Baker Hughes: from ‘cost out’ to ‘carbon out’

The challenge

Baker Hughes faces an industry-wide challenge: meeting the world’s increasing demand for energy, while ensuring it is sustainable, affordable, and secure.

Following its separation from GE, the company saw an opportunity to define its purpose of taking energy forward in a sustainable way, and innovate for the future. This translated to a renewed focus on reducing the carbon intensity of its operations and applying proven low-carbon technology to help its customers meet their environmental goals. The ambition is not only to influence and lead the energy transition in the industries it operates; but also, to drive sustainability internally across its global operations.

The first challenge - and opportunity - was internal transformation. The team at Baker Hughes set out to develop new products and services that would support reduced emissions, and enable the company to achieve its own net zero goal by 2050. This transformation was strategically funded, in part, by Baker Hughes’ ambitious ‘cost-out’ programme to reposition the company for a low-carbon future.

Baker Hughes turned to PwC to help develop a transformational business strategy to drive sustainability through its Environmental, Social and Governance (ESG) commitments. Key components included operational cost reductions, risk identification, and carbon reduction in line with net zero targets. Integral to success was the need for accurate ESG reporting, to ensure accountability, measure success and minimise reputational risk.

The approach

The first part of the strategy was to drive cost efficiencies through transformation: Baker Hughes and PwC designed, built, and ran a cost reduction programme of over $500m to create an investment fund for the transformation. This cost-based transformation moved away from the traditional approach in the oil and gas sector - which is largely dependent on oil price and volumes - and took a longer-term view, taking into consideration what future operations might look like.

In parallel, PwC developed an assessment model to measure the company’s ESG strategy and maturity, based on a nine-block net zero framework co-created by Microsoft and PwC. Combined with a Task Force on Climate-related Financial Disclosure (TCFD) analysis, the company focused on the key benefits and opportunities of embracing a clean energy future.

As part of the TCFD process, PwC carried out a risk management analysis of all Baker Hughes’ facilities across the globe, to determine how climate change could elevate the risk of damage and destruction from increased heat, as well as flooding and higher winds. These insights will inform Baker Hughes’ business continuity plans for each site to ensure minimal operational disruption in the years to come.

In 2021, with the strategic direction supported by the board, the programme pivoted to carbon reduction. The aim was to enable the company to rapidly meet its internal target of 50% reductions in operational emissions by 2030 through its Carbon Out programme.

PwC helped to build and implement the Carbon Out programme, identifying carbon use for Scope 1 operations and Scope 2 purchased electricity emissions. Working with Baker Hughes staff across the globe, a total of 600 projects were incorporated into the programme database.

The reduction of Scope 1 and 2 emissions at Baker Hughes continues to be made possible by several PwC proprietary tools that help provide consistency in calculating carbon reduction for new projects, along with providing valuable audit trails. A carbon reduction calculator has also been deployed across the company to equip operations teams with the carbon impact of each project, while identifying opportunities for carbon reduction.

Driving this success was a close working partnership. A seconded PwC team, with the right insight, skills, and prior knowledge of Baker Hughes, became firmly embedded within the company. This enabled close collaboration that proved essential to the success of the project.

Baker Hughes is now focused on expanding its Carbon Out programme and identifying all Scope 3 indirect emissions generated within its supply chain. To drive this, PwC has created a tool using spend data to provide Baker Hughes with an initial insight into its supply chain’s potential emissions. These include purchased goods and services (Category 1) and use of products (Category 11).

The impact

Structured programme with strong governance that has helped to capture a 23% reduction in Scope 1 and 2 emissions during 2021 versus the 2019 baseline and build a clear roadmap for future reduction

Established emissions baseline for complex Scope 3 categories - supply chain and product use - that has informed the organisation’s roadmap to achieving net zero emissions by 2050

Facilities leaders engaged across the globe to develop a database of over 600 carbon reduction projects

Full visibility for executive board on operational expenditure (Opex) and capital expenditure (Capex) required to drive net zero transformation

Analyst reports citing Baker Hughes as leading the Fortune 500 in emission reductions

Enhanced the Baker Hughes brand, and reputation of becoming a leader in new energy frontiers, paving the way for the energy transition

Close partnership between PwC and Baker Hughes to continue to drive change

Baker Hughes has taken vital and important steps in improving its environmental performance with PwC’s help. Bolstered by this initial success, the company now has great confidence in its purpose of taking energy forward in a sustainable way.