At some point, you have to translate your strategy into practice. Integrating sustainability into an organization is probably the most difficult step. KPIs and commitment ensure success and both core operations and support services play an important role.
92% of CEOs strongly believe that integrating sustainability into their business model is critical to the organization's future success. This was revealed in the latest edition of our KPMG CEO Outlook. If you were to look at an edition from three years ago, you would have found no mention of this subject. It shows how the topic has gained tremendous momentum."
Daniël Pairon, Global Lead Asset Management at KPMG, says that the integration of ESG objectives is probably the key element for those organizations that want to maintain their success. "Obviously the right strategy is extremely important," he says, "but at some point, you have to translate strategy into practice. Quite a few senior business leaders struggle with this, but it is essential to bring sustainability from the periphery to the core of the organization. Only then can ESG contribute to long-term value creation."
The closer sustainability gets to the core of your business, the more impact it can have. At UCB, implementing sustainability leads to a focus on the core.
" Sustainability has been important to UCB since the very beginning. The company was founded in 1928 with a dual objective: to link financial success to the impact for Belgium," says Veronique Toully, Global Head of Sustainability at the pharma company.
Since 2010, the company has placed patients suffering from serious diseases at the center of its strategy. In 2019 they also began to look at the impact on society more holistically, which led to a plan with three major pillars: health innovation and access to medicines, a healthy and inclusive employee team and reduced environmental impact. "We don't call it a sustainability strategy," says Veronique Toully. "It is a UCB strategy, into which we built sustainability."
Necessary complexity
The implementation of the plan is currently in full swing. "The biggest difficulty is changing the mindset of the employees," says Veronique Toully. "Like any large group, they used to emphasize the financial aspect, putting Milton Friedman's shareholder primacy first. That is a source of a complexity."
"In addition to motivating the team, there are societal KPIs to determine and progress to measure.," adds Environmental Sustainability Program Manager Anne-Laure Demarcy. UCB linked part of the variable pay of top management to the latter.
According to the Global Head of Sustainability, one element determines the success of their efforts: "We started with a global approach to sustainability before anchoring it in our medicines. Today we are really at the core of our business. The closer you get to that core, the more business and sustainability go together."
Screen your suppliers
In order for integration to be successful, two elements are crucial. First, there should be a focus on the KPIs. Which performance indicators do you want to use to measure if your objectives are met? Obviously, these indicators should be used when it comes to your core business. How do you make production more sustainable? What about sourcing and the supply chain?
"These are elements that can have a huge impact on a lot of industries," says Jos Joos, Head of Procurement & Supply Chain at KPMG. "After all, you are at the level of your product. How do you approach product circularity? How do you use recycled materials? And how do you measure your progress?" That means that good supplier scouting is essential. "When you start the collaboration, a thorough screening is necessary," says Jos Joos, "but it's also best to keep screening at regular intervals. After all, sustainability requirements and opportunities change rapidly."
A car fleet sometimes accounts for 90% CO2 emissions
Nevertheless, KPIs are not only linked to the core of your business. Your support services are also part of the same story and can, in certain cases, also be measured on their progress. Just think of the number of plane trips your employees make or the number of training courses they attend. In that regard, employee mobility is probably the most important parameter.
"In some companies, the car fleet accounts for more than 90% of CO2 emissions," says Olivier Vanneste, Partner People Services at KPMG. "So when you switch to electric cars, you can already see a huge improvement. But there are many aspects to keep in mind: for example, do you install charging stations on the company premises or at people's homes? Another choice is to opt for a mobility budget and to encourage alternative mobility, such as bicycle leasing, which is on the rise.”
The human aspect is the second element that is crucial for successful integration. Everything depends on the commitment of your employees, because they are the ones implementing your strategy. That is why some companies choose to make the variable remuneration of employees (or at least of top management) partly dependent on achieving the sustainability objectives. It also points to the important role that the HR department plays.
Sustainability and taxation go hand in hand
Furthermore, a sustainability strategy also affects the financial department, more specifically in terms of taxation. "For example, electricity generated for own use through solar and wind – provided certain conditions are met – can lead to an excise tax exemption," says Kris Eeckhout, Executive Director Indirect Tax at KPMG. Regarding corporate tax there are also a number of incentives, both in a development and investment phase. For example, you may be able to take advantage of an exemption from withholding tax, an additional investment deduction or a deduction for innovation income, says Andres Delanoy, Partner Corporate Tax at KPMG. "Income from innovative software, for example, is only partially taxed." Because the incentives often involve completing formalities, a good knowledge of the possibilities and timely application are of great importance.
Sustainability to get financing
The financial aspect also comes into play for those who need funding. "The transition to a sustainable economy requires hundreds of billions of euro per year," says Walter Jacob, Senior Counsel at KPMG Law. "Europe is aware that the public sector cannot bear this alone and is also looking to institutional and private investors. So they are doing everything they can to steer capital towards sustainable investments."
This encourages financial institutions to focus on sustainable investments, in particular, and increases the incentive for companies to make their operations more sustainable. In this way, your sustainability performance becomes a determining factor for your financing. Walter Jacob: "It is expected that every company – even an SME – will have to be sustainable to some extent in order to ensure easy access to financing in the long term."
Those who doubt the financial importance of a sustainable approach should look at the strategy employed by EcoWerf for inspiration. This publicly-owned player decided to set up EcoWerf Energie NV to build a fermentation plant. This made it easier to obtain financing from banks.
EcoWerf, an intermunicipal waste specialist active in the eastern part of Flemish Brabant, has been focusing on sustainable waste management for years. "We want to close cycles as much as possible and ensure that the most polluting sources of waste do not end up in them," says general manager Jonathan De Witte. "We do that through prevention, selective collection and recycling, among other things. We want to reduce what remains as much as possible."
Easier financing
That last wish led EcoWerf to the idea of fermenting GFT waste and processing the biogas into electricity and heat. "A fourth will serve our own needs," says Jonathan De Witte. "The balance we inject into the grid. In this way, we participate in the energy transition."
For financing, EcoWerf opted to create a new company. "After all, EcoWerf chose to build up limited equity," says Jonathan De Witte. "Through the public limited company (the NV), we can arrange financing through the banks. The local authorities provide the guarantee. After all, they own 100% of the NV. However, it also makes it possible to include private partners. For example, we could admit an energy producer to the capital," Explains Jonathan De Witte.
The use of the corporate form required the necessary attention to the fiscal parameters when drawing up the financial plan. After all, the tax context is different from the one in which an intermunicipal company operates.
Dealing with ESG data sets
A final support service that is essential to successfully integrate and track sustainability is IT. After all, monitoring the right KPIs, gaining insight into potential actions, supporting processes, etc. cannot be done without digitizing.
Particular attention should be paid to dealing with data. "This is not only in IT," says Nicolas Dubois, Director at KPMG Lighthouse. "The business also plays an important role in this. The entire organization has to deal with data sets that were previously considered non-critical." "The complexity is in the data capture and integration," Jan Verdickt, Senior Manager at KPMG Lighthouse, explains. "CO2 emissions, plane trips, etc.: you quickly end up with slightly more exotic data that is not easily retrievable within one’s own organization. It is crucial to give this enough thought. Data are extremely important for reporting and attestation, the next steps in a sustainability process."
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