Note 5: Resource Efficiency Index
Resource Efficiency Index
We adopted a Resource Efficiency Index as a key financial indicator because we are convinced global population growth and increasing resource constraints will drive new business models in the materials and energy intensive industry sectors. In the chemicals industry, sustained business success will require product and process innovations that generate much more added value from each unit of raw materials and energy used across the value chain – be it with our suppliers, in our own operations or with the users of our products. This will enable us to decouple business growth from resource use.
The Resource Efficiency Index is defined as gross margin divided by cradle-to-grave carbon footprint – reported as an index. We selected gross margin as an indicator of added value as it is comparatively stable and captures the effects of efficiency improvements. Carbon footprint is a good proxy for resource efficiency across our value chains.
Resource Efficiency Index
gross margin/CO2(e) indexed
Resource Efficiency Index is gross margin divided by cradle-to-grave carbon footprint, expressed as an index. The index is set at 100 for 2012, since this is the baseline year for our strategic sustainability objectives.
REI 2009-2011 is indicative and has been approximated. Cradle-to-grave carbon data for 2009-2011 is based on:
- Cradle-to-gate carbon data as measured and reported
- Gate-to-grave carbon data has been extrapolated based on 2012 data, adjusted for product volumes in 2009-2011
We are initially monitoring the Resource Efficiency Index and expect it to be a long-term indicator for AkzoNobel. Although margin variability and currency fluctuations may affect performance in any given year, the long-term trend must be upwards. A review of our performance over the past seven years reveals a variable trend. We have seen increases from factors such as:
- Improvements in energy efficiency
- Increased renewable and low carbon energy supply
- The ongoing switch towards water-based coatings
- Margin improvements as a result of higher value-added products
However, alongside these positive factors, we have also seen tighter margins, together with expansion in markets that are slower in adopting low VOC coatings and have a large proportion of high carbon energy supplies. There are also impacts from changes in the overall AkzoNobel product mix.
In 2016, we achieved a reduction of absolute carbon footprint, but a decrease of gross margin resulted in a broadly flat REI, at 112 compared with the 2012 base of 100. The currency impact for 2016 compared with the previous year is significant and negatively impacts the REI.
The carbon footprint of a product is the total amount of greenhouse gas (GHG) emissions caused during a defined period, of the product lifecycle. It is expressed in terms of the amount of carbon dioxide equivalents CO2(e) emitted.
Resource Efficiency Index is gross margin divided by cradle-to-grave carbon footprint. The index measures value created from use of raw materials and energy.
Volatile organic compounds.
The carbon footprint of a product is the total amount of greenhouse gas (GHG) emissions caused during a defined period, of the product lifecycle. It is expressed in terms of the amount of carbon dioxide equivalents CO2(e) emitted.