Deconstructing LEGO’s Decarbonization

In January 2023, Professors Willy Shih and Mike Toffel led more than 40 HBS MBA students on site visits to witness the energy transition and innovative sustainable production activities throughout Denmark and the Netherlands, in their new Immersive Field Course (IFC). This is one of 13 student essays posted on the HBS Business and Environment Initiative’s Blog that highlights their reflections. Learn more about this IFC course on Decarbonization and Sustainable Production by watching this five minute video summary.

Visit Date: January 3, 2023

It was a dream come true for our 12-year-old selves, as we walked from the Hotel LEGOLAND to the LEGO Group’s brand-new headquarters, where their team graciously welcomed us in a jaw dropping atrium with a LEGO brick-themed central light fixture – the perfect start to a wonderful visit.

As part of the Decarbonization & Sustainable Production Immersive Field Course, our group had researched the opportunities and challenges facing the renowned LEGO Group. Known for their innovative and sustainable approach to making their iconic plastic bricks, the company also faces challenges due to their use of fossil fuel-based plastics and end-of-life externalities. We arrived at Billund, Denmark eager to better understand the company’s strategy to leverage bioplastics and recycling technologies to decarbonize their supply chain.

Brick-themed light fixture in the central atrium of LEGO Group’s headquarters in Billund, Denmark.

A multidimensional sustainability campaign

Instead of a central sustainability team, LEGO Group’s emissions, water use, and landfill reduction strategies are woven into the organization’s operations, packaging, materials, and molding groups. On the materials front, the company has made significant progress in using recycled polyethylene terephthalate (rPET) thermoplastic for some LEGO pieces, which was impressive given the challenges associated with rPET that we had learned about through our preliminary research. Further, there was a unique focus on recycling innovation and circularity, ranging from breakthrough methods of recycling thermoplastic ABS polymer, to bio-based and biodegradable materials, to their Replay program that enables users to donate used bricks for reuse.

LEGO Group has a clear emphasis on cooperation and consortium forming through initiatives like internal Ph.D. sponsorships, and working with startups and chemical companies. But they also acknowledge that, while the company is a trailblazer in the space, this problem is a global one and requires a solution involving all relevant stakeholders. Finally, we were impressed by the company’s move from plastic to paper bags that compartmentalize pieces within a LEGO box—another indication of their move toward more bio-based materials. The amount of thought put into every detail, ranging from end-user experience, to manufacturability, to end-of-life disposal, revealed how challenging this will be. But we were also inspired to see the solutions they are developing.

Upon reflection after our visit, we still have some questions:

Recycling infrastructure: Given the current limitations on the use of bioplastics, especially for the type of plastics used in 90% of its elements, LEGO Group’s circular future will rely on a more robust infrastructure to encourage more recycling among customers. That will require end user education, something the company is well positioned to do, but didn’t explicitly commit to. Further, a more comprehensive recycling infrastructure will require significant government investments.
Net zero by 2050? The LEGO Group’s goals and benchmarks include 100% “sustainable elements” by 2030, a 37% baseline emissions reduction by 2032, and net zero by 2050. Even for Scope 1 emissions (generated onsite) and Scope 2 emissions (associated with purchased electricity), which represent a small fraction of their current carbon footprint, it’s unclear how reliant on offsets the company will have to be to neutralize the fossil-based energy for their own factories and operations. It’s even harder to see a viable pathway towards complete decarbonization of its Scope 3 emissions from its supply chain, for which the largest chunk stems from embodied carbon in materials and packaging.
“Stuff accumulation:” There are over 400 billion LEGO pieces on Earth (60 bricks per person)! This fact alone highlights the challenges faced by a company that relies on the sale of plastic elements with a 50-year lifespan. As LEGO Group continues to expand globally, it raises questions about the viability of its sustainable practices at scale. Can it scale its Replay program that now represents a drop in the bucket of new sets sold? How will it balance continued production with increased reuse?

Our time at the LEGO Group taught us some lessons that could be applied more broadly regarding scaling sustainable production:

Spillover effects: Sustainability efforts often contain tradeoffs that have implications and externalities for other environmental efforts and organizational pillars. It’s important to understand the whole picture and embrace the complexity inherent in shifting one’s operations or organizational design. For example, the company’s decision to increase the use of recycled PET that is more sensitive to moisture has implications for packaging design and its molding machines, conveyance infrastructure, and drying processes likely require additional energy and emissions.
Private company lessons for public ones: Private companies, such as the family-owned LEGO Group, don’t face the same regulatory requirements and short-term financial pressures public companies do. But by increasing transparency in their practices and reporting, they can help exemplify environmental and economic sustainability roadmaps for public shareholders, stakeholders, and regulatory bodies.
First movers: Being an early leader in the sustainability space can provide a competitive advantage, improving its reputation and capturing future cost savings that expand beyond its own operations, particularly in a regulatory environment that could become more stringent over time.
Role in an ecosystem: Besides thinking about the inputs and outputs of its operations, a company should consider its role in the larger ecosystem and the levers at its disposal. As a relatively small petrochemical user, a company like LEGO Group should combine its efforts in its own operations while simultaneously pushing for upstream regulatory improvements that trickle down the value chain. It’s also important to understand the implications of collaboration versus IP protection for competitive advantage. Cooperation can standardize processes that catapult an industry toward emission reductions while minimizing investment risks.

Despite the challenges it faces, the LEGO Group is making efforts to shift its operations and value chain to reflect its commitment to meeting climate goals. They are well positioned to use their significant customer relationships to engage people in the sustainability conversation. As such an iconic part of many people’s childhood–our own included–it’s exciting to see the opportunities that sustainability efforts can create. Our 12-year old selves would approve.