André Veneman is Director of Sustainability at the global paints, coatings and chemicals company AkzoNobel. In an interview with Corporate Citizenship, he discusses the unique challenges and opportunities of embedding sustainability in a business-to-business company.
How has AkzoNobel’s sustainability strategy evolved over the years?
“Starting in about 2002, our focus on sustainability was initially very much based on compliance and governance issues – the “foundation” of sustainability. A couple of years later we began to think about how we could become more efficient in our own operations and support suppliers, especially in emerging countries, to improve their practices with regard to labour standards, safety and environmental footprint.
“We recognised the global megatrends that were emerging, such as changing demographics, population growth, climate change… We saw that we needed to integrate sustainability in our strategy to ensure the long-term resilience of the company. We introduced indicators such as carbon reduction and energy efficiency, and included sustainability in the financial incentives for the 600 leaders in the company.
“It was then we realised that while it’s great to have the sustainability framework embedded, to generate innovation and development, you need to work with your customers and your suppliers, especially if you want to drive sustainable innovation across the entire value chain.”
How did you implement that vision?
“We measured the lifecycle of our entire value chain. We moved beyond the policies where everyone had to sign our business principles, we moved beyond supplier visits, and began to work closely with key suppliers to really accelerate the pathway to sustainability.
“We are a resource- and energy-intensive company. So we asked ourselves, how can we create more value from fewer resources? Developing sustainability became even more exciting when we started to understand the contribution we could make to our end-market segments.
“The result was the development of three core targets:
- The most important is: how can we deliver products and solutions that help our end-users to save energy and raw materials? It is about the insulation materials; the coatings that save the shipping industry fuel use; producing asphalt at a much lower temperature. We call these eco-premium solutions. We want 20 percent of our turnover in 2020 to specifically come from these kinds of products.
- We want to improve our energy use and resource efficiency from ‘cradle to cradle’. Our target between now and 2020 is to reduce the carbon equivalent emissions across the full value chain by 25-30 percent. We’re working very hard with our suppliers, customers and within our own operations to become less dependent on energy and use fewer materials.
- The third is a new financial indicator. We understand that we need to decouple our longer term economic success from our resource use, and we measure this using the ‘Resource Efficiency Index’ – the revenue per carbon equivalent across the entire value chain. We hope that other companies in our sector will follow us.
“We talk about the cradle to cradle economy; the closed loop economy; the circular economy. I hope that we will become like Swiss watchmakers – recognised for added value over time.”
So you see AkzoNobel’s role as helping to transform the whole economy towards a more sustainable way of operating?
“Yes, and of course you can discuss these things from the heart, the mind and the wallet, as I like to say. The heart knows it’s a yes, but it’s also the new way of doing business. The exciting thing for us in the chemicals and coatings industry is being the solution provider. We need to become part of the transition, offering sustainable solutions to our end markets.
“For instance, in the construction industry, it’s about the insulation materials and wood protection materials that we can provide; heat- and light-reflective coatings, fire-protective coatings. It was an eye-opener to us when we began to realise what we could do.”
AkzoNobel has committed two thirds of its research and development budget to creating sustainable products, is that correct?
“Yes, that’s right. Our annual spend on innovation is around €370 million, which is directed towards delivering more sustainable solutions to customers.”
You’ve previously talked about taking an “open” approach to innovation. How far is that embedded?
“Initially, it was just compliance and signatures. We’re now moving along with supportive supplier visits with critical suppliers in emerging countries. We’ve helped them with employment standards, labour practices, health and safety standards and environmental practices. It’s mutually beneficial because they improve their standards, and it helps us to get access to raw materials from these emerging markets.
“If you work together with suppliers, you can accelerate innovation. Initially, the idea of opening up our research and innovation met with some resistance. But of course the answer was that suppliers will be doing the same, opening their innovation to us. It required leadership, but it has now become part of an established process – we now have agreements with 35 key suppliers.”
Are AkzoNobel’s employees engaged in sustainability? Is it part of the company’s culture?
“Yes. When you look back 10-12 years, some people said, is sustainability about philanthropy? Is it about social responsibility? Is it really that important? But we don’t have those discussions any more. We deliver products to companies like Johnson & Johnson, Proctor and Gamble, L’Oreal, IKEA and Kingfisher. Nowadays, either you offer new, innovative products or companies request those products from you. It has become clear to everybody that sustainability simply is the new business model.
“Everyone in the company has a role to play in driving the sustainability agenda. In operations, you can improve your system efficiency; in resourcing, you focus more on supportive supplier visits and bio based raw materials; in marketing, you work with customers to identify the innovations that they need; in HR, you need to support these processes by including sustainability training programmes.”
How do you find that investors react to your approach? Unilever’s CEO has spoken about short-termism in financial markets…
“If you’re asking me: do investors today purposefully invest in companies that are seen as sustainability leaders, companies that are high on the Dow Jones Sustainability Index (DJSI)… No, I don’t think so. I believe that when a business is sustainable and creates more value from fewer resources, most of the investors will still invest in the traditional way – where they get the biggest return.
“But when you look at studies by Deutsche Bank and Harvard, you consistently see that companies who are known as sustainability leaders have the better performance over a period of ten years. I think investors will see it like this: great, yes you need to deliver new solutions to your customers, you need to get good profit margins in the longer term, and you need good management. That’s why we’ll invest in you, not because you’re number one or two on the DJSI.”
How do you see AkzoNobel’s role in terms of persuading consumers of the benefits of sustainability and encouraging them to become more sustainable?
“As our customers are mainly businesses, I think our biggest contribution is to enable those that have a direct link to the public to develop a sustainable product portfolio. However, with our own decorative products, such as Dulux, we are in the customer segment ourselves. There we work closely with companies like Kingfisher, to clarify the way we talk about sustainability. Customers do not usually buy Dulux for a specific sustainability reason, but they do appreciate products with fewer solvents. So it’s the contribution to benefits such as improved indoor air quality, reduced dust, and improved cleaning that is the most powerful way of encouraging consumers to become more sustainable.”
André Veneman is Director of Sustainability at AkzoNobel.