Note 5: Resource efficiency

Carbon footprint cradle-to-grave

In our 2020 sustainability objectives, carbon footprint has a very important role – not only for its measure of climate impact and protection, but also because we are using it as a proxy for how efficiently we are using raw materials and energy in our products.

Our target is to reduce our cradle-to-grave carbon footprint by 25 to 30 percent per ton of sales between 2012 and 2020, including the impact from VOC emissions. We will achieve this through innovative products/solutions, technology and energy management, and by creating more value from fewer resources. Collaboration with suppliers and customers is crucial for our success.

Our assessment this year indicates a total footprint of around 25 million tons of CO₂(e) which is 7 percent lower than 2014. CO₂(e) per ton of sold product is 3 percent lower than 2012. The cradle-to-grave assessment shows that around 40 percent is from raw materials extraction and processing (Scope 3 upstream), 15 percent from our own direct and indirect emissions from energy consumption (Scope 1 and 2), and 45 percent from the use and end-of-life phase (Scope 3 downstream).

We have made some good improvements in 2015 although our 2020 cradle-to-grave ambitions will still be very challenging. Our cradle-to-gate performance is variable, mainly due to product and energy mix, but the trend is moving in right direction and performance is approaching the original 10% target. In 2015, new power contracts for production sites, for example in Russia and Brazil, together with significant energy efficiency improvements in energy intensive sites (chlorate and chlor-alkali) have reduced Scope 2 emissions. Increased production at our Chemical Islands (using renewable power), higher sales of paints with lower carbon footprint in Asia and the divestment of our Paper Chemicals business (relatively high carbon footprint) have reduced the value chain footprint significantly. However, some of our improvements have been outweighed by a deterioration of power mix in Germany.

Scope 2 emissions are calculated using the market-based method (GHG Protocol). We have assessed all Scope 3 categories according to the GHG Protocol Scope 3 standard (see Scope 3 emissions on our corporate website).

More information on our assessment method for carbon footprint cradle-to-grave can be found in Note 2.

Management plans

Our Executive Committee and Sustainability Council have initiated a detailed review and follow-up of our plans to achieve this 2020 target. All Business Areas have improved the process to forecast carbon footprint reductions and have been challenged to show how to reach this stretched target by specific improvement opportunities and programs along the value chain. This is now part of our regular Operational Review Meetings and aggregated at AkzoNobel level. Research activities around new raw materials have been initiated and Procurement is working with suppliers on how they can contribute to more value from fewer resources along our value chain. We also need to make certain that we are spending capital in a way which optimizes the improvement across our businesses and the company as a whole.

The following illustration highlights the impact of our main initiatives in different areas of our value chain:

• Raw materials which are more energy and material efficient for our customers
• Improved energy efficiency and fuel mix for our energy intensive operations
• Improvements in formulation to reduce product footprint

The following sections discuss improvement activities for raw materials, our operations and in the product solutions we deliver to customers.

Raw materials

Raw materials contribute around 40 percent to our cradle-to-grave carbon footprint.

Raw material strategies

The procurement strategy for the next few years is to move further beyond availability-price-synergy towards cross-functional sourcing, integration and value chain orientation. Buying on price will move towards total cost of ownership, while selected supplier relationships will move towards cooperation and partnering. We see this as a way to leverage the size and scope of our global business, our position with suppliers and to drive competitive advantage.

A cross-functional approach with our key suppliers is now set as the standard in our updated key supplier management process. This enables us to structure the cooperation regarding joint sustainability and innovation topics with our key suppliers.

During 2015, we continued the development and implementation of our raw material strategies, while also capturing opportunities and mitigating risks in volatile markets. Sourcing strategy implementation included elements such as material resource planning, capacity and supply cover, supplier selection and sourcing plans per region, “make” versus “buy” and renewable materials. They are also an instrumental tool in reducing the footprint of our global value chains. This process also ensures that we have taken into account interdependencies with a forward-looking perspective, including sustainability. In order to further improve our raw material strategies, we have institutionalized a standard sourcing strategy development approach and linked this to a capability improvement program. More than 150 procurement professionals across the globe have been trained and we will continue to develop these capabilities.

Complexity reduction

Raw material slates have been developed for all key areas of spend. These slates define the core list of preferred materials/suppliers as the basis for our future formulations. Health and sustainability aspects, such as product safety and environmental concerns, have been among the key criteria applied. The objective is to migrate our materials/suppliers over time onto these core materials, making our value chains less complex and more sustainable. We have achieved an annual reduction of 3-4 percent on the number of raw materials over the past two years.

