Note 1: Managing our sustainability agenda

Strategic focus

Our sustainability agenda incorporates economic, environmental and social aspects across the value chain.

By focusing on the full value chain, we will drive business, resource and engagement benefits

Consolidated Sustainability statements – Value chain (graphic)Consolidated Sustainability statements – Value chain (graphic)

The importance of sustainability to running our business is firmly integrated into the AkzoNobel strategy. As well as being a strategic focus area, it is one of the three core principles (Safety, Integrity and Sustainability) that provide the foundation for our company values and the updated . In addition, sustainability is being embedded into our company-wide processes, including Innovation, Commercial excellence and Talent management. Sustainability helps us to enhance our existing business, create new business opportunities and minimize risks.

We developed the sustainability elements of our strategy by reviewing our sustainability risks and opportunities against the global trends that will impact our key market segments by 2050. The trends were identified as population growth and the new middle class and urbanization – both of which provide opportunities for our end-user segments – and long-term constraints of natural resources and climate change, which drive us towards the need for radical resource efficiency and circular thinking.

We express our sustainability agenda through a concept known as Planet Possible, which highlights our commitment to creating more value from fewer resources across the value chain. Planet Possible encompasses all our programs to make our products and operations more sustainable. As well as driving our own success, putting sustainability at the heart of everything we do means that our customers and employees – not to mention our planet – will also benefit. For more details, see the Strategic performance section of this Report 2015.

Our strategy has three sustainability focus areas designed to deliver more value from fewer resources, with targets for 2020. Our progress towards creating more value from fewer resources is measured by a special Resource Efficiency Index (), which monitors the gross margin generated divided by the resource/energy use across the value chain (measured as cradle-to-grave ). We focus on three aspects:

  • Sustainable business: Creating business value through products and solutions that provide both functionality and other sustainability benefits, as well as cost savings from operational efficiencies. Target: 20 percent of revenue from with a downstream benefit by 2020
  • Resource efficiency: Accelerating material and energy efficiency across the value chain. Target: 25-30 percent reduction in cradle-to-grave carbon footprint per ton of sales from 2012 to 2020
  • Capable, engaged people: Engaging our people and partnering with our suppliers and customers to deliver significant changes. Objectives are emerging at Business Area and functional level

Sustainability foundations

These strategic objectives are underpinned by strong foundation programs for other economic, environmental and social aspects that are material for our business. Specifically, these are: people and process safety, product safety/stewardship, employee talent management/ engagement, community involvement, environmental management and integrity management. Community involvement is included due to the link to employee engagement. For these elements, we have key performance indicators with 2015 targets, being extended to 2020. Other short-term and long-term ambitions are set at functional and business level.

The Notes in the Sustainability statements and other elements of this Report 2015 illustrate our performance against the strategy goals and foundation elements.

Sustainability framework

Our strategic sustainability focus areas are a natural next step in our Sustainability framework, which maps out a progression towards sustainability and identifies those aspects that are material for our business. The framework has three levels, which include environmental, economic and social aspects:

  • Invent: Integrate sustainable value propositions
  • Manage: Include sustainability in all aspects of the value chain
  • Improve: Continue to comply and ensure our license to operate

Sustainability framework

Consolidated Sustainability statements – Sustainability framework (graphic)Consolidated Sustainability statements – Sustainability framework (graphic)

The Improve level, with an emphasis on risks – working on integrity, governance and compliance with our standards and applicable laws and regulations – is now part of the Compliance framework (see the Governance and compliance section).

The current strategy focuses on creating opportunities for value creation through resource efficiency, innovation and talent development, alongside continued integration of sustainability in all aspects of the value chain.

The framework diagram indicates the main material issues and programs, which are further detailed in the Notes of these Sustainability statements and in other sections of this Report 2015.

Management accountability

Company level

The Executive Committee has overall responsibility for sustainability. They set company strategy and targets and monitor the sustainability performance of each Business Area, as well as the foundation elements, through the Operational Control Cycle.

We have established a Sustainability Council, which advises the Executive Committee on strategy developments, monitors the integration of sustainability into management processes and oversees the company’s sustainability targets and overall performance. The Council, which meets quarterly, is chaired by the CEO and includes representative Managing Directors from our Business Areas, as well as the Corporate Directors of Strategy, Supply Chain/Research and Development, Purchasing, Human Resources, Sustainability and , and Communications. The Council maintains an external perspective, with input from value chain partners and thought leaders during regular meetings, in addition to company involvement in leading external organizations.

The Corporate Director of Sustainability and HSE reports directly to the CEO and has an expertise team for HSE and sustainability, including a group focusing on lifecycle and sustainability assessments. In 2012, we formed a team of senior Business Area representatives to work with the expertise team and the business teams to ensure effective roll-out of the new strategy.

Businesses and functions

Accountability for managing sustainability and delivering against targets lies with the businesses and functions. The Managing Director of each business is responsible for managing sustainability as an overall part of business. All businesses have appointed a sustainability manager, or focal point, to support the embedding of sustainability throughout their operations. They bring together an appropriate team to develop and implement the sustainability agenda for the business. Focal points work together at Business Area level to accelerate performance improvements; they also exchange best practices and identify opportunities for further development at company level.

Each function in the value chain has identified focus areas for sustainability. Functional management teams, such as Procurement, Supply Chain and RD&I, are in place to support the implementation of the functional strategy, including the sustainability elements. These management teams include corporate and business representatives.

Foundation elements – safety, product stewardship, employee engagement/talent management and environmental – are managed by the management processes in the Human Resources and Health, Safety and Environment functions. The Compliance framework and the management structure for integrity and compliance aspects are detailed in the Governance and compliance section under Compliance and integrity management.

