We recognise that our value chain emissions are many times those of our Scope 1 and 2 emissions and it is critical that we partner and collaborate with our customers and suppliers to reduce emissions by 2050.
It is also important that we recognise and understand the challenges that climate change will bring so that we continue to design defence and security systems fit for operation in these future environments.
Decarbonisation of our products and services will be achieved by making our current products and services more efficient where practicable and by introducing lower or zero emissions products and technology for new and future requirements. The Group has already established some low carbon products and invested in simulation technologies. Although the continued progression to lower and zero emissions products and technologies for the defence sector will require a significant transition it is anticipated it may lead to revenue opportunities for the Group over the long term.

Emissions baseline and governance

The decarbonisation pathway for our products and services will be achieved by advancing the efficiency of our products and services in the short term, and transitioning, where possible, to lower or zero emissions products and technology in the longer term.
We will seek to use our knowledge of in-life emissions of existing products to deliver lower emission solutions as we maintain existing products through-life. We recognise this will be challenging given the operational environments in which our products are used. We are already working on a range of technologies to help drive efficiencies in current products and services during product build, upgrades and maintenance including low-emission propulsion, energy storage, augmented and virtual reality, artificial intelligence and automation. 
We are also introducing new manufacturing techniques to reduce the energy used to support our decarbonisation strategy, by developing industry 4.0 technologies to make manufacturing more sustainable (see page 54 of our Annual Report 2022).

Supporting our customers in their transition

In the UK, we have engaged with our customers to understand their decarbonisation pathways and their challenges in ensuring operational effectiveness and availability. Many customers are setting targets and looking for lower-carbon, sustainable products. 
We will work closely and collaboratively on their future requirements to help inform and shape lower-emission product innovation and development.
Sustainable fuels will be part of our customers’ product and service decarbonisation pathway over the long term. We will work with our UK customers to understand their future fuel transition requirements, including the economics of when best to transfer to sustainable fuels, whilst continuing to work to understand the scalability of sustainable fuels and interdependencies on new product development. In the UK, the RAF has committed to moving to sustainable and synthetic fuels for aircraft by 2040. We are working to support our customers’ ambitions in this area.

Sustainable innovation pipeline

We are investing in the research and development (see page 54 of our Annual Report 2022) of sustainable products and building an innovation pipeline.
Part of the investment portfolio advances research and development to improve our existing products and support our customers in their decarbonisation plans. For example, we have been developing novel waste-heat-to-power technology in the Maritime sector for future warship energy efficiencies. In the Air sector, we are working with industry partners to optimise the energy usage for future aircraft.
Additionally, we have skills and technology that can be transferred to new markets, and we are investing to support new customers in their low carbon transition. During 2023, we will accelerate our sustainable product pipeline by developing electric aircraft capability and expanding our hybrid clean energy technology into the commercial maritime sector.
Transitioning to low and zero emissions products and technology represents a revenue opportunity for the Group over the long term (see page 51 of our Annual Report 2022).

Collaboration and engagement

To support the decarbonisation of our product portfolio we are investing in the skills and capability of our employees to drive innovation (see page 62 of our Annual Report 2022) and collaborating with suppliers and partners to develop a low carbon supply chain (see page 70 of our Annual Report 2022).
Collaborating with others is key to driving innovation and accelerating our position on sustainable products. For example, we are progressing technologies that will enable lighter-weight, cost-competitive energy storage solutions for hybrid aircraft engines such as our collaborative work with Jaunt Air Mobility and others. We are working with Malloy Aeronautics, a UK-based SME specialising in electric uncrewed air vehicles, to create a new all-electric heavy lift Uncrewed Aerial System (UAS) quadcopter. This has the potential to deliver cost-effective, sustainable, rapid response capability to military, security and civilian customers, without putting human pilots at risk when used in hazardous locations.
We have signed a Memorandum of Understanding with Embraer Defense & Security. This confirmed an intent to create a joint venture to develop a defence variant of the Eve electrical Vertical Take-Off and Landing (eVTOL) vehicle for the defence and security market. Teams from both companies will work together to explore how the aircraft, designed for the urban mobility market, can provide cost‑effective, sustainable and adaptable capability as a defence variant. We also plan to collaborate with Pipistrel Aircraft on the development of solutions for the defence and security market, including the application of electric aircraft.
Our success as a business relies on the resilience of our supply chain. It is vital that we collaborate and partner with suppliers to deliver the capability our customers need and to support our suppliers in addressing challenges including in respect of the products and services they supply to us.
By working together with our supply chain we can accelerate our sustainability programmes which benefits us, our customers and wider society.
We have communicated our sustainability ambitions for suppliers, including within our Supplier Principles, and will be engaging with them to understand their own sustainability ambitions. Our Supplier Principles cover supplier workplace/employee business practices and wider sustainability issues.
We value diversity across our supply chain, as it brings creativity of thought, innovation and agility which helps us to create the best-in-class products and services.
Our suppliers face different drivers, priorities and challenges across the markets in which they operate.
Our relationships with suppliers are often long-lasting due to the complexity of our products and their long lifecycles, so it is critical that our suppliers share our values and our approach to sustainable business. By effectively partnering with our suppliers we are also able to leverage opportunities to deliver a positive social impact in the communities where our suppliers operate.

