors compel action from the company. “Swords are where we want to lead,” Tracy said. “We can’t lead everywhere. We have to choose what’s relevant for Colgate as a business to focus on.” One of those areas is action on the climate. “We really believe we’re punching above our weight there,” Tracy said. As a result, the procurement of renewable electricity has played a crucial role in Colgate's efforts to reduce its Scope 2 emissions.
The Potential of RECs with Additionality
While Colgate-Palmolive's progress towards renewable energy procurement is commendable, the inclusion of RECs with additionality in its strategy could further enhance its sustainability efforts, or at a minimum replicate what it has achieved with its recent VPPA.
In the same way that Colgate’s VPPA helps bring new renewable energy online, RECs with additionality could do the same, but with more advantages. First, RECs with additionality can be acquired at a fixed cost over a shorter term - think 5 or 10 years versus 20 years. Second in much the same way that a VPPA supports the market for renewable energy projects, RECs with additionality would do the same. However, instead of the bilateral, single project to single buyer approach typically used in a VPPA, RECs with additionality would help finance the market at scale. Since the RECs would come from a market where many renewable energy buyers can support financing of many renewable energy projects all at the same time, this market based approach would exponentially help accelerate the transition to renewable energy. The result incentivizes the development of new renewable energy projects, but with a shorter process, less complexity and at a fixed cost. The fixed cost aspect is important since it helps mitigate the variable and potentially increasing costs associated with continued renewable energy procurement for buyers, particularly if the company continues to grow and consume more electricity.
Moreover, RECs with additionality would provide the same level of enhancement that Colgate clearly seeks for its sustainability marketing claims with its VPPA. Just like a VPPA, RECs with additionality demonstrate a direct contribution to the growth of renewable energy, allowing the company to further bolster its reputation as a sustainability leader.
Finally, RECs with additionality could easily scale as the company continues to grow. Therefore, Colgate could easily continue to procure RECs with additionality needed to cover increased electricity consumption as the company continues to grow. This would ensure that Colgate's emission reduction strategies remain effective, even as its energy needs evolve.
In conclusion, Colgate's commitment to renewable energy and carbon neutrality sets a powerful example for other corporations. By continuing to innovate and adapt its strategies, the company is well-positioned to achieve its ambitious sustainability goals and make a lasting impact on the planet.