Netflix: A Leader In Sustainability

(As published in The SustainabilityX Magazine, May 4, 2022)

Netflix stock took a hit on April 20, its biggest since 2004, after reporting that the company lost subscribers in Q1. Yet there are reasons to reconsider Netflix. It made $1.6 billion in profits on $7.8 billion in Q1 sales, a 10 percent increase in revenue versus Q1 2020. It still has the largest subscriber base (221.64 million) of all streaming services. And it’s truly a sustainability play.

Clinton Maloney, Managing Director, Sustainability Solutions, with ENGIE Impact, interviewed Emma Stewart, Ph.D. Sustainability Officer of Netflix, on a webinar, Lessons from Leaders – behind the scenes, The making of Net Zero + Nature at Netflix.

In this engaging discussion, they cover three topics:

• How Netflix will meet its ambitious goal of Net Zerohe

• Pathway Netflix is taking by using science to form decisions

• Their work done on retaining and removing carbon

Freedom & Responsibility

Netflix’s unique culture, called, Freedom and Responsibility, empowers and entrusts employees to do what they believe is in the best interests of Netflix. They voluntarily worked on sustainability efforts such as collecting their electricity footprint data and buying Renewable Energy Credits to tackle the company’s electricity load. Additionally, their production team discovered ways to minimize food waste and donate it to local shelters.

But leadership realized they needed scientific experts and a coordinated, centralized function. In late 2020, seeking someone grounded in data with a scientific bent, they recruited Emma.

According to her bio, she oversees all company-wide work to decarbonize corporate and production operations, to further raise environmental awareness through TV and film titles, to engage Netflix households on sustainability, and to partner with key influencers. Emma, also a poet, can use both sides of her brain in a company based on creativity.

At the outset, colleagues reminded Emma that speed was paramount as we rapidly approach dangerous tipping points beyond which we experience ‘runaway climate change', a critical threshold. When exceeded, large and often irreversible changes in the state of the system become inevitable. The passion employees display is partly due to the richness of their data allowing them to understand things quickly. In a six-month period, they accomplished the following:

• Collected two years of carbon footprint information

• Obtained independent third-party assurance by their auditing team

• Designed a science-aligned climate target

• Submitted it to the climate Science-Based Targets initiative

• Organized a plan to reduce internal emissions

• Contributed to a cross-sector effort to reduce the carbon footprint of streaming

• Vetted over 100 million metric tonnes (mmt) of climate action projects from 30 countries

• Put those projects through a five-step evaluation process to select which carbon offsets to ultimately procure

Emma’s team sits within Netflix’s Finance department, where it has the benefit of CFO, Spence Neumann’s deep involvement, in addition to that of Netflix's co-CEO, Reed Hastings.

"Reed has been personally involved from the get-go, particularly around setting the boundaries on scope 3 when they were not yet clear."

Scope 3 refers to all other indirect emissions that occur in a company’s value chain, after Scope 1, direct emissions from owned or controlled sources, and Scope 2, indirect emissions from the generation of purchased electricity, steam, heating, and cooling. During the executive team’s informal book club meetings, members educate each other and debate the merits of specific scientific studies and their economic and policy perspectives.

The Findings – What the Data Revealed Emma’s team calculated Netflix’s scope 1, 2, and 3 footprints and assessed their options. Their 2019 carbon footprint was 1.3 mmt, while 2020, an odd year due to covid, was 1.1 mmt. Approximately 90% of emissions were indirect (Scope 3). Roughly half of that footprint lay with the physical production of films, followed by corporate operations from leased offices, travel, and purchases. About 5 percent of the footprint consisted of the cloud and content delivery providers they rely upon. Going forward, production will make up the majority of their footprint. Netflix manages three production types: self-managed, partner-managed, and licensed, each, a bespoke enterprise – like constructing a small city and dismantling it shortly thereafter. Previously, there was no stated protocol about how to handle that. Thus, they challenged themselves to make decisions when the guidance was unclear. They took responsibility for any project that was a branded Netflix title and challenged industry peers to follow suit. They blended actuals (bills) with spend-based estimates when collecting data, striving to reach 100% actuals by directly conversing with their vendors, while asking for attestation to their public claims and additional documentation to provide to Netflix independent auditors. Netflix defined net-zero based upon the best available guidance at the time. The definition continued to mature as NGOs refined it and pre-vetted Netflix’s target design. The team talked to researchers and academics and had approximately 60 conversations with third-party experts, eventually employing three component parts: reduce (carbon emissions), retain (carbon), and remove (atmospheric carbon) through the restoration of natural ecosystems and mandated, engineered solutions to carbon neutrality. Optimize, Electrify & Decarbonize Netflix enforces the principle of "optimize, electrify, and decarbonize" wherever possible. Optimization includes using LED lighting on set - a quadruple win. LEDs are 75 percent more energy-efficient than standard bulbs, generate less heat to lower the cooling load, prevent makeup from melting on the talent, and are “instant on” unlike sodium lights that require a ten-minute warm-up. Netflix puts in additional muscle in electrification, swapping out diesel generators while employing mobile batteries, green hydrogen, and mobile fuel cells on-site. Furthermore, the company offers free electric vehicle charging facilities for their California employees and plans to provide facilities for production casting crews and their trucks. Netflix decarbonizes by assessing local power purchase agreements (PPAs) where the grid doesn’t offer renewable energy, and, as a last resort, by buying renewable energy credits (RECs). In 2020 they procured RECs for over 99% of their spaces globally. While credits are a good starting point, Netflix prefers direct investments in PPAs or green tariffs through utilities. No or low-cost energy conservation measures are low-hanging fruit providing rapid payback periods and a bank of cash to deploy elsewhere. "The economics look very good. It’s about where in the world you are operating, where those technologies are available, and doing a request for information from the vendor ecosystem to see who would come in as the most competitive." Emma’s team works on projects to protect stored carbon in the US, Canada, and Kenya. They committed to publishing the full portfolio of removed and retained projects annually and sharing their methodology for vetting projects through a 5-step valuation process, hosted by Business for Social Responsibility. "Nature documentaries are some of our most beloved titles by our viewers and so we really wanted to make explicit the tie in that investment mindset to support the nature that is profiled and made famous…and climate change is arguably the most epic story of our day. We live in the most consequential decade in human history so it’s no surprise that creators want to talk about it." The cost of streaming, the biggest variance, comes from the carbon intensity of electricity. Carbon Trust claims that over 50% of streaming’s carbon footprint comes from the devices used to stream. Netflix has a robust, consensus-driven means of measuring streaming’s footprint and is teeing up with the industry to tackle the energy intensity of device usage. All in, Netflix provides a sustainability lesson for corporates of all kinds. Shelley Goldberg is a commodity strategist and the Founder & Principal of Invest-With-Purpose, an environmental sustainability consultancy.