Para Use restringido en Ecopetrol S.A. Todos los derechos reservados. Ninguna parte de esta presentación puede ser reproducida o utilizada en ninguna

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1 Para Use restringido en Ecopetrol S.A. Todos los derechos reservados. Ninguna parte de esta presentación puede ser reproducida o utilizada en ninguna forma o por ningún medio sin permiso explícito de Ecopetrol S.A.

2 Context ECOPETROL S.A. Colombian oil company 2007: mixed capital (88% state 12% private) International operation: 2008 (USA, Peru, Brazil) Stock Exchange: NYSE, Peru & Canada DJSI: 2011 COLOMBIA, South America 40 million people Economy based on agriculture, mining, oil and services Closed economy in process of opening to the world market Free Trade Agreement (FTA) with USA 2012, pending with EU, Canada.

3 ECOPETROL INCENTIVES TO IMPLEMENT GREEN PROCUREMENT

4 Competitiveness To enter and compete in global markets need to review regulations that impact competitiveness International regulations present: - Barriers of entry - Benefits to clean companies/products - Markets prefer sustainable products (advertising/pr) Tendency Anticipation (Toffler): Climate change commitments make environmental regulations and legislation tougher

5 What is green/clean? -Regulation (EC) No 66/2010 of the European Parliament and of the Council of 25 November 2009 on the EU Ecolabel- Article 6 General requirements for EU Ecolabel criteria ( ) 3. EU Ecolabel criteria shall be determined on a scientific basis considering the whole life cycle of products. In determining such criteria, the following shall be considered: a) the most significant environmental impacts, in particular the impact on climate change, the impact on nature and biodiversity, energy and resource consumption, generation of waste, emissions to all environmental media, pollution through physical effects and use and release of hazardous substances; b) the substitution of hazardous substances by safer substances, as such or via the use of alternative materials or designs, wherever it is technically feasible; c) the potential to reduce environmental impacts due to durability and reusability of products; d) the net environmental balance between the environmental benefits and burdens, including health and safety aspects, at the various life stages of the products; ( )

6 Generating competitive advantage linked to sustainability Benchmarking 8 big Oil & Gas companies: Goods / Services Technology / process Alternative Energy Waste The opportunity: Goods / Services Technology / process Alternative Energy

7 ECOPETROL s Business Case 1. Adapt the business strategy to the market Innovating the relationship between sustainability and competitiveness Dow Jones Sustainability Index (30%+) Better access to new markets 2. Reputational Benefits Country and sector leadership Relationships with stakeholders (vendors/community/public authorities) 3. Environmental and social responsibility Reduce environmental footprint based on effectiveness indicators Cost efficiency (reduction in water consumption, power, better use of waste-recyclingreuse-sale) Contribute to the development of the suppliers and the economy of the country

8 How to approach green procurement? Public: Green Public Procurement (GPP) A process whereby public authorities seek to procure goods, services and works with a reduced environmental impact throughout their life cycle when compared to goods, services and works with the same primary function that would otherwise be procured Private: Chartered Institute of Purchasing & Supply (CIPS) A process whereby organizations meet their need for goods, services, works and utilities in a way that achieves value for money on a whole life basis in terms of generating benefits not only to the organization, but also to society and the economy, whilst minimizing damage to the environment"

9 Model Integration Public sector s purchasing power pushes private sector to improve standards GPP Sustainability Procurement as a tool in business strategy : companies that compete and are profitable SP CIPS GSP ECP ECP, a state owned company, constitutes 12% of Colombia s public procurement budget ECOPETROL has private and public shareholders, and competes with other oil & gas companies in the market

10 Green Supply Chain & International Competitiveness 1. International Methodologies, indicators and standards (GPP- UNEP) 2. Expert Consultant on GPP 3. Early implementation: Baseline= 0 5. FTAs & challenges for exporters - chance to introduce international environmental procurement standards, improving country s competitiveness 6. Working with suppliers, Environmental Ministry & Commerce Ministry 4. Developing a Green Supply Chain (workshops, forums, Vendor Rating, Eco-partners)