The slates form the basis of our standard raw material management processes, which were introduced this year. Teams of procurement and technical experts are now in place to maintain the slates on a continuous basis and identify opportunities to further improve our value chains – lower cost, improved sustainability and reduced risk.

Supplier improvement plans

In 2015, we continued to work with key suppliers to develop carbon footprint improvement plans across the whole value chain through operational improvements, material substitution and/or specification optimization. Clear action plans and commitments are in place to reduce their carbon footprint on a year-on-year basis.

Bio-based raw materials

Bio-based raw materials continue to play an important role in our sustainability agenda. A considerable share of the company’s environmental footprint is embodied in the raw materials we buy. Bio-based materials can, in most cases, offer an option to reduce this.

While many of our materials are already bio-based, we notice that several new materials are being developed and are starting to reach the market. In order to lead the deployment of these materials in our markets, we have been setting up and developing partnerships across our supply chain. Our strategy focuses on cost-competitive, high-impact materials. In addition, we carefully consider feedstocks to ensure that bio-based materials are sustainably sourced and managed. This approach will support the emergence of a new bio-based industry, while at the same time enabling AkzoNobel to tap into alternative feedstock sources so that we can offer more sustainable products and reduce our cradle-to-grave carbon footprint.

In 2015, we made progress with our existing partnerships and announced additional collaborations involving a number of our key raw materials:

• Waste-derived chemicals: We are working with Canadian company Enerkem, various site owners and other value chain partners to build a strong consortium exploring the feasibility of (and building business cases for) waste-to-chemicals facilities in Europe. Such a facility would be a major step towards the circular economy and would close the loop by converting waste back into useful products
• Sugar beet-derived chemicals: AkzoNobel is working with SuikerUnie, Rabobank, Deloitte, the Investment and Development Agency for the Northern Netherlands (NOM), Groningen Seaports and the Province of Groningen, to investigate the possibility of producing chemicals from beet-derived sugar feedstock. We are now carrying out technical due diligence and building business cases for a feedstock and product-flexible bio-refinery
• Algae-derived oils: Our work with biotech company Solazyme has progressed and should lead to a multi-year supply agreement targeting annual supply of up to 10,000 tons of renewable Tailored™ algal oils. The target product is designed to have improved functional and environmental performance, as well as a lower overall cost to AkzoNobel
• Bio-based epichlorohydrin: In partnership with Solvay, EY and epoxy resin producers, we are working to track and encourage the use of bio-based epichlorohydrin in our value chain, aiming to reach 20 percent of AkzoNobel’s global indirect use by 2016
• Bio-based solvents: We are involved in ongoing discussions with several companies aiming to produce novel solvents and are working towards launch as soon as these facilities are in production
• Photanol partnership: Our partnership with Photanol was named Bio-Based Chemical Collaboration of the Year at the 2015 World Bio Markets Bio Business Awards. Held annually, the awards program recognizes business excellence and innovation in the bio-based industry. The prize was awarded for our ongoing work focused on creating sustainable technology which mimics the way plants use photosynthesis. Combining AkzoNobel’s processing technology expertise and Photanol’s existing proprietary technology, the aim is to produce “green” chemical building blocks that will eventually replace some of the raw materials AkzoNobel currently obtains from fossil-based production

These partnerships have the potential to make a major impact with regard to improving the long-term sustainability of our supply chain. In 2015, 11 percent of all our organic raw materials came from bio-based (renewable) sources (2014: 13 percent). This is 5 percent (2014: 7 percent) of the total volume of raw materials purchased, i.e. including other raw materials such as salt, minerals and clays.

This decrease in bio-based materials was mainly the result of divestments in our Specialty Chemicals businesses, with some smaller contribution due to product mix changes.

Own operations

Renewable energy

The energy we use on our sites contributes about 15 percent to our cradle-to-grave carbon footprint. Renewable energy is therefore an important aspect of the improvements required to achieve our 2020 strategic carbon footprint target.

Our Renewable Energy Supply Strategy has three focus areas: protecting our current renewable share, participating in cost-effective, large energy ventures and exploring commercially feasible on-site renewable energy generation.

