Green giant

Next year marks Siemens’ 100th anniversary of doing business in Canada. With sales of $2.3 billion in Canada alone, it is one of the most successful industrial manufacturers in the world. Its bursting global order book currently stands at $136 billion, and it’s actively expanding into what it believes will be the hallmark industries of the 21st century: clean energy, infrastructure and cities, and—for an aging world—medical care. But its home market, Europe, is under economic siege, such that Siemens acquired a private banking licence last year and reportedly squirrelled away as much as €6 billion in the European Central Bank to avoid exposure to that continent’s wobbly private banks. And earlier this year, it exited the nuclear-energy industry, which it used to bestride, after the German government announced it would shutter its fleet of nuclear power plants, all of which were built by Siemens. Amid such turbulence, can Siemens’ increasing focus on green technology make up for so much lost business? Peter Loescher, president and CEO of Siemens AG, replied by e-mail to questions supplied by Canadian Business’s Jared Mitchell.

Canadian Business: How would you assess Siemens’ performance both globally and in Canada?

Peter Loescher: Siemens is rigorously oriented toward long-lasting global trends. Climate change will make environmental technologies the leading industry of the 21st century. Green, energy-efficient solutions are already generating one-third of our total revenue. And this share is increasing every day. The Canadian executive leadership team has done an excellent job in defining and putting a strong strategy in place that is right for the country. This strategy provides a solid foundation not only for future growth, but for sustainable growth, through our environmental portfolio. Our unique environmental portfolio, combined with Siemens Canada’s city account management strategy, has positioned Siemens as a partner for sustainable urban development. This is a very busy and exciting time for our Canadian operations. Let me give you just a few quick examples. Last summer, the energy sector announced plans to build our first Canadian wind-turbine blade-manufacturing facility in Ontario, and in December of last year, we announced Tillsonburg as the new home for this $20-million investment. In May, the leadership team signed a memorandum of understanding with the Ontario government to encourage the development of projects such as smart grid, electric-vehicle technology, wind and solar power, water treatment, energy conservation and state-of-the-art manufacturing.

CB: Siemens in September reorganized its global structure by adding a new business sector to its mix, that of infrastructure and cities. What’s behind this move?

PL: Infrastructure and cities will open up additional business opportunities: the economic impact of cities is enormous. Fifty percent of global economic growth is already generated by the 600 biggest cities in the world. Growth is expected to average 4.4% a year until 2025 and thus outpace global economic growth with an expected average of 3.5%. We want to better understand and serve the needs of cities. We’re massively investing in sales, urban planning and the development of new products, solutions, services and, naturally, financing models. The target market for Siemens is worth some €300 billion [$419.2 billion] per year.

CB: You recently sponsored a study of the green aspects of North American cities. Did you find common deficiencies?

PL: Where we found the need for change most prevalent is with aging infrastructure and the need for significant investment. The research also showed many North American cities do well in terms of sustainability because they have a holistic approach. This encompasses good co-ordination and communication between stakeholders and an overall comprehensive plan to achieving vision. We found that, on average, the five Canadian cities studied had a lower GDP per capita than their American counterparts, [but] scored higher in the rankings. To me, this indicates that in relative terms, Canadians have a higher regard and awareness of the environment and sustainable practices.

CB: Why is Siemens so interested in the environmental condition of cities?

PL: Cities around the globe are responsible for 75% of the world’s energy usage and produce more than 80% of all greenhouse-gas emissions, mostly CO2. So the fight against climate change must be won in cities. I believe that if Canadian cities take strong leadership in demonstrating that investment in environmental protection today, it will significantly pay off tomorrow.

CB: What immediate steps do you see cities taking to improve their environmental performance? Are there any “green” examples from Canada?

PL: There are some immediate ‘low-hanging’ solutions that any city can implement to enhance its environmental performance, such as switching to energy-efficient building technologies and smarter electrical systems. Siemens has developed a simple and practical approach—energy-saving contracting—to cover necessary investments. Even if municipal funds are lacking, cities can reduce their energy costs at no cost and at the same time modernize their buildings. With this plan, the customer finances the necessary measures with the savings in energy and operating costs guaranteed by Siemens, without paying a single cent out of pocket. To date, we have optimized 6,500 buildings with savings of €2 billion for our customers and a CO2 abatement of over nine million tonnes. This is just one example of our cities portfolio. There are many excellent “green” solutions deployed across Canadian cities. Vancouver for example, adopted its own “EcoDensity Charter,” which focuses on reducing sprawl through relevant planning decisions. Calgary and Edmonton have had light rail transit systems in place for over 30 years that provide a clean and reliable means of transportation. Calgary’s system is actually powered by wind turbines and therefore has zero emissions. And there are many other visionary examples where city management has taken infrastructure challenges and turned them into a sustainability opportunity.

CB: What long-term strategies should they adopt, and how should they animate these strategies?

PL: The real key to success when it comes to environmental performance is for a city to have a defined vision and a clear plan to achieve its vision. For sustainability to be realized, business decisions made today must consider future needs and considerations. I know that it is easier said than done. It basically comes down to the political will and a new way of thinking. The political environment in Canada, like in many countries, is such that a lot of short-term decisions are driven by mandates and terms of office—usually four years or less. So how do we drive change when the kind of change we are talking about takes years to implement before anyone can see a return on the investment? The answer is engaging in dialogue and leading by example—which is what we at Siemens try to do. We need to work with our customers and encourage governments to look beyond the short-term, and invest in the future.

CB: Siemens is also involved in health care. What are the biggest challenges facing Canada’s health-care sector?

PL: It seems that sustainability of the health-care system is the biggest challenge. An aging population, and the subsequent increasing demand, is driving costs to levels that cannot be sustained. Ensuring that providers are accountable for delivering the best outcomes is one solution to ensuring sustainability. Another is looking more long term when it comes to investing in innovation and technology, which will in many instances ensure better outcomes and returns on the funding that is being invested at increasingly higher levels.

CB: Siemens’ recent decision to exit from the nuclear industry must come as a blow to other firms in the nuclear sector, including those in Canada. Why did you make that decision, and what does it say about the future of nuclear power?

PL: How nuclear energy develops depends not on Siemens but on each country’s overall energy policies. In the end, such a departure is a business policy decision for a company. Fukushima put a face on the residual risk associated with nuclear power. Germany responded by revamping its energy policy. That also changed things for us here at Siemens. We are a company with German roots and values, and we are now withdrawing from the nuclear market. We will not accept any new contracts to finance or act as general contractor in the construction of nuclear power plants. That chapter is closed for us.

CB: How can renewables and clean energy ever supplant nuclear energy’s enormous base-load reliability?

PL: We won’t be able to replace everything with wind and solar power by tomorrow. Clean coal and high-efficiency natural-gas-fired power plants will be vital for a long time to come to ensure that we always have a reliable energy supply.

CB: Are you worried about the current financial crisis and how a collapse of the eurozone would affect your company?

PL: That will never happen. Of this I am convinced.

(This interview has been edited for length and clarity.)