Financial planning for decarbonization

Q&A with Adam Pradela, Sustainability CFO, DHL Group

This Q&A explores DHL's approach to monitoring and tracking their greenhouse gas (GHG) emissions and how this is connected to their financial information and processes.

Adam is a member of the steering group for the A4S Net Zero Taskforce and DHL Group are a member of the A4S CFO Leadership Network.

What steps did you take to set your emissions reduction goal and translate it into practical action?

DHL Group has a goal to cut GHG emissions from our logistics operations to net zero by 2050, while also growing our business. We acknowledge that the achievement of this goal is dependent on effective transition planning and its integration with financial planning.

We took a number of key steps to set our goal and translate it into practical action. Firstly, we established a baseline of our emissions. We then modelled how these might change under anticipated business growth. We identified our key levers of influence in different areas and set annual emissions reduction targets for each area. For every target, we defined the actions needed to achieve it and assessed the financial implications. This was done in collaboration with stakeholders across the organization.

This process provided a clear view of how our planned emissions reductions would align in terms of timing and the scale of the costs. This helped us to distinguish what could be funded through existing budgets and where additional financing would be required.

We then developed a clear and detailed three-year plan and budget, including emissions’ trajectories based on anticipated sales growth – these are updated and reported monthly to management, alongside emissions data and actual versus planned progress on decarbonization targets.

What are the benefits of regular forecasting and reporting?

There are many benefits including:

• Transparency and performance tracking – by maintaining visibility of our emissions and underlying procedures, management can understand where we stand and how we manage the process. This helps us to be rigorous in managing progress towards targets.
• Early identification of problems – monthly reporting allows us to track whether emissions reduction is progressing as forecast and, if not, it enables early intervention, such as using alternative measures or rebalancing existing measures. For example, it is possible to compensate for supply bottlenecks of a sustainable fuel by increasing the use of alternatives in other modes of transport.
• Informed decision making – combining emissions forecasting with financial planning enables us to make informed decisions. For example, when purchasing alternative fuels, it’s helpful to know both how much we need to buy to meet emissions targets but also how this aligns to our budget.

How are transition planning and financial planning linked?

We have connected our transition planning and financial planning processes and data in the following ways:

• Annual planning and budgeting – sustainability key performance indicators (KPIs) are fully integrated into standard planning processes, aligned with the same timelines as financial planning. This ensures resource allocation and budgeting are linked to achieving sustainability goals.
• Integration with divisional plans – sustainability KPIs, along with the associated opex and capex requirements, are embedded within divisional plans. Notably, the sustainability initiatives are managed within the overall business budget.
• Functional board involvement – functional boards actively review, refine and enhance planning efforts before final approval by the Corporate Board. This process follows the same schedule as financial planning, ensuring alignment and coherence.
• Comprehensive forecasting – full-year forecasts of key sustainability KPIs are provided to senior management on a monthly basis. These forecasts are reported in the same process as financial data, ensuring transparency and integration. They detail performance against targets and outline the capex and opex implications, as well as the associated benefits.
• Connected reporting systems – financial and emissions reporting systems are linked. We collect fuel and energy consumption data directly from invoices and integrate this into our financial reporting framework. This ensures that emissions data is recorded and analysed alongside financial data, allowing for accurate tracking and forecasting. By aligning these two streams, we can make data-driven decisions that optimize both financial performance and sustainability outcomes.

How did you start to connect financial and emissions information?

When we first began exploring how to capture emissions data, we started by looking at the financial information we already had. Our logic was simple: every purchase has a corresponding payment and every payment is recorded in our accounting systems. Since we were already tracking the quantities of fuels purchased as part of our quality checks for financial information, we used that data to help calculate our scope 1 and 2 emissions. We now rely almost exclusively on primary data captured via our financial reporting system to calculate both scope 1 and scope 2 emissions.

We also rely on directly reported fuel consumption data to calculate scope 3 emissions for fuel and energy-related activities. We use operational data and established parameters to calculate the majority of logistics-related scope 3 emissions, such as upstream transportation and distribution as well as business travel. We also include primary data from our suppliers, in particular reported fuel consumption in air freight and for road transport. Finally, an expenditure-based extrapolation model is used for a small portion of the calculations. The use of existing financial data has helped accelerate our approach for emissions data and increase our trust in the data.

How does your transition planning impact asset plans?

When making asset decisions – whether for aircraft, vehicles or infrastructure – we assess their contribution to our decarbonization targets. For example:

• We prioritize the purchase of fuel-efficient aircraft. For instance, we were the first Air Express operator to introduce the B777F fleet type in 2009. In 2019, we added 14 new Boeing 777 Freighters to our global fleet. We buy new aircraft because they have better fuel efficiency. Not only did this help us progress towards our targets, but it also resulted in a fuel cost saving.
• As a mandatory part of our investment approval process, we consider electric vehicles (EVs) whenever there is a requirement to purchase new or replace fleet vehicles. This assists in progressing towards our goal to have a 66% share of EVs in DHL’s last mile delivery vehicle fleet by 2030.
• We always check if there's an option for solar photovoltaics (PV) when constructing a new building. This is to help realize our aim that all new buildings have a minimum of 40% roof coverage with solar PV panels.

What approach do you take to calculating the cost of your transition plan?

Rather than setting a fixed long-term investment figure, we continuously adjust our financial plans based on the latest market conditions and sustainability priorities.

Since 2021, we have used a dynamic model where spending is allocated annually based on financial stability, investment impact and market developments. This ensures that we maintain our commitment to decarbonization, while adapting to economic realities.

What financial levers are you using to incentivize action?

We use a variety of mechanisms both internally and working with our supply chain to incentivize action, including the following:

• Sustainability-linked financing – we issued our first sustainability-linked bond in 2023, with a nominal value of €500 million and a term until 2033. The interest rate is linked to the achievement of the group's aspirational emissions reduction targets. DHL’s Sustainability-linked Finance Framework includes KPIs of absolute greenhouse gas emissions reduction.
• Remuneration linked to sustainability targets – since the 2022 financial year, the sustainability targets have been anchored in the short-term variable remuneration of the members of the board of management and later of senior management. As from 2026, the environmental dimension will also be included in the long-term incentive scheme.
• Working with our supply chain – the majority of our emissions are scope 3, so working with our supply chain is important to realize our net zero ambitions. We participate in a range of different initiatives. For example, we assist our third-party providers, particularly in acquiring EVs, by leveraging our financial strength to secure better loan terms and procurement deals. Our strong financial position allows us to negotiate favourable conditions for suppliers, ensuring that sustainability investments are more accessible to them. This not only supports our partners but also helps us achieve our broader sustainability objectives.

Guidance and further examples on aligning transition planning and financial planning as well as further information on the Net Zero Taskforce can be found in the links below.