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Kirsty Talmage-Rostron, Business Development Manager – UK South, Industrial Equipment at Siemens Financial Service, examines how smart finance can help the packaging industry.
Governments around the world are accelerating their targets for decarbonisation.
By 2030 the EU aims to have reduced its carbon output by 55%, the US is aiming for 50-52% within the same timeframe while China has set a target of a 100% reduction by 2060. In the UK, the government has enshrined in law a new target to slash emissions by 78% by 2035, as well as making it mandatory for the country’s largest businesses to disclose climate-related financial information – with the aim of providing investors a clearer and more meaningful picture of climate risks and opportunities.
This leaves little room for packaging manufacturers to be flexible with implementing energy efficiency measures in line with government targets, since many shareholder groups are becoming increasingly aware of the importance of sustainability to customers and are threatening to withdraw funding from projects that do not meet regulatory standards.
Yet this need not be a source of frustration for those in the industry. It is estimated that energy costs in manufacturing make up between 2-10% of total output value, and packaging accounts for 5% of greenhouse gas emissions making reducing costs through energy optimisation an obvious target. Investing in new technologies, such as automation and digital transformation, offers a clear route to optimising energy consumption and generation that ultimately allows packaging manufacturers to reap both cost and carbon effective benefits.
For instance, advanced modelling technologies such as digital twins can be used to generate and test scenarios about changing supply chain structures, as well as making the supply chain more transparent on the whole, affording packaging manufacturers the opportunity to make informed decisions on where energy optimising techniques can be best applied.
Furthermore, it is crucial that digitalisation in the manufacturing industry is approached in a holistic and site-specific manner, a combined effort to upgrade existing infrastructure as well as bring in new, IoT integrated assets is crucial to taking advantage of the potential benefits on offer.
As well as an integrated supply-chain, packaging manufacturers can take advantage of industry leading wrapping machines, with digital interfaces that enable easy configuration for a wide product range, allowing a streamlined and flexible usage and reducing emissions caused by inefficient processes. Additionally, tray-less machines can efficiently package materials using technology that intelligently assesses product size, which in turn minimises handling and eliminates the need for unnecessary plastic waste products.
Recent estimates suggest that manufacturers in Europe alone could save over $40bn over a five-year period, after the implementation of energy optimising initiatives. Despite this, a hesitation to risk capital in financing new energy optimisation schemes is often a barrier to cost savings. This hesitation has only been amplified following the challenges of the pandemic, where maintaining a secure cash flow has been vital in providing much needed agility in volatile markets.
That’s why many manufacturers are now turning to smart financing arrangements which enable them to confidently invest in new equipment and technology. These arrangements tend to come from specialist financiers who have an in depth understanding of the market and a comprehensive knowledge of the technology in practice. This expertise enables specialist financiers to evaluate a potential investment’s impact on a packaging manufacturer, and tailor the financing solution to the customer’s specific requirements. They are able to offer flexible financing arrangements spread over an agreed financing period, designed to protect a business’ cash flow thus enabling the deployment of precious capital into other profitable core business projects.
There are many ways in which smart financing arrangements can be employed and they can be aligned to the expected benefits over time gained by the implementation of the new technology. An example is energy-optimisation-as-a-service where the new technology is paid for with the cost saved from the increased efficiency. In this scenario the manufacturer is charged a monthly fee against the cost savings, delivering budget-neutral financing while deploying no up-front capital and guaranteeing energy savings.
The benefits of optimising energy usage in the packaging sector are indisputable. Smart financing arrangements remove the cost barrier to investment, and with the huge potential for cost savings and reduction of carbon emissions, digitalisation enables companies to meet regulatory targets without seeing a significant fall in their profit margins.