The LEGO Sustainability Saga

Hi, I'm Kelly Barner and this is Dial P for procurement, where I take a critical but unbiased look at current events, ongoing trends, and the complex dynamics at play in global supply chains. We take on tough stories here, ones that don't have simple solutions. My goal is not to give you an answer, but to make you think. Such episode covers a different complex issue and prioritizes reality over simplicity. With so much complexity in the world today, I'm glad you're here. One of the most common concerns of modern supply chains, beyond risk and disruption, of course, is sustainability. With ESG initiatives being very high visibility in the sea suite, not to mention among regulatory bodies, and a significant portion of any company's carbon emissions being associated with their supply chain, the battle is on. Not just too offset, but to actually reduce environmental impact through operational changes. This is a tall challenge in competitive markets. It requires commitment, innovation, and a willingness on the part of companies to drive change from within. In some cases, however, even that is not enough. In this week's episode of Dial P for Procurement, we are going to trace LEGO's push towards plant-based materials as a way of studying the very real challenges associated with finding a way even when there is already an established will. We'll look at the history and philosophy of the company and how they align with their current sustainability mission. We'll fairly recognize what LEGO has achieved so far and what options they have eliminated as viable possibilities along the way. And finally, we'll acknowledge some of the criticism and negative publicity they have received, increasing their already elevated sense of urgency. LEGO was founded in Denmark in 1932 by all Kirk Christiansen. Right from the start, he refused to cut corners for the toys his company produced. He started making toys with wood and gradually moved to plastics. Like so many company histories, LEGO's story intersects with World War II. Despite a post-war ban on the use of plastics for commercial purposes, Christiansen bought Denmark's first plastic injection molding machine in 1946 and started to experiment with it for the sake of making toys. In 1947, he was finally allowed to use it for goods he could sell. And by 1949, the company was creating a plastic product called the Automatic Binding Brick. Now of course, we know these as LEGOs today. And even the selection of the company and brand name was carefully made. LEGO is Dutch for Play Well. A concept that is apparent in their products and also their overall business philosophy. Today LEGO is the world's largest toy maker. So what they do stands to make a huge impact, both through their consumption and production, but also through their ability to serve as an example for others. Tim Guy Brooks, LEGO's head of environmental responsibility, has said, quote, "We can't say we inspire and develop the builders of tomorrow if we're ruining the planet." LEGO invested $400 million into their sustainability efforts in 2020. They signed the European Commission's new Green Consumption Pledge in 2021, and they have pledged to achieve net zero greenhouse gas emissions by 2050. Net Pledge is an extension of an existing attempt to reduce carbon emissions by 37% by 2032, and that's the company's immediate goal. Most LEGO pieces are currently made from a crulonitral, butadiene styrene plastic, or ABS. And they have been since 1963. Their plastic production is heavily reliant on petrochemicals, and fossil fuel feedstocks account for 99% of the raw material based for making them. It doesn't take a scientist to sense the conflict between a company that is heavily reliant upon fossil fuels for making their product, and that same company being highly dedicated to a sustainability mission. ABS doesn't biodegrade, nor is it easily recycled. It requires two kilograms of petroleum for every one kilogram of plastic toys produced. That converts to about four and a half pounds of petroleum for every two pounds or so of LEGOs. So the company has compelling reasons to move away from this product, but they have to be sure they're choosing the right thing. ABS does meet their product needs. It has a strong resistance to corrosive chemicals and physical impacts, which any parent knows LEGOs take. It's very easy to machine, and it has a low melting temperature, which makes it particularly simple to use in injection molding manufacturing processes. ABS is also relatively inexpensive. This currently run about a dollar 50 per pound. But the company knows it is incongruent with their sustainability mission and vision to continue using this fossil fuel based product. In 2012, LEGO committed to making sustainable bricks by 2030. So they've been added for 11 years now. They have invested $150 million to hire scientists and fund research and development. And yeah, just 2% of LEGOs products are currently made from plant-based plastics. They sell over 50 billion LEGO bricks every year. LEGOs journey toward sustainability has been ongoing and high profile. They've made news every step of the way. Most recently, they announced that they would scrap plants to make bricks out of recycled plastic bottles, using PET plastics, because of the net carbon impact. They found that making bricks from