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What Makes Sustainability Profitable?
What Makes Sustainability Profitable?
What Makes Sustainability Profitable?
Key findings
Some companies position themselves more proactively than others in term of sustainability and seek opportunities to make their activities sustainable, but there is still considerable room for improvement. Many business leaders ask the question: How to make sustainability initiatives protable? This report should help them to identify opportunities to benet from their environmental initiatives. Key ndings of the survey are: Sustainability is not an option any more! There is a gradual shift in the global mindset and most of the companies start or continue to integrate this new element into their business transformation. With an increasing pressure from different stakeholders, ignoring the imperative for sustainability action could put your companys business at risk in a very near future. Develop a strategy and integrate it fully. Sustainability transformation must be coherent. The business strategy built on sustainability offers the framework for articulated and related initiatives. Companies that have fully integrated sustainability into their strategy execution are more likely to drive value from their initiatives. Commit the top executives and fully involve management and employees at each level. Free the necessary resources and avoid the middle management squeeze or the executive vacuum! Measure your environmental performance. Performance evaluation is essential to align your actions with the execution of the companys strategy. Metrics will support management for decision-making. To assess investments, take all aspects of the environmental initiatives payback into account. Increase your traditional cost-benet analysis with impacts on risk mitigation and brand value. Follow risk and anticipate change. Environmental risks are real and companies have to protect themselves against them. Assessing and following threats seriously help to uncover new opportunities and anticipate future changes. Use sustainability as an income driver and benet from the change. Move ahead of issues or stakeholders will force you to do it! Move rst and make it visible! Be the rst to move to develop the competitive advantage. Communicate about your efforts and actions that make sense. Pairing protability and growth with sustainability is more than doable. Plenty of opportunities exist to do so and it is by embracing sustainability that it becomes the most protable.
Table of Contents
Introduction 4
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Introduction
I. Forewords
Nowadays, most companies are aware of the increasing necessity to build a future based on sustainable principles. More and more executives express their convictions that, in a wide range of areas and corporate activities, the approach towards business has to change from the traditional way to more sustainable activities. Still, it is noticeable that, when proactive management decisions related to sustainability are needed, there is generally a gap between talks and actions. However, some companies seem to position themselves faster than others and seek for opportunities to make their activities sustainable. Some have succeeded in making sustainability protable and drive real value from each one of their initiatives.
Measurement
Importance of measurement Difficulty to measure
Risk Mitigation
What is tracked? Who is tracked? How is it tracked?
IV. Approach
This report is based on quantitative data collected through an online survey and on qualitative data collected through face to face meetings with people in charge of sustainability within their company. The survey was conducted by Kurt Salmon in autumn 2010 and received complete responses from 85 companies. They were selected from a wide range of areas of activities and from medium to large companies. The panel consists of Belgian companies and multinationals operating in Belgium. Respondents are either C-level or Management in charge of sustainability and environmental responsibilities. Those quantitative data were complemented by 35 qualitative interviews with companies that have demonstrated that sustainability constitutes a lever for their development.
V. Respondents information
Figure 1 - Sector distribution
Others Telecom & Media Professional Services Financial services Engineering & Construction Manufacturing, Consumer Good and Wholesales
Around 40% of the surveyed companies have a turnover over 500 million.
14% 5%
0-500 500-1.000
15% 11%
55%
About 45% of the surveyed companies employ over 500 full time equivalents.