Management processes

AkzoNobel uses a range of methods to manage sustainability performance. The management of each Business Area has identified sustainability priorities in line with the company strategy and market drivers, and developed a dashboard – with KPIs and targets – which is used to monitor progress. Some improvement programs and activities are managed at Business Area level to improve effectiveness. For cross-business activities, each function in the value chain has identified focus areas for sustainability, with targets where appropriate.

Specific challenges are reported in the Strategic performance and Business performance sections. Where there are specific sustainability risks or issues of concern to stakeholders, we develop a company position and an improvement plan owned by a subject matter expert.

Goals and targets

AkzoNobel has three strategic sustainability KPIs and company level targets for strategic and foundation elements. The business dashboards reflect the main sustainability drivers for that business and the contribution to company targets.

Common processes

We include material sustainability issues in our company, business and functional processes: strategy and planning; risk management and internal control; compliance; the Operational Control Cycle; as well as in our internal audit and external assurance processes. These are reported in other sections of this Report 2015 (see Strategic performance and Governance and compliance).

Foundation elements: global standards and programs

Global functions oversee the foundation elements of our sustainability agenda: health and safety; environmental protection; product stewardship; employee engagement/ talent development; and compliance; including social and labor aspects. They set global standards and processes and implement improvement programs in partnership with the Business Areas. These standards are also the basis of our supplier management processes.

Improvement plans and programs

Improvement programs for strategic objectives are developed at business, Business Area or company level. In 2015, for example, the Executive Committee carried out a complete review of the resource efficiency/carbon footprint improvement plans in two dedicated meetings. A new forecasting process, which includes the impact of potential projects and changes in our portfolio product mix, will be used to prioritize improvements.

To further embed sustainability in the way we do business, we have developed a functional excellence improvement tool, which reflects the strategic objectives, management processes and good practice implementation. The purpose is to accelerate sustainability performance against strategy/targets by raising the capability of people and processes, supporting good practice implementation, providing challenges to the operating businesses and focusing improvement actions where they count. Each business carries out a self-assessment of the current situation and sets ambition levels, based on company requirements and business priorities, as well as focused annual improvement plans. These assessments are subject to a peer review/challenge by cross-business colleagues to hone improvement options and identify the need for common improvement programs. In the future, the overall improvement plans will be reviewed alongside current performance as part of the Operational Control Cycle.

We carried out a pilot assessment in 2014 which identified two priorities around our work with suppliers and the capability of managers and employees. We have made good progress with suppliers on initiating improvements, as reported in Note 7. Progress on raising the capability of managers across functions to drive sustainability improvements has been somewhat slower, but is starting to gain momentum. In 2015, we embedded many structural changes in our businesses and decided to retain the pilot version of the tool for a further year. Each business has reviewed their 2014 assessment when developing the current improvement plan. Common issues were again reviewed at Business Area and AkzoNobel level. We have agreed to further refine the tool for 2016.

Priorities for 2016 will include:

  • Continued work with suppliers
  • Focus on the resource efficiency improvement areas identified in each Business Area
  • Further capability development activity, particularly in marketing and sales

Incentives

We strive to empower all employees to contribute and be accountable for our sustainability performance, using training and other engagement processes, including business and site level activity, as well as web-based resources. This responsibility continues to be anchored in the personal targets and remuneration packages of managers and employees. Thirty percent of the conditional grant of shares for Board of Management members and all executives is based on AkzoNobel’s performance in the over a three-year period (see Remuneration report in the Governance and compliance section). This link to sustainability performance has been in place since 2009.

Monitor, benchmark and review

The business dashboards are reviewed at Business Area and Executive Committee level at least every six months as part of the Operational Control Cycle. Relevant sustainability aspects are also discussed in other functional Operational Review meetings.

Material sustainability issues are integrated into corporate compliance and audit processes, which are supplemented by specialist functional audits. We also benchmark our performance against our peers using external assessment processes such as the RobecoSAM assessment for the Dow Jones Sustainability Indices.

The sustainability aspects material to the company are summarized in the company strategy and sustainability framework. These are reviewed annually, with input from internal and external stakeholders (see Materiality in Note 2). Full details of the boundaries and management processes for each aspect are included in the Global Reporting Initiative (GRI) G4 additional information document, which is available on our corporate website.

Code of Conduct

Our Code of Conduct defines our core principles and how we work. It incorporates fundamental principles on issues such as business integrity, labor relations, health, safety, environment and security and community involvement.

REI

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.

Carbon footprint

The carbon footprint of a product or organization is the total amount of greenhouse gas (GHG) emissions caused during a defined period, or across the total or part of a product lifecycle. It is expressed in terms of the amount of carbon dioxide equivalents CO2(e) emitted.

Eco-premium solutions (EPS)

A measure of the eco-efficiency of our products. An eco-premium solution is significantly better than competing offers in the market in at least one eco-efficiency criterion (toxicity, energy use, use of natural resources/raw materials, emissions and waste, land use, risks, health and well-being), and not significantly worse in any other criteria.

HSE

Health, safety and environment.

Carbon footprint

The carbon footprint of a product or organization is the total amount of greenhouse gas (GHG) emissions caused during a defined period, or across the total or part of a product lifecycle. It is expressed in terms of the amount of carbon dioxide equivalents CO2(e) emitted.

RobecoSAM assessment

Assesses the sustainability performance of companies selected for the Dow Jones Sustainability Index (DJSI). The DJSI tracks the performance of the global sustainability leaders. The index comprises the top 10 percent in each industry for the 2,500 largest companies.