this recycled material would require them to invest in new equipment and the process would involve more steps. This would ultimately lead to more planet heating pollution than their status quo process. They started this particular process over two years ago and may have encountered plenty of challenges along the way. PET is hard to scale and it's hard to color consistently. It is just one of hundreds of sustainable materials they have tested. They have been trying for years to make their bricks out of something other than petroleum based plastics. They tried making pieces from corn, but that resulted in bricks that were too soft. A wheat-based brick didn't look right. Bricks made from yet other materials over the years proved too hard to pull apart or lost their grip over time. LEGO has very precise requirements. They referred to the way that the bricks connect together and pull apart as clutch power and it's very specific. Now if this had worked, a one-liter PET bottle could have produced about ten of the classic two-by-four-stead bricks. Unfortunately those extra steps involved in production would use more energy and their manufacturing facilities would require retooling. Now this recent news shouldn't be taken to mean that they haven't had any success. LEGO has been using a bioplastic made from sugar cane for several years to produce their smaller softer pieces such as trees, branches, leaves and some of the accessories for the iconic mini figures. This particular bioplastic known as biope isn't suitable for making the harder, stronger elements such as its bricks. And it's subject to creep, which is the company's word for when bricks lose their grip and collapse. So it doesn't align with their requirements for that specific clutch power that's part of the LEGO play experience. The precision that LEGO requires for this is two to three microns. If you're not used to measuring things in microns, I'm certainly not. amounts to less than the thickness of a human hair. And one of the reasons that they insist upon this is that all of their pieces are backwards compatible to 1955. This is part of the legacy that Christensen established refusing to cut corners. And in truth, that's part of their sustainability story as well. The fact that today's bricks still connect to the older ones is part of their circularity program that allows those older bricks to stay in play instead of entering the waste stream. Plant-based materials aside, Lego is also considering turning to substances made from chemical recycling by which a material is broken all the way down to its components and then built back up again. They're hoping that this will eliminate some of the problems they've seen with color and quality that occur in normal recycling. One of the challenges is that they just need so much of whatever bioplastic they end up working with. They need incredibly large food-grade volumes. According to European bioplastics, general plant-based plastics represent less than 1% of the 359 million metric tons of plastic produced annually. And so being clever, Lego has figured out that they can't do this alone. They have shared their findings with other companies and have formed an alliance that includes Nestle, Proctor and Gamble and McDonald's bringing all of the best minds at these companies together to try to develop a supply chain for plant-based plastics. It's called the bioplastic feedstock alliance or BFA. It's a collaborative multi-stakeholder form that's focused on increasing awareness around the environmental and social performance of these feedstock sources for biobased plastics. They have also tried to build demand and therefore incentivize supply by joining with companies like IKEA, Unilever, Nike and Denon. They all share an interest in moving to sustainable materials. And they've looked creatively across industries. Lego has a partnership with Pharma company Novo Noridisk. They're both trying to move away from fossil fuel-derived plastics. Now as much as they share what they've learned, they're also trying to learn from other companies, but not all of those learnings are transferable. For instance, Coca-Cola has sold bottles that use 30% plant-based packaging since 2009. And Lego experimented with their product and process. But when they couldn't find a way to source the remaining 70%, they decided not to go to market with a compromised solution. Now even trying to move towards bioplastics isn't making everybody happy. Some critics say that growing crops to make plastic will end up competing with land for food production. Industry research currently disputes this, showing that bioplastics use less than 200% of agricultural land. But if Lego, when these other partners get their way, that percentage is bound to increase. So even their pursuit of plant-based materials isn't without its challenges. Lego isn't just looking at the composition of their bricks and their push towards sustainability. Lego knows that 90% of their emissions come from the supply chain. And that includes raw materials as well as distribution. The remainder is related to energy use of factories, offices, and so they're attacking all of these fronts in parallel. They're working to shorten the distance between product production and product sale and consumption. Lego is spending $1 billion to build a new factory in Virginia. It's their