VI. Acknowledgements
Kurt Salmon is very grateful to all companies, respondents, and interviewees who have been involved in this survey as well as the companies who accepted to meet us and provided us with valuable information, in particular: Francis Blake, Director at Derbigum Fabio Boccalatte, Director CSR and Group Communication at AGC Glass Magda Buelens, Public Affairs & Environment Director at Tetra Pak Benelux Pierre Cors, Corporate Senior Sustainability Advisor - Corporate Management for Health Safety and Environment at Solvay Eric Coiffard, Senior Property Manager at Conimmo Stephan De Brouwer, Managing Director at McDonalds Belgium Isabelle de Cambry, Associate Director Corporate HSE & CSR at UCB Olivier Dautrebande, Eco Manager at Total Belgium Bruno Defrasnes, Director Sustainable Development at Electrabel Philippe Dembour, Head of Corporate Responsibility and Sustainable Development at ING Veerle Demol, CSR Communications Officer at KBC Jean-Christophe Donck, Vice President at UCB Guy Ethier, Senior Vice-President Environment, Health & Safety at Umicore Concetta Fagard, Vice-President Group Reputation, Vice-President Group CSR, Sponsoring, PR & Events at Belgacom Group Marc Flammang, Managing Director at Bank Degroof Foundation Stphane Geerts, Director General Services at Group RTL Belgium Aurelie Gerth, Public Affairs and Media Relations Manager at Unilever Benelux Mia Goetvinck, Director Business Excellence/CSR at Ricoh Belgium Dr. Hildegard Deweerdt, Environmental expert at KBC Bank Laurent Kahn, General Manager at EXKi Catherine Kinet, Head of Corporate Social Responsibility at BNP Paribas Fortis Rikkert Leeman, Chief Technical Officer at Bemmo Pascal Lglise, Quality and Sustainable Development (CSR) Director at Carrefour Belgium Olivier Marquet, Managing Director at Triodos Belgium Xavier Milcent, Global Marketing Manager at ExxonMobil Florence Rossi, Corporate Social Responsibility & Quality Manager at Sodexo Hannelore Schotsaert, Marketing & Communication Manager at BMA Ergonomics Graldine Tondreau, Sustainable Development Advisor at Electrabel Vincent Vanwijnsberghe, Government Affairs & Public Policy Manager at Baxter Mieke Vercaeren, Advisor public affairs at Colruyt Galle Vervack, Responsible Renewable Energy and RUE at Elia
Rise in energy cost Climate change and upcoming relevant regulations Rise in transportation costs Rise in commodity prices 34% 31% 59%
69%
28% Public opinion regarding environmental decisions 28% Air pollution and upcoming relevant regulations 28% Waste Management 28% Water scarcity and upcoming relevant regulations 20% Lack of resources needed to produce 20% Bio-diversity and land use related issues 11% Chemicals, Toxics, and heavy Metals and upcoming relevant regulations
0%
10%
20%
30%
40%
50%
60%
70%
80%
While global society is aware of the different challenges, the results highlight 4 major challenges that companies expect to face in the near future. For most of the surveyed companies, rise in energy cost and climate change and upcoming relevant regulations represent the 2 most difficult challenges for the near future. These are closely followed by the rise in transportation costs as well as the rise in commodity prices.
For a majority of companies, rise in energy cost and climate changes regulations will be the 2 most challenging issues to manage in the near future.
Worries expressed by companies reect the awareness that the business as usual is currently putting too much pressure on
key natural resources. Those resources, like oil, commodities and industrial metals, are gradually reaching their limits. On numerous areas, companies cannot continue to go forward with business as usual regardless of the environment. Since energy has taken a central position in our society, it makes this challenge highly visible and shows the constraints imposed by our planet. However, like any challenge, it can be seen as an opportunity. It is an early warning in order to reorient how markets and society function and hence how companies operate in their day to day activities. Challenges expressed also reect concerns on air pollution and in particular on climate change as regulators worldwide are determined to put pressure to lower this at a sustainable level.
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II. There is an increasing pressure to make companies act in a more sustainable way
Figure 5 - What are the main sources of pressure that drive companies to pay attention to sustainability issues?
According to respondents, 4 main drivers pressure their company to pay attention to sustainability issues: the necessity to strengthen their competitive position, to meet consumers expectations, to manage the risk of regulation as well as to attract, motivate, and retain talented employees.
Didier Bellens, CEO Belgacom CSR helps us to anticipate on societal trends and stakeholder expectations. It drives innovation and opens doors to promising new business areas
Competition is the most important factor that drives companies to address sustainability issues.
The main source of pressure to address sustainability issues comes from competition. If they want to keep one step ahead, companies have to move to strengthen their competitive position. Environment being more and more important in customers minds, companies must adapt to meet consumers expectations. Some companies however gain from a competitive position by beating environmental expectations! Francis Blake, Derbigum Through our program of innovation which started less than 10 years ago, we grew from a company active in roong systems to one that is Making building smart. A sustainable approach and a strong R&D program have led us to the development of more eco-friendly solutions which permitted to gain a signicant competitive advantage
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On the other hand, regulatory risk is constantly pressuring companies. Some institutions, such as the European Union, play an important role, pushing companies with more regulations to ght against climate change. The cap-andtrade system for the carbon market and the extended producer responsibility, requiring companies to take the ownership of the product they launch on the market, are good examples of the numerous initiatives taken by the authorities.