11 1. International context Regulation / barriers of entry /trends/methodologies /standards/inputs /technology/processes 5. Process evaluation Environmental impact effectiveness indicators 2. Domestic and regional context 4. Establishing environmental criteria (Terms of Reference/Contract) 3. Strengthening suppliers / public authorities

12 ECOPETROL s Green Procurement Strategy incorporates products and supply chain s environmental footprint and aims to minimize them. This pushes the organization s and the country s competitiveness, resulting in sustainable development through ECOPETROL s purchasing power over the productive sector

13 Other changes to traditional GPP to link sustainability with business strategy 1. Goods and services map (1700 categories), identified 79 goods and services where changes in processes or inputs can be introduced to reduce environmental impact 2. Macro life cycle analysis, and PRIORITIZATION MATRIX Environmental impact Vs. Total Cost Strategic Importance VS. Total Cost 3. Definition of the criteria to be included in TOR and contracts regarding certain goods 4. Identify the need to strengthen the productive sector: Secure best practices, traceability and data for indicators Environmental Impact Vs. Strategic importance Workshops, forums, relationship with public authorities, Vendor Rating, Eco-partners Public Image Vs Total cost

14 Follow-up, Control, and Indicators During this first stage, ECOPETROL is using 2 of the 4 GPP indicators. Indicator 1: The % GPP of total public procurement, in terms of monetary value. This indicator gives the percentage of the amount spent on green public procurement contracts, compared to the total amount spent on public procurement contracts Indicator 2: The % GPP of total public procurement, in terms of the number of contracts. This indicator gives the percentage of the number of green public procurement contracts, compared to the total number of public procurement contracts

15 Indicator 3: The environmental impact as a percentage of GPP, in terms of CO2 emissions. This indicator gives the percentage of the environmental impact of green public procurement in terms of CO2 emissions, compared to the impact of non-green public procurement Indicator 4: The % financial impact of GPP, in terms of the product Life Cycle Costs. This indicator gives the percentage of the financial impact of green public procurement, compared to the financial impact of non-green public procurement

16 Some results over the last 2 years 23 master contracts 128 contracts that include green clauses with 11 municipalities for a total of US $400 million Organized workshops for more than 300 suppliers in 7 municipalities First GPP Bill in the Senate Pioneer in implementation, used this experience to develop a National GPP for the Environmental Ministry Function as a bridge between the Enviromental Ministry & Commerce Ministry Joint Green Procurement Program (public and private sector)

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18 Some Lessons Learned Internal coordination A process champion is needed Multidisciplinary approach (competitiveness, environmental, legal, social, contracts, administrative, RSE, communications) Innovation Identify player s benefits, interests and language. Inclusive focus Defining corporate interests and integrating them to the strategy to assure its alignment with our business objectives Long and short term benefits Specific benefits of investing in sustainability Identify risks and opportunities in supply chain Support a country s development Standards Credibility and reputation Use of internationally accepted concepts, methodologies and indicators Make sure indicators are effective, objective and auditable Guarantee information traceability and reliability along supply chain

19 ECOPETROL s Approach Competitiveness = Sustainability Economic Ecoefficiency / New Markets Reputation Environmental Clean Barrel Introducing GPP Market Development Green Supply Chain National Competitiviness

20 İGRACIAS!

21 APPENDIXES

22 Procurement lines with green clauses: 1. Food 2. Housekeeping 3. Transport 4. Photocopying 5. Communications rental 6. Air conditioning/refrigeration 7. Facilities, light bulbs maintenance 8. Clearance 9. Comprehensive Maintenance 10.Road maintenance 11. Chemical treatment 12. Power (Steam Selfgeneration) 13. Electric Motors 14. Transformers 15. Valves 16. Turbine 17. Minor civil works 18. Electro-submergible Pumps 19. Logistics Operator 20.Hardware rental 21. Catalysts 22. Lubricants 23. Degreasers

23 Goods and services classification Environment al Service Related Product Main objective : environmental protection or natural resources management. Environmental expense = Total expense of the Service/product Product with an environmental impact less than an equivalent normal product used in a similar way. Environmental expense= Total product expense Total equivalent product expense Technical processes incorporated to the productive chain that mitigate negative environmental impact / optimize use of resources. Environmental expense = Additional expense for modification

