In August last year, a group of 181 chief executives of some of the largest companies in the world made a landmark statement. The long-held doctrine that the sole purpose of a business is to make profit and increase shareholder value was to be abandoned, they said. Instead, ethical supply chains, value for customers, environmental protection, and long-term growth should be the key motivations of a modern company.
The Business Roundtable includes corporations such as Apple, Amazon, Goldman Sachs and the Coca-Cola Company. Though it will take time for such large businesses to make changes to their products and operations to see the statement through to reality, it is now part of a growing movement and realization among corporates that ”business as usual” is not working, and is increasingly becoming a problem for the future.
With companies like Neste, renewable energy provider Ørsted, and technology conglomerate Cisco Systems leading the way on the Global 100 Index by revolutionising the way the business community looks at its place in the wider world, the signs of change are starting to show. To co-opt a phrase that was already old when John F. Kennedy borrowed it to talk about the larger importance of the space race during the 1960s, sustainability is now ”the rising tide that lifts all boats”. No one can do it alone, but inspiration is everything.
How the forerunners have shaped their business models
Consumer goods giant Unilever is one of the most famous examples, with its decision to drop quarterly reporting to enable better long-term thinking (and its revelation that climate impacts were already costing it 300 million euros a year) made in 2015. This was a time when statements of a direct link between climate change and business profits were rare. Last year, it launched a review of all its products, and abandoned the products that did not contribute positively to society. Other businesses are increasingly waking up to the reality of climate and ecological emergencies facing the world and the corresponding impact on their bottom line. 2015 was a pivotal point, when both the Paris Agreement on climate change and the UN Sustainable Development Goals were agreed by governments around the world.
These global commitments have since turned the spotlight on the need for corporations to make far more comprehensive changes to the way they operate and do business than those that previously came under the banner of corporate social responsibility. At the very least, businesses have recognised the reputational damage that can be inflicted on those in the eye of public protest. Mindful that student strikers will be the next generation of both customers and employees, companies are ramping up their sustainability ambitions. More progressive companies have already changed their business model to mitigate their impact on climate change, for example, but to also differentiate themselves from competitors by developing and offering solutions to global sustainability challenges. There are now more than 3,000 certified “B Corps companies”, which have legal requirements to consider the impact of their decisions on workers, customers, suppliers, communities and the environment. The long-term financial benefits of putting sustainability central to the business model are beginning to come clear – B Lab, a non-profit that certifies B Corp companies, found that fast-moving consumer goods brands with the certification grew an average of 21 percent a year in 2018, compared with an average of three percent across the sector.
How the most sustainable companies get measured
Alongside climate change, businesses are now also expected to act on a wide variety of issues, including deforestation, damage to wildlife habitats, plastic waste pollution, air pollution, social inequality, health and human rights. Progress is measured in a proliferation of rankings of companies large and small, increasing pressure to follow through on commitments.
The Corporate Knights Global 100 is an annual sustainability ranking, now in its 16th year. The latest iteration of the index is announced every year at the World Economy Forum in Davos, Switzerland. Its rigorous analysis of some 7,500 companies with a minimum of $1 billion in revenues independently scores corporates on criteria including carbon productivity as a revenue to tonne of CO2e ratio, the percentage of women on boards and how executive pay is linked to sustainability measures.
Neste was ranked third this year, consolidating its place as one of the most sustainable companies on the planet. It’s the 14th year on the Global 100 list for Neste, and the third consecutive year in the prestigious top 3.
”The Global 100 is one of the very few independent rankings and we are honored to be recognized again as one of the most sustainable companies in the world,” says Simo Honkanen, Neste’s Senior Vice President of Sustainability, Public Affairs and Communications. ”Our ranking shows that the work we have been doing for a very long time is recognized. The whole energy industry is now in transformation, and our ranking shows that we are leading the way on a global scale.” Pekka Tuovinen, Neste’s Senior Advisor of Sustainability, explains how the company’s focus on sustainability has grown and changed over the years. Neste has had environmental policies since the 1980s. Looking for a way to differentiate the company from other players in the oil sector, more than two decades ago when awareness of climate change was rising, the company’s leaders decided to search for growth in renewables instead of fossil fuels.