Furthermore, on the strength of employees expectation, companies tend to act more responsibly. Indeed, in the erce competition for talent, potential employees also growingly take into consideration the sustainability argument and actual employees want to be proud of their work and of their employer.
Financial partners: Banks and Hedge funds are now including environmental factors inside their investment decisions
Equator principles: new standards for decision making about project nance loans Carbon Principles: agreement to look hard at carbon risk of electric power projects nancing (2008, JPMorgan, Morgan Stanley, and City group)
Consumers: Consumer awareness and expectations increase. They demand information such as what is in the product, where it comes from and how it is made. Authorities: Be it from international institutions (United Nations, European Union, etc.), national or local government, the number of environmental regulation boomed in the last two decades.
At European level, directives and regulations are directly impacting companies activities: RoHS (restriction of hazardous substances), WEEE (waste electrical and electronic equipment), REACH (registration, evaluation and authorization of chemicals) Due to the presence of a contaminating product (cadmium) within their Playstation cables, Sony wasnt allowed to supply their product just before Christmas 2001 in the Netherlands
Investors and Stock Market: ranking system that refers to sustainability performances.
SRI indexes: DJSI, FTSE4Good, ASPI, Ethibel Excellence Europe,etc... Ranking Agencies: Vigeo, SAM, Eiris, etc.
Local Communities: Local communities are more self-powered and companies need to involve them for opening or expending operations in a region.
The local community of southern India succeeded to remove Coca-colas license to operate in Kerala for its bottling plant due to an over-exploitation of ground water sources and the emission of toxic sludge. As a Result many people in India have cut down or given up on Cola consumption
Employees: Today employees are looking for a meaning in their day to day work. They need to be proud of the company they work for! New employees and competition for talent.
New generations are more sensitive to green concepts
Business partners: B2B customers are increasingly asking their suppliers to reveal what their products contain and how they make them.
Walmart is pressuring for sustainability principles compliance concerning products, requesting its 70 000 suppliers to lower fossil fuel use and waste.
Medias: Traditional media (TV, radio, newspaper) but also new media (internet) increase the awareness of consumers
After a campaign of media harassment through Facebook, Greenpeace urged the agribusiness giant Nestle to abandon oil palm and engage in a policy of zero deforestation The movie home from Al Gore has risen the awareness of several million viewers
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III. In response to these pressures, companies identified appropriate approaches targeting the highest impact
Figure 6 - Ranking of the most effective actions to reduce a companys environmental impact
1 2 3 4 5 6 7 8 9 10 11 12
Purchase of Clean energy Production of Clean energy Carbon footprint analysis Waste management Cost identication & reduction Green Procurement Products/services optimization Fleet management optimisation Usage of clean technologies/green IT Smart buildings Environmental Risk Management Search for Subsidies 30% 46% 53% 54% 41% 46%
63%
Rank of the action by order of perceived effectiveness to reduce a companys environmental impact.
78% 72%
The survey assessed several levers that can be used as a response to environmental issues. On one hand, one question covered the perception on effectiveness of those actions regarding the reduction of companies impact on the environment. On the other hand, another question assessed which levers where effectively used by companies to respond to environmental issues.
For the respondents, the actions and opportunities perceived as the most effective are, by order of effectiveness: the production and use of clean energy, the use of a carbon footprint analysis to assess and mitigate GHG, and waste management. Concerning the actions already used, the most used ones are the improvement of waste management, the monitoring and reduction of costs and the improvement of the eet selection.
There is a mismatch between the actions perceived as the most effective and the ones effectively used.
The results show a mismatch between the actions perceived as the most effective and the levers currently used by companies to respond to the environmental issues. For example, the use of clean energy is considered as the most effective action, yet regarding the use of
these actions, the purchase of green energy is the fth initiative the most used and the production of green energy locally is the 11th initiative. Nevertheless, waste management and costs identication & reduction are, in both cases, in the top 4 actions.