24 Life Cycle Life Cycle Assesment (BS 14404) AND Life Cycle Cost Product design End of life Raw materials use Manufacturing Distribution

25 What are Life Cycle Assessment and Life Cycle Cost good for? To identify in what stage of a good s life cycle are the greatest environmental impacts To establish current life cycle cost and modification To prioritize/make more efficient investment by knowing where a greater environmental impact is To compare similar products to determine which one is more efficient /produces less environmental impact To credit tangible investment benefits in sustainability

26 ASPECTS POWER WASTE WATER ECOEFFICIENCY BIODIVERSITY USE OF NON RENEWABLE NATURAL RESOURCES ECOSYSTEMS SOIL AND SUB- SURFACE WATER CLIMATE CHANGE HEALTH AND SAFETY NOISE, CO2 AND VIBRATION OTHER GEI S, AIR & SUBSTANCES ELECTROM ATMOSPHER AGNETIC E EMISIONS EMISSIONS TOTAL WEIGHT PER LIFE CYCLE PHASE Housekeeping Powder, liquid and solid products Production Use Elimination Total impact weight Spray products 0 Production Use Elimination Total impact weight Tools 0 Production Use Elimination Total impact weight Paper products 0 Production Use Elimination Total impact weight Total weight TOTAL / number of goods PRIORITY A B M B B B B M A B

27 4. Establishing environmental criteria Terms of Reference Contract Minimal requirements (LCC) Score(LCA) Budget(LCC) Obligations Traceability LCC LCA /indicators Legal compliance/ Best practices/ Standards/ Risk mitigation/ Workshops Information report

28 Example of green obligations Obligation Contributes to (environmental) Climate change Ecoefficiency Biodiversity Planting native vegetation Reforestation: 930 naviive trees Less purchase of fertilizers, fumigants and pesticides Shelter and food for regional fauna and flora Use organic waste to make compost and fertilize 640 compostee Toxic waste reduction Reciclaje de productos Mejoras al medio ambiente Staff attendance to workshops on water and power saving, chemical products management Community awareness Optimices use of resources Community awareness, process assurance

29 Fases Matriz de riesgos /oportunidades para la priorización de categorías de productos Fortalecimiento de proveedores en el proceso de compras verdes Establecimiento de criterios ambientales en compras Evaluación del proceso Hitos trimestre i ii iii iv i ii iii iv i ii iii iv i ii iii iv i ii iii iv 1. Identificación de Productos claves para garantizar la operación 2. Identificación de áreas operativas claves (Mayor generación de costos) 3. Identificación de oportunidades de cambios en compras con reducción de impactos ambientales 4. Desarrollo del análisis del ciclo de vida macro (consultor externo) 5. Priorización de categorías de productos (20% del target list) 1.Divulgación de la estrategia de Compras Verdes a proveedores, autoridades ambientales y sector productivo nacional, 2. Divulgación de la metodología y mejores prácticas por categorías de bienes y servicios; 3. Diagnóstico y categorización de proveedores de acuerdo a mejores prácticas ambientales (Vendor Rating); 4. Estructuración de un Programa de Excelencia ambiental para proveedores de Ecopetrol (Ecopartners); 5. Incorporar criterios de excelencia ambiental en la evaluación de desempeño de los proveedores; 1. Análisis de Ciclo de Vida (LCA) ISO y British Standard 8903, detallado a los bienes y servicios mas críticos previamente definidos en la matriz; 2. Definición de requisitos mínimos/ asignación de puntaje/ obligaciones contractuales/ presupuesto oficial; 3. Definición de indicadores de LCA (Análisis de ciclo de vida) y LCC (Costeo de ciclo de vida para proveedores y la clasificación de proveedores verdes; 4. Establecer, divulgar e implementar una meta de beneficios de los criterios ambientales definidos para los proveedores con base en una línea base, en términos de dinero, emisiones CO2, consumo de recursos, etc. 1. Evaluación anual: Auditar el progreso de los proveedores en el cumplimiento de los criterios, y por lo tanto en las metas de Ecopetrol, de reducir costos, emisiones, etc. 2. Retroalimentación de los resultados y actualización de metas;