The diagram above details our energy mix and renewable energy use. During the past year, we have taken several steps to increase the share of renewables in our energy supplies and to decrease our carbon footprint. The highlights include:

• AkzoNobel, Eneco and Groningen Seaports joined forces to invest in sustainable steam generation in Delfzijl, the Netherlands. We have signed a 12-year agreement with Dutch energy provider Eneco to purchase steam generated from reclaimed wood. The partnership will help to reduce AkzoNobel’s CO₂ emissions by more than 100,000 tons a year
• Production records have been set at all three of the Nordic VindIn wind power parks in which AkzoNobel participates. Very favorable wind conditions in 2014/15 produced good output. Another three to five wind parks are in the pre-project phase, with the best prospects likely to materialize in Finland
• The new AkzoNobel Center in Amsterdam is being supplied with 100 percent green energy, provided by solar panels, an installation for geothermal energy and Dutch wind power. Thirteen other AkzoNobel locations in the Netherlands will also be supplied with wind energy. The contract will result in a reduction of 130,000 tons of CO₂ during its lifetime

Due to these initiatives, the proportion of renewable energy in our operations increased to 38 percent (2014: 34 percent).

Operations management

AkzoNobel has a strong drive to embed continuous improvement in supply chain management and manufacturing. A company-wide approach has been defined named ALPS (AkzoNobel Leading Performance System). Standardized processes, metrics and training programs are part of ALPS. Deployment in all three Business Areas to all manufacturing sites in AkzoNobel will continue in the next few years.

The program is supported by the AkzoNobel Academy, offering a continuous improvement curriculum, as well as functional training programs. Safety, customer service, eco-efficiency and cost productivity continue to improve as a result of the program.

Full details of our operational eco-efficiency program are included in Notes 15-20 of this section.

Logistics, distribution and car lease

As part of our performance improvement program, we have started to manage warehousing and logistics at a regional AkzoNobel level. This will result in a reduction of warehouses and combined transport solutions. It will also have a positive effect on our footprint.

We are involved with Smartway in the US and Green Freight Europe in the EU, focusing on CO₂ reduction.

The carbon emission ambition for our own passenger car fleet was 130 g/km. Since Volkswagen is one of our lease car suppliers, we are not able to provide verifiable data for 2015. We have arranged a meeting with Volkswagen and our lease car partner to agree remedial actions and plan how to reach our new ambition of 115 g/km by the end of 2016.

Customer product solutions

Our sustainability agenda emphasizes resource effectiveness and solutions for our customers, which in turn help them to be more energy and resource effective. We aim to continue developing more sustainable solutions and stay ahead of the competition.

The headline metric we have used since 2009 relates to eco-premium solutions. This measures products or solutions that have a significant benefit over mainstream products in the market in defined environmental and social sustainability aspects (e.g. GHG emissions), when assessed across the total value chain (see Note 4). This metric is challenging and is used as a driver for more sustainable innovations. A comparison with mainstream is now being recognized as good practice at many companies and organizations (ref. WBCSD Addressing the Avoided Emissions Challenge).

Many of our products enable GHG emissions to be avoided (e.g. water-based paint, coatings with new curing technologies and chemicals used in LED lighting). In total, 13 percent of our 2015 revenue was from these leading eco-premium solutions that avoid GHG emissions for our customers, compared with the mainstream solution. Some examples of solutions are UV radiation cured coatings, warm mix additives in asphalt and surfactants manufactured using renewable raw materials (rather than petroleum based).

In our Marine Coatings business, leadership in fouling control that supports our customers in reducing their fuel requirements is fundamental. We have now received our first carbon credits for our industry-leading Intersleek foul release coatings and have launched a high performance coastal fouling control solution for the severe fouling challenges of vessels trading in tropical coastal waters, providing energy savings and an extended operating life. Other examples are protective coatings requiring fewer coats and that dry faster – resulting in lower energy consumption for our customers – and vehicle refinishes products that can bake faster or at lower temperature.

Other products that help to reduce global GHG emissions are not captured by this leading measure. For example, more than 80 percent of our decorative paints are water-based or low/zero VOC (as opposed to solvent-based), while our powder coatings reduce VOC emissions in use (compared with solvent-based alternative solutions). These products are only counted as an eco-premium solution where the standard in the market is still solvent-based. Additional low VOC products, which are not eco-premium solutions, would add about 20 percent to this 13 percent revenue figure.