seventh facility worldwide. The new 1.7 million square foot factory will expect it to start brick production in the second half of 2025. The factory will be carbon neutral and it will have a solar park on site to make enough energy to power the facility. Shortening the lead times by moving products closer to key markets will help reduce emissions from transportation. And executives have credited that model with helping Lego weather the worst of the supply chain disruptions that have hit other industries and companies during the pandemic. So it has other business-related benefits as well. The company is genuinely taking a comprehensive approach to reducing supply chain and transportation related emissions. Nothing is off limits when it comes to this journey and that includes their packaging. Lego is trying to switch how it currently packages collectibles known as mini figures. You may have bought them. They come in these little crinkly sort of folly plastic bags. They're attempting to move to recyclable cardboard boxes. Now in all of this Lego is not losing sight of the consumer experience. And if you've had any experience with a blind bag, a little package where you know sort of what's in it, but not precisely, you may understand some of the challenges that Lego is facing. Some people have mastered the ability to figure out what's in a particular blind bag. A box makes this absolutely impossible, ruining the customer experience, alienating very loyal customers and potentially reducing sales. Only about 7% of Lego's packaging isn't currently made of sustainable materials. And the majority of that 7% is associated with the plastic bags for collectible mini figures. So that's a challenge that continues. Now I mentioned at the very open of this episode that Lego has faced some very public criticism. Much of their drive toward sustainability actually comes from outside the company. And the most notable example of this took place in July of 2014 when Lego became the target of a highly publicized campaign from Greenpeace. Shell, one of Lego's partners, was planning to drill in the Arctic. And Greenpeace made the decision to get it shall through Lego. What they wanted was for Lego to break off their partnership with Shell, one that had been in place since the 1960s. We know that Lego was using petroleum based products. But the partnership extended beyond that. You could even buy co-branded play sets. So Greenpeace made a video. In it, a Lego built Arctic scene is slowly immersed in oil. Figures like Santa, Emmett and Lucy from the Lego movie, and very cute Lego animals are all gradually covered with oil while a slow, sad version of everything is awesome. The Lego sort of rock theme song plays in the background. Honestly, the video is devastating. It's incredibly depressing. It pulls at your heartstrings. And it's nearly impossible to look away from. It is a masterful use of content to make a point. And it worked. The video quickly gathered six million views. And it demonstrated both the swift compelling capabilities of a well executed social media campaign. While also showing how in a hyper-connected digital world, companies have to be very careful about who they choose to do business with. Although Lego made clear from the outset that they did not endorse Greenpeace's tactics, they did announce that they would honor the remainder of the contract but would not renew it. That only took three months from when the video was released. Lego felt that it was unfair for Greenpeace to target them when they really wanted to hit shell. And the accused Greenpeace of creating a misunderstanding among the public and among consumers about how Lego operates. And yet, by causing Lego to decide not to renew that agreement, they brought to an end a partnership of over 50 years. So, ultimately, Greenpeace got what they wanted. Lego turned 90 in 2022. And if they stay on track, their bricks will be sustainable just in time for their 100th anniversary. I'm sure that timeline is part of the company's urgency. Talk about dual reasons to celebrate. They've been targeted by activists like Greenpeace. They've been dogged by critics that don't want to see their use of plant-based products, interfere or compete or raise the prices of food needs. I genuinely believe, as an outsider and a Lego consumer, that the company wants to be sustainable. But wanting is not the same as being, and they've thrown a ton of money at this problem. More money than most companies are in a position to spend. It's a fair reminder that the journey toward sustainability is likely to be more challenging and dramatic than many companies and executive teams expect. If this episode of Dial P for procurement made you think, please spread the word. You can also support the show by giving it a thumbs up, a star rating, or review, wherever you listen to your podcasts. Dial P for procurement is part of the art of procurement family of brands, which also includes buyer's meeting point and my purchasing center. Our collective resources include podcasts like this, videos, blog posts, white papers, and events. To ensure you never miss out on what's new, please subscribe to our newsletter at artofprecurement.com/subscribe. I'm grateful for your interest in the work we are doing here at Dial P for procurement, and I look forward to having you join me again next week.