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Cradle to cradle at BMA Ergonomics, Hannelore Schotsaert "Most of the chairs used in an office environment are out of use after 7 years on average. Undoubtedly, most of those chairs are designed to last longer! BMA Ergonomics AXIA chair is, through its Design for Disassembly an alternative to the classic cradle to grave products. BMA Ergonomics operate a withdrawal guarantee. After years of intensive use, BMA Ergonomics come and pick up your old Axia chair. In exchange, you will even receive a money coupon to use for a new chair (around 50 EUROS in 2010/2011). The old chair returns to the factory. In the recycling shop, especially equipped for this purpose, and is completely taken apart. Some of the components are directly reused in the manufacturing of new chairs. Others are sent back to their suppliers, who recycle the parts and use them in the production of new materials. Today, BMA Ergonomics guarantee that their products consist of at least 67% recycled materials." This is an example of a Cradle to Cradle Design in which technical materials are viewed as nutrients for new products. This kind of design seeks to create systems that protect our planet by developing almost waste free processes.
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I. Environment is no longer an option, it is now taking an important role within corporate strategy, and this trend will strengthen in the near future
Figure 7 - To what degree does companies strategy focus on the different elements of the Triple P: People, Planet, Prot?
Planet 34%
Planet 36%
Prot 37%
People 30%
Prot 34%
5 years ago
Today
5 years ago, prot was by far the highest concern of the triple P mix (People, Planet, Prot). Nowadays, businesses strategies seem
to be more balanced between the 3 elements and what is more, there is an increasing trend for planet concerns.
Results conrm that companies are increasing their focus on environmental concerns.
It is manifest that companies tend to integrate sustainability concerns within their core strategy. This shift is visible and companies are responding to constantly growing pressures and try to stimulate environmentally sound behaviours internally. Externally, companies claim not only to be willing to reduce their impact but more and more that they commit themselves to protect the environment.
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II. Most companies formalised their engagements through the integration of sustainability aspects within their strategy
Figure 8 - Does your company have developed a comprehensive Sustainability Strategy?
25% 34%
Yes, general guidelines about environment and social responsibility No, we do not have a documented Sustainability Strategy
41%
Our survey reveals that more than 70% of the surveyed companies developed a sustainability strategy, consisting, for 34%, of a formal comprehensive and documented strategy or, for 41%, of general guidelines about
environment and social responsibility. On the other hand, 25% of respondents still dont have any documented sustainability strategy.
The majority of companies have formalised their engagements on the environmental challenge, ranging from general guidelines to more formal documented strategy
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III. Why have some companies not yet included sustainability within their strategy?
Figure 9 - Primary reasons why companies do not yet have a sustainability strategy?
63%
42%
26% No clear vision of what could be done 25% 16% We are waiting for the right time 11% We dont see the benet
Yes
0% 01
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Among the 25% of respondents who have not yet developed a sustainability strategy, more than 60% claim that they do not have enough human resources available to do so. About
40% believe that the development of such a strategy is not relevant for their sector of activity and 26% claim that they have no clear vision on what could be done.
The most important reason for not integrating sustainability within their strategy is the lack of human ressources.
When looking at the size of the companies who did not implement a sustainability strategy, the human resource issue makes sense: 78% of these companies have less than 500 employees. Moreover, 57% of the companies which believe that the development of a sustainability strategy is not relevant for their sector of activity are active in the professional services sector (not including bank, nance and insurance activities).
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IV. When and for which motives did companies integrate sustainability within their strategy?
Figure 10 - For which motives did companies integrate sustainability within their strategy?
Improve corporate and brand reputation Differentiate the companys products Motivate and retain employees 62% 60%
78%
Comply with legal and stakeholders requirements 59% Cost reduction Identify new growth opportunities 52% 48% 47% 47% 43%
0%
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10%
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06 08 07 70% 0 80% 0
The four main reasons put forward by respondents to explain why they chose to integrate sustainability within their strategy are: The improvement of their corporate/brand reputation: 78%, The differentiation of their products: 62%, The fact that it helps to motivate and retain employees: 60%, And the fact that it helps to ensure the compliance with legal regulations and other stakeholders pressures: 59%.
Figure 11 - How long ago did companies integrate sustainability within their strategy?
35 35% 30 30% 25 25% 20 20% 15 15% 10 10%
34%
5%5 0%0
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Another question assessed the moment in time when sustainability started to be implemented within their strategies. More than 75% reported
having done it in the last 5 years, and more than 20% during the last year.
Most companies implemented sustainability in their strategy to improve their brand reputation and differentiate their products.
