Measuring our impact in 4D
As a global company active in numerous markets, AkzoNobel is similar to many other large organizations. We generate revenue, incur costs and create value for shareholders. However, we believe that economic growth cannot be sustained if the underlying natural and social capital upon which wealth creation depends is depleted.
In order to get a more detailed insight into how our profit and loss is generated, we want to develop a deeper understanding across the value chain of how our business impacts the environment, people and society at large. Gaining a better understanding of these aspects – and attaching a monetary value to them – will enable us to identify possible improvements and ultimately increase business value.
We carried out a pilot study during 2014 at our Pulp and Performance Chemicals business in Brazil, which specifically looked at our environmental, human, social and financial impact. By measuring these four dimensions across the whole value chain – including raw materials, sodium chlorate production and the use of sodium chlorate in pulp production by our customers – as well as attaching an economic value to the positive and negative aspects of each, we were able to identify where we can improve. This new insight will enable us to make better business decisions by reducing the negatives and building on the positives.
Looking at the results of the pilot (outlined in the chart below), we found that the impact on financial capital was positive and substantially higher than the traditional profit calculation. This is because when combined, salaries, taxes and interest payments make a substantial contribution to wealth in society.
Monetized impact across the whole value chain
1 These indicative results are based on work carried out in cooperation with TruePrice and Pavan Sukhdev (GIST)
The impact on natural capital was largely negative, mainly due to the use of oil and natural gas and emissions such as carbon dioxide, sulfur dioxide and nitrogen dioxide to air across the value chain. The positive human impact resulted from employee training programs and career opportunities, while the impact on social capital was limited, due to the nature of the industry within the scope of the pilot, which has larger production volumes and involves fewer people compared with other industries.
What we learned
We teamed up with experts in this field, such as TruePrice and Pavan Sukhdev (GIST) and derived some interesting learnings from this new approach.
Regarding the environmental impact, we were fully aware that the production of sodium chlorate requires significant amounts of energy. We have already taken major steps to be as efficient as possible and, in addition, have built a number of our plants in close proximity to our customers’ pulp mills. These so-called Chemical Islands use 100 percent biomass for energy generation. However, it’s clear that there are further opportunities for us to reduce the environmental footprint. This can be achieved by increasing the share of hydropower in our electricity mix, looking further into using electricity more efficiently, exploring options to improve the transportation of raw materials and strengthening the collaboration with our customers when choosing bio-based chemicals in their production.
We have also learned that an analysis of human capital creation and human capital externalities can be used to estimate the return on training investments and to benchmark comparable units. By knowing the human capital, measures can be taken to retain employee groups of particularly high value.
In the social dimension, Pulp and Performance Chemicals can improve the value of social capital externalities through targeted intervention which addresses material social risks, identified by carrying out a risk assessment. Furthermore, looking at the full value chain, social capital can be enhanced by creating awareness and continuous improvement on issues around health and safety, rights at work and with local communities.
To conclude, a study such as this increases internal transparency and creates a sense of urgency, while also improving the quality of strategic decision-making.
The findings are already being used to make relevant improvements at the six plants in Brazil where the pilot was conducted. We’re also looking at scaling up the project and introducing it throughout our Pulp and Performance Chemicals business.