Neste had already invested heavily in research and development and invented a way of processing bio-based materials into pure hydrocarbons. It also decided to widen the scope of its sustainability work.
Clean revenue essential in sustainability
The company’s first renewable diesel plant began operations in 2007 in Finland, followed by another unit in 2009. Larger-scale facilities were constructed in Singapore in 2010, and Rotterdam in 2011. The company’s heavy investment took a while to pay off, as there was no market for its products in the early days, Tuovinen says. However, Neste’s belief in its products never wavered. Regulations such as the European Union’s Renewable Energy Directive has seen demand for renewable fuels rise, and now this side of the business at Neste is more profitable than its conventional oil refining, he says. This has been vital to its success in the Global 100 ranking. A recent addition to the rankings criteria is the ”clean revenue” metric, which measures the percentage of revenues earned from products or services that have environmental, or well-defined social benefits. It now accounts for 50 percent of each company’s score.
This new metric has been crucial for Neste’s success in the Global 100, says Pekka Tuovinen. ”It is how we are differentiating against other oil and gas businesses, as well. We are the lone wolf in that pack,” he says. Neste continues to push this differentiation and aims to raise the proportion of its revenue from renewable products and solutions. In addition, Neste explores ways to develop solutions to the global plastic waste challenge.
Salla Ahonen, Neste’s Vice President of Sustainability, says that the company approaches the challenges related to plastic from several angles: Neste is developing chemical recycling of plastic waste to transform it into raw material for new plastics. Increasing circularity of these materials in society helps reduce crude oil dependency. In addition, Neste is further reducing the need to use fossil oil in plastics production by offering renewable feedstock, primarily waste and residue based renewable hydrocarbons, for the production of bio-based plastics. ”Our business is tackling two of the biggest global crises – climate change and plastic waste. How many companies can offer solutions to both? I think that’s unique about us, together with the fact that most of the solutions are based on our own innovation.”
Salla Ahonen is optimistic about the future of the company’s model. ”We are developing new renewable materials such as sustainable aviation fuel, which will play a big role in developing carbon-neutral aviation – one area where solutions are urgently needed.” Neste has more than 25 percent of its workforce working on research, development and engineering, Ahonen says, meaning a lot of enthusiasm and expertise but also investments are directed towards solving problems. She sees the push from investors as key to the future of sustainable business, as they develop new criteria on which to base investment decisions. Companies have come under pressure to disclose the risk climate change poses to their business from initiatives such as the Task Force on Climate-related Financial Disclosures. Even though its recommendations are not mandatory, it will become unacceptable to do anything else, Ahonen believes.
We are all winners
Pekka Tuovinen says that many of Neste’s competitors are beginning to follow its lead on renewable fuels. ”It will become mainstream, but it will take some time since most oil and gas companies are not just refiners – they also take part in crude oil exploration and production. They are sitting on the pile of money they have invested in these in the past.” ”The renewable part of Neste’s business is growing,” adds Simo Honkanen. “And it’s very important from a profit point of view. In that sense, Neste is an interesting model for the whole industry. We know that people are looking at what we’re doing and maybe wondering if this is how an oil refinery can move forward, so it’s an interesting position that we have.”
Being among the Global 100 is good, the position itself is less meaningful.
Neste plans to increase the share of renewable products in its portfolio to increase its differentiation in the market, Pekka Tuovinen says. Having a history as an oil refiner means it is not easy to win the trust of customers and consumers, and the company must continue to show that it is transforming and doing its best, and not just counting on the positions of sustainability rankings, he says. ”Being among the Global 100 is good, the position itself is less meaningful. We have to be in compliance, we have to earn the trust of consumers and customers every day. If we are not doing that, then it doesn’t matter which position we achieve,” he says. More importantly, the fact that the Global 100 even exists – and is becoming more competitive for businesses like Neste to achieve a ranking each year – is the real victory. As more companies around the world wake up to the social, financial, ethical and reputational benefits of sustainable thinking, we all reap the rewards.
Read also: Press release published on 21 January 2020