There is a recent shift in the way corporate drive changes towards sustainability. While companies were used to perceive sustainability constraints as negative, many see them now as businesses address sustainability in a way that is directed to preserve or improve their brand reputation. In addition, many companies know that they could capitalise on sustainability to differentiate their products and strengthen their competitive advantage. Employees motivation and retention is also identied as an important priority for which sustainability plays a growing role. As explained before, employees increasingly search for a meaning in their day to day work and need to be proud of the company they work for. As a matter of fact, since new generations are more sensitive to green concepts, sustainability is now signicant in the competition for talent. It is interesting to assess when companies started implementing a sustainability strategy. Most companies did it during the last halfdecade. However, our meetings revealed that in the past, even if sustainability was not expressed directly into the strategy, several actions were done already. This changes and there is now a clear necessity for companies to express it more formally. The trend can also be conrmed by the recent increasing number of new sustainability reports which has boomed in Europe in the last ten years.
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31%
62%
CFO
12%
Management Team
CSR/EnPurchase & vironment Logistic Unit
51%
HR
IT dpt.
Financial dpt
45%
26%
23%
18%
14%
8%
5%
3%
3%
For most of companies surveyed, the CEO, the Management Team and a specic Environment or CSR unit are responsible for ensuring that
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16%
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Regarding the number of employees working to support the ecological dimension of sustainability in the company, most respondents
reported that their company has dedicated 1 single person or a team of 2 to 5 people to support sustainability initiatives.
Top management functions are generally responsible for a sustainability and most respondents have a unit dedicated to sustainability comprising 1 to 5 people.
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To make sustainability part of their day to day activities, most companies have put in place a dedicated team for CSR activities (1 single person or a team of 2 to 5 persons). During our meetings we observed that the team is in general composed of people who previously worked for the same company but in other functions (related or not to environment and sustainability), notably people from the Quality or Safety departments. However, in some cases, companies hired new comers, generally experts in CSR. The persons accountable to ensure that sustainability is taken into account in the company are for most of respondents their CEO and Management. The CEO can have a key role to make sustainability initiatives effective and a clear message from the top ensures leadership for sustainability and optimises the chances for a successful implementation throughout the organisation.
Umicore: A clear example of commitment Due to its historical activity, mining and smelting, Umicore, formerly know as Union Minire faced pollution issues. Thanks to the commitment of its CEO, it has gradually evolved into a responsible company specialized in materials technology. Its engagement is clearly visible in its statement materials for a better life. During the transition period, the communicatioon from the CEO has been strong and clear. Their sustainability approach has also been clearly detailed in their booklet The Umicore Way which is distributed to all Umicore employees worldwide.
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50 50% 40 40%
46%
33% 30% 30
20% 20 10% 10 0% 1%
Not at all No Imperfectly Yes Absolutely
10%
9%
About 42% of the respondents reported their company as able to wholly measure and monitor their sustainability performances. The
remaining 58% face difficulties and among them, 11% are ultimately unable to do so.
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Most of respondents were imperfectly able to measure and monitor their sustainability performances
While companies strive to reduce their environmental impacts and take many sustainable initiatives, most face difficulties measuring results and tracking their environmental performances. Since for an initiative to be really meaningful for the company, progress needs to be measured, this constitutes a major issue for decision makers. The results show that companies investing in sustainable initiatives are more often than not imperfectly able to monitor environmental performances. Consequently, they cannot properly estimate returns on their initiatives.
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Best performers we met had often changed their environmental related investments decisional process and their performance measurement to take those less certain returns into consideration. Obviously, those returns cannot be measured precisely. However they exist and constitute a real benet for the company. Hence, they should not be disregarded! To sum up once more in one sentence: In the country of the blind, the oneeyed man is king.
Capitalize Revenues
Build Reputation
Reduce Cost
Mitigate Risks
Certainty
II. Companies face difficulties when measuring and monitoring sustainability performances
Figure 16 - What are the main difficulties that you experienced in measuring and monitoring your sustainability performances?
Lack of indicators and data Lack of knowledge and expertise Internal level of priority Suppy chain complexity 17% 14% Consumer awareness 39% 39% 37%
44%
01 0%
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03 20%
04 30%
05 40%
0 50%
The survey questioned companies on the main difficulties they experienced when measuring and monitoring their sustainability performances. The results show that main difficulties are related to 1. The lack of indicators and data for 44% of the respondents 2. The lack of knowledge and expertise on tracking environmental performances for 39% of the respondents 3. The internal level of priority for 39% of the respondents 4. The supply chain complexity for 37% of the respondents
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Main difficulties for companies to track environmental performances are related to the lack of indicators and data as well as the lack of knowledge and expertise.