Sustainable supply chain

Partnering is key to our success. We aim to build long-term relationships with our supply chain partners, building on trust and collaboration to drive strategic mutual benefit. By working together we can collectively respond to business challenges and deliver innovative products and services. This shared approach not only benefits our customers, but makes a positive contribution to wider industry and communities in which we operate.
We are developing our Sustainable Procurement Strategy. This strategy will set out our long-term sustainable procurement ambitions, including a roadmap detailing how we will achieve them. Supplier engagement is central to this strategy, as we need to understand our supply chain partners’ ambitions and commitments and how we can move forwards together.

Shared values

This year we updated our Supplier Principles to better align with our sustainability ambitions. This strengthened set of Supplier Principles demonstrates our commitment towards building a more robust and sustainable supply chain. By engaging with supply chain partners on our sustainability ambitions, many of whom already have their own sustainability strategy in place, we can collaborate on key sustainability issues and accelerate progress.
We have engaged suppliers on our updated Principles and undertaken assurance activity, covering more than 30% of global spend.

Social value

We value a diverse supply chain, as it drives innovation and agility, whilst positively impacting the communities in which our suppliers operate.
In the UK, we have been supporting the Government’s SME Action Plan, which sets out how we can improve the engagement we have with SMEs and focuses on procurement models that are easier to navigate. Our commitments include: 
  • increasing SME spend at tier 1 and lower tiers;
  • widening engagement with and championing on behalf of SMEs;
  • paying SMEs promptly and on time; and
  • supporting smaller businesses in the defence supply chain through the implementation of the industry-wide Hellios SME Portal (launched with UK Ministry of Defence at the Farnborough International Airshow in 2022).
We have also been asked by the UK Defence Suppliers Forum Executive Group to be the industry co-chair of the new DSF SME Champions Working Group that will bring together the industry’s SME Champions to collaborate on delivery of the UK Government’s SME Action Plan.

Decarbonising Scope 3

We have set a decarbonisation ambition that will drive efficiency, innovation and collaboration across our value chain. We recognise that our supply chain emissions are many times those of our Scope 1 and 2 emissions (see page 52 of our Annual Report 2022) and it is critical that we partner and collaborate with our suppliers to reduce supply chain emissions by 2050 (Scope 3 emissions). To that end, we look forward to working with suppliers to understand where they are on their own decarbonisation journey.

Supporting small to medium enterprises

As a prime defence contractor, we volunteered to lead the Defence Supplier Forum working group in the UK to create the Hellios SME Portal – a new, free platform offering SMEs greater opportunity to promote their capabilities and access the defence market.
We did this because we recognise the importance of having SMEs in our supply chain; they often bring agility, diverse thinking and creative innovation that can grow our defence capabilities. This enables us to help protect what really matters – our nation’s security – and it can also support new jobs in regional clusters across the UK.
Our work towards the digital portal directly supports the ambitions of the Ministry of Defence’s SME Action Plan published in early 2022. The plan focuses on how best to support smaller businesses in the defence supply chain.

Small business subcontracting

In the US, we are committed to small business utilisation, with approximately 40% of our supply chain spending placed with small businesses. We recognise that our small business partners contribute to our innovation, support our customers, create jobs, and improve the overall health of the US economy. We work diligently to identify and collaborate with small businesses that bring value to our customers – small, disadvantaged, woman-owned, HUBZone, veteran, and service disabled veteran-owned small businesses. Additionally, we collaborate with AbilityOne companies and historically black colleges and universities/minority institutes whenever possible.
Our commitment to compliance with our BAE Systems, Inc. Small Business Policy and sector subcontracting plans is underscored by the sponsorship and oversight provided by the BAE Systems, Inc. Procurement Council. Our culture of inclusion and history of small business utilisation supports long-term relationships with diverse businesses in all socio-economic categories. We are active in the small business community at the national, regional, and local levels. BAE Systems Small Business Professionals also serve on committees and in leadership positions in several organisations that advocate for diverse suppliers. We serve on panels, moderate workshops to encourage small business development and provide funding for minority business development programmes. Additionally, we regularly sponsor, exhibit, and participate in matchmaking events to identify qualified small businesses that can provide capabilities and innovation to support our customers’ needs. Our commitment to meeting our small business goals and supporting small businesses is a constant in our overall business practice.
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