The lack of indicators and data is not surprisingly the highest difficulty of measuring and monitoring performances. First of all, sustainability is usually a new dimension for which data collection was not originally planned in the companys reporting structure. Secondly, as we have seen the aforementioned performances can take many forms that are sometimes difficult to evaluate. In addition, as sustainability is a recent concern, companies often lack of knowledge and expertise in tracking environmental performances. The company has to either train current employees in order to learn the necessary knowledge, hire new employees with specic skills or ultimately get the expertise from the outside. We can also see that difficulties are also coming from the internal level of priority and the undervaluation of environmental aspects. If environment is not perceived as a priority then the urge to measure it is weak. This can be partially explained by the lack of involvement of top management and middle-management overlooking environmental aspects, as we have seen above in the chapter Which structure is supporting sustainability initiatives within the company? in page 18. Finally, supply chain complexity is a major difficulty, especially for companies that face difficulties to identify the causes of their environmental impacts and when the highest impact occurs outside the companys walls. However, companies can no more consider that what occurs outside their internal activities is not part of their business. Even if the supply chain is very complex, not assessing suppliers correctly can lead to serious troubles.
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Also, a common dream among top managers would be to have all the information they need on a company within one single indicator. Similarly, we met companies who were trying to synthesise all information about sustainability and their environmental impact into one to three metrics. Unfortunately, it is not an easy task and it more often than not lead to focusing attention to a bunch of trees regardless of the whole forest. To manage the environmental aspects of a company correctly, using a wide range of metrics is denitely wiser. In this regard, Pierre Cors, member of the Corporate Sustainability Commiittee of Solvay, came up with a comparison that illustrates this remarkably: the dashboard of a manager is not that different from the one of an airplanes pilot. The challenge of limiting the impact of our activities on the environment is inevitably multidimensional and the focus of managers, as well as for pilots, has to shift according to the situation. Another difficulty lies in the choice of what and how to monitor. Among the most relevant metrics we observed, were those disigned to inform about Energy consumption (reduction and use of renewable sources), Air quality (greenhouse gas emission and emission of particulates), Water (reduction and pollution) and Waste management (reduction and quantity recycled). Assessing the carbon footprint becomes increasingly popular amongst large companies. With regards to GHG, it helps considerably to realize the sources of highest impacts and to understand which levers would be the most effective to mitigate them. Finally, companies nd it difficult to track their business correctly due to its complexity. However, even if the supply chain is very complex, assessing it rigorously is likely to pay off.
Pierre Cors, Corporate Management for Health Safety and Environment at Solvay Concerning indexes and tools, at Solvay we regularly perform evaluations of indicators necessary to manage the risk. This allows us to identify what we need in house and to answer questions from the different stakeholders. We have about 55 parameters; some measured for a very long time, others have been modied to better respond to changes. Their respective importance also changed with time, especially lately given the recent increase of focus on climate change and the renewal of our strategy. The idea is to have a large number of parameters, but to focus on some, given the circumstances. The metaphor of an airplane cockpit explains it quite well: A pilot has countless instruments. However he does not pay attention to all the instruments at the same time. Some are for the take off, other for the landing, other for ying or assessing weather outside. It must be the same for managers. For me, business is still an organization that responds to external pressures, but it may as well anticipate future pressures in order to gain market shares.
Some of the companies we visited decided to follow specic metrics appropriated to their business activities. - Tetra Pak is closely tracking the progress made in recycling of its products. One of the goals of Tetra Pak is that the cartons they manufacture are recycled after use and likewise in every country. The challenge is that they do not control recycling; they can only facilitate it by working with other partners in every country. Nevertheless, about 20% of the cartons they manufacture were recycled in 2010 worldwide. - Conimmo and Bemmo are closely monitoring indicators of progress that assess the environmental performance related to major renovations. - AGC Group found an interesting way of calculating the impact of their activities. They estimate their environmental impact in relation to their econo-
mic contribution to the countrys GDP. Hence, to improve the indicator value they must reduce their emissions beyond the reduction rate achieved by the entire world/country. They call it the AGC Environment Indicator and use it to analyze their environmental impact in an objective manner by putting it in relation with their economic contribution:
The indicator is calculated by comparing their sales to the global/country GDP and the amount of substances of concern (SOC) emitted from their activities on total global/domestic SOC.
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#1 #5 #2 #3 #5 #5 #5 #9 #4 #11
Rise in energy cost Waste Management Climate change related risks Rise of transportation cost Public opinion regarding environmental decision Air pollution related risks Water scarcity related risks 30% 26% 50% 49% 46% 59%
66%
Ranking of the most difficult challenges perceived for the near future
26% Lack of resources needed to produce 24% Rise of commodity prices 21% Chemicals, Toxics, and heavy Metals related risks 20% Inability of future technologies to respond to environmental challenges
#9
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The survey highlights that the primary long term risk that companies are currently assessing is the rise in energy cost, assessed by more than 66% of the surveyed companies. Subsequently, waste management and climate
change with respectively 59% and 50%, complete the top 3 topics of environmental risk assessment. These are closely followed by the rise of transportation cost and the public opinion regarding environmental decisions.
The rst risks to be assessed are generally not the ones perceived as the most challenging for the near future but those that have a direct and visible impact on the companys nancial results. Previously in this report, we had identied which environmental challenges, that companies expected to face in a near future, were perceived as the most difficult (see Figure 4 in page 6). According to the results, the most difficult challenges are, by order of importance: Rise in energy cost, Climate change and upcoming regulation, Rise in transportation cost and Rise of commodity price. It seemed reasonable then that these should as well be the ones that are primarily assessed through risk management.
However, the results presented in Figure 17 show some contradiction with this last assumption. Clearly, there are discordances, especially regarding Waste management and Rise of commodity price. As regards waste management, it can be explained by stronger legal requirements which push companies to pay more attention to risks relating thereto. On the other hand, concerns regarding Rise in energy cost and Rise of transportation costs are positioned similarly. Those topics impact noticeably directly on companies nancial performances and are accordingly managed rst.
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Responses show that the stakeholders that are the most regularly assessed are Rule makers, Customers and Competition. These are closely
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Stakeholders inuence can affect companies signicantly, resulting in some cases to brand damage and strong nancial consequences. Assessing them is thus essential to ensure that the company keep its licence to operate. In other words, stakeholders possess the power to revoke a companys right to operate. If a company crosses the line, stakeholders pressure can ultimately destroy its business. Hence, a licence to operate illustrates stakeholders power and can be fragmented into regulatory, economic and social licences which are monitored and enforced by a variety of actors, which commonly seek leverage by exploiting a variety of licence terms. Taking seriously into account stakeholders point of view as well as their inuence on your business does matter. Knowing and mapping your stakeholders play an essential part in managing todays environmental issues. Questions to be addressed by companies are: Who are the key players that the company has to face? How can they interact or interfere with the companys activity? What are their interests and concerns? Which level of inuence do they have on the public opinion? On companys activities? What is the possible impact of each of them, today? In the future? Are we putting (enough) effort to understand their key concerns? Are we prepared to answer their requests? Which type should then be prioritised? Finally, which ones should be selected to initiate relation? The last question is capital and should be based on the answers from the previous questions. Partnering with appropriated stakeholders may well be the best way to deal with external problems and pressures. Recently, we have seen more and more leaders which, like Delhaize with WWF, engage partnerships with NGOs, authorities and communities. Many companies entrusted us that they used to ignore and to avoid confrontation with complainers. Now they tend to be growingly debating with big protesting groups. Guy Ethier, Senior Vice-President Environment, Health & Safety at Umicore We learned from history the added value to work hand in hand with stakeholders: whether with client and suppliers, through collaboration around our sustainable procurement charter , or with authorities to repair soil pollution and the impact of our previous activities, as Union Minire. We even work with outsiders, as Michael Broungart (author of Cradle to Cradle).
III. From talk to action, what are the methods and tools used to measure potential environmental risk?
Figure 19 - Methods and tools used to measure potential environmental threats and their possible impact on future results Develop and monitor KPIs
Does your company include the sustainability dimension in its recurring risk management process?
38%
Yes
0%
10%
20%
30%
40%
50%
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To prevent environmental risk from impacting their activities, more than 60% of our respondents have included the sustainability dimension in their recurring risk management process. To do so, they mainly develop and
monitor environmental Key Performance Indicators, perform internal survey and carry out scenario analysis on possible environmental developments.
More than 60% of companies have included a sustainability dimension in their recurring risk management process
Giving serious consideration to the environmental risk allows companies to spot issues before they occur. Hence, it is surprising that only 62% of our respondents are assessing environmental risk recurrently. Furthermore, 33% of our respondent did not develop any tools or methods to assess their environmental risks. However, the need to follow environmental risk carefully varies from one sector to another. Some, such as the chemical industry, face a wide range of legislation that encompasses the principles of environmental risk assessment.
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+32%
60 60%
Does your company have a developed sustainability strategy or guidelines?
+17% 57%
Company with a comprehensive sustainability strategy
50% 50 47%
40 40%
Protable?
+15% 30%
30 30%
20% 20 10% 10 0% 0
25%
28%
13%
Uncertain
Firstly of all, as Figure 20 shows it, the companies that have fully integrated a sustainability strategy in their activities are more likely to drive value from their sustainability initiatives. Note that companies tend to follow this example, and among our respondents who do not have a strategy driven by sustainability principles, 83% plan on doing so in the near future. Secondly, environmental leaders are usually innovative and move rst on sustainable initiatives in order to develop and maintain a competitive advantage. Best initiatives we saw are aiming at closing the loop through the development of fully reusable products at their end life. By doing so they mitigate their risks, ensure supply and gain tremendous visibility. Thirdly, they set bold, clear objectives supported by the top management and involving almost everyone at each level of the company. By doing so, they ensure commitment throughout the organisation and stimulate employees. Fourthly, they free the resources necessary to complete those objectives and broaden their investment assessment processes to take all aspects of payback environmental initiatives into account. The traditional cost-benet analysis increased with the potential impact on risk mitigation and brand value.
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Fifthly, they communicate actively on what they do in order to benet fully from the impact on their brand reputation, in order to gain visibility and to attract new clients, employees and partners. Finally, they measure their performances and follow environmental risks closely by taking into account not only facts but also stakeholders perception. By doing so they can review their action, anticipate business changes and identify new opportunities. Obviously, this is far from an easy task for companies just starting to approach sustainability as an opportunity. We then recommend following these pragmatic guidelines: Start low by working on the obvious and derive the maximum from it. First, focus on efficiency, cut unnecessary wastes and improve the logistic. This will derive returns that will help to nance other environmental initiatives. Communicate intensively about previous and current actions related to the environment. Make it visible! Do not get lost in the forest. Look at the big picture, know where your impact lies and focus on the most meaningful actions that differentiate your company and its products/services from the others. Make sure of the C-level commitment. The CEO should be the agship of sustainability in your company. Give incentives to stimulate environmentally sound behaviours and initiatives. Develop green relationship with external partners.
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Contacts
Kurt Salmon: an actor engaged in sustainable development As an expert that helps to transform organisations, Kurt Salmon has invested in sustainable development through strategic alliances and collaboration, but as well through an array of cuttingedge proposals and cooperative efforts with leaders in the eld. For 4 years, Kurt Salmon collaborates in the organisation of Planet Workshops Forum, a major event which gathers 600 business leaders and representatives of national and international. The forum offers the opportunity to reect together on issues of sustainable development, compare their views and initiate solutions. It also focuses on the exchange in order to understand how to integrate sustainable development at the core strategies and business practices and institutions. About Kurt Salmon Kurt Salmon, formed by the merger of Kurt Salmon Associates and Ineum Consulting, is a global management consultancy of more than 1,600 consultants in 15 countries across ve continents. Our clients are industry leaders who benet from our deep industry and functional expertise. As trusted advisors, Kurt Salmon partners with clients to design, and then drive, strategies and solutions that make lasting and meaningful impact. We are committed to delivering measurable results for our clients through executional excellence. Kurt Salmon is a company of Management Consulting Group.
Your contacts Luc Moeremans Managing Partner Belgium Office luc.moeremans@kurtsalmon.com Diego Van Hufflen Director in charge of Sustainable Development diego.vanhufflen@kurtsalmon.com Thomas Jeukens Consultant in Sustainable Development thomas.jeukens@kurtsalmon.com Sbastien Pinta Consultant in Sustainable Development sebastien.pinta@kurtsalmon.com
Disclaimer All information published in this report is protected by copyright (including text, data, gures and photos). This report is based on public information, questionnaires, interviews and phone conferences and has been produced on the assumption that such information is accurate and not misleading. The source information has not been veried or checked in any other way. Any methodology, idea, concept, information and know-how developed by Kurt Salmon in the course of this study provided may be used in any way Kurt Salmon deems appropriated. 2011 Kurt Salmon All right reserved
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