Note 4: Sustainable business

Resource Efficiency Index

The adoption of a as a key financial indicator results from the conviction that 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.

The Resource Efficiency Index is defined as gross margin divided by cradle-to-grave – 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.

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 waterborne coatings
  • Margin improvements as a result of higher value added products

However, alongside these positive factors we have seen tighter margins, together with expansion in markets that are slower in adopting low coatings and have a high proportion of high carbon energy supplies. The increase this year is a combination of improved carbon footprint performance and increased margins, partly due to currency variations.

Resource Efficiency Index
gross margin/CO2(e) indexed

Value chain management – Resource Efficiency Index (bar chart)Value chain management – Resource Efficiency Index (bar chart)

Resource Efficiency Index is gross margin divided by cradle-to-grave , expressed as an index. The index is set at 100 for 2012, since this is the baseline year for our strategic sustainability objectives.

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

Eco-premium solutions

We want to continue to lead by example in terms of sustainability. It is common knowledge that we live in a world with finite resources. We therefore have a strategy of resource efficiency to create more value from fewer resources, and to find opportunities where there don’t appear to be any. We minimize the environmental and social impact/footprint of the products we sell and the processes we use to manufacture them.

Eco-premium solutions (EPS) are products and processes that offer an improvement in sustainability, delivering either environmental or social benefits. They are measured via a quantitative analysis or a qualitative assessment of performance in seven categories:

When assessed across the entire value chain against currently available solutions in the market, the eco-premium solution must be significantly better in at least one of the above criteria, and not significantly worse in any. We aim to make comparisons with products and services that are readily available and appealing to the wider general public, as opposed to being of interest to only a very specific group.

Year-on-year progress will be impacted not only by our own improvements, but also by competitor activity and legislation changes. For example, the introduction of new products into the market whose performance is equal to our current range of will redefine the standards that we will have to surpass to acquire EPS status.

In 2012, we added another element to our eco-premium solutions: . This is a measure of those eco-premium solutions (products and services) that deliver the sustainability benefits in the downstream value chain – directly to our customers or consumers – as a semi-finished product, as a final product, or as a reusable/recyclable material in the end-of-life phase.

Recent examples of eco-premium solutions with downstream benefits include:

  • AquaSilk: A waterborne coating for the Chinese furniture market with exceptional film transparency and hardness. It is one of the first products to meet the relatively new demand for waterborne products in China
  • Armohib CI-5150: A high-end film-forming corrosion inhibitor fulfilling the highest level of environmental criteria within the oilfield chemicals sector globally. Corrosion is a serious issue in the production and transportation of oil and gas which, without protective measures taken, could lead to serious consequences for health, safety and environment, not to mention the economic losses. Armohib CI-5150 is ten to 100 times less aquatoxic than the two globally most used competitive chemistry classes
  • Bolikel XP: A novel, highly efficient micronutrient for a full, healthy color of crop. It is fully biodegradable and water soluble, making this product suitable for sustainable soil applications (fertigation)
  • Dulux Easycare: Interior paint with extended lifetime. Superior in terms of scratch, knock resistance and washability. Introduced in Poland in March 2015 with excellent sales results
  • Dulux Powerflexx: Unique Powerflexx technology and stay-clean properties mean that buildings are protected from peeling or flaking in any weather conditions and stay clean for longer. The Keep Cool technology of this external coating can reduce exterior temperatures by as much as 5ºC, keeping homes cooler and reducing energy use for cooling in warmer climates
  • Sikkens Cetol BLX-Pro Top: A waterborne woodcare product with stay-clean properties. These extend the lifetime. Compared with the regular recipe, this product has a lower carbon footprint. It is sold mainly in Germany and France, and is being introduced in Belgium, Spain and Italy
  • Interpon A2000 Dual Trim: A powder coating applied to the roof rails of cars, in the automotive chassis market, where liquid or anodizing coatings are still the standard
  • Kayabrid: A coupling agent between polar fillers and non-polar polymer chains, allowing commodity plastics such as polypropylene to be processed into high performance composites. Lower loadings of coupling agent are needed to achieve the same/higher mechanical properties. The carbon footprint is low due to the use of bio-based fibers
  • Sikkens Autoclear UV/Lesonal UV Clear: A new UV clearcoat to meet the needs of fast track/stationary repair. The bodyshop’s energy costs and footprint are lowered, while productivity is improved by shorter drying times compared with ambient curing products

Revenue from all eco-premium solutions totaled €3.5 billion, or 24 percent of total revenue. In 2015, revenue from eco-premium products and services with downstream benefits totaled €2.9 billion, or 19 percent of total revenue, of which 9 percent relates to EPS with social benefits: health and well-being, risks and toxicity.

Eco-premium solutions with downstream benefits
in % of revenue

Value chain management – Eco-premium solutions with downstream benefits (bar chart)Value chain management – Eco-premium solutions with downstream benefits (bar chart)

are products and processes that offer an improvement in sustainability in the downstream value chain.

per Business Area

 

 

 

 

 

 

 

 

 

In % of revenue

 

2012

 

2013

 

2014

 

2015

Decorative Paints

 

22

 

27

 

27

 

28

Performance Coatings

 

13

 

13

 

15

 

15

Specialty Chemicals

 

16

 

16

 

17

 

17

Our 2009 total EPS target of 30 percent of sales revenue by 2015 was not achieved, mainly because of a changed focus towards customer benefits in our current strategy and targets. This change is reflected in the results for EPS with downstream benefits, for which the 2020 ambition has almost been achieved. We maintain our focus on continuously improving this challenging metric with a variable baseline.

Eco-premium solutions in % of revenue

Value chain management – Eco-premium solutions (bar chart)Value chain management – Eco-premium solutions (bar chart)

Eco-premium solutions are products and processes that offer an improvement in sustainability in (part of) the total value chain.

Eco-premium solutions per Business Area

 

 

 

 

 

 

 

 

 

In % of revenue

 

2012

 

2013

 

2014

 

2015

Decorative Paints

 

26

 

35

 

33

 

33

Performance Coatings

 

14

 

13

 

15

 

15

Specialty Chemicals

 

25

 

26

 

27

 

25

VOC in products

Our businesses continue to introduce new and reformulated products with significantly reduced (or preferably virtually zero) volatile organic compound (VOC) content. As a result of this multi-year program, our product portfolio is undergoing a transformation towards a range of products that are lower in content. Since 2009, this has been established as an important part of our target to minimize the potential social and environmental impact from the materials in our products.

Both Decorative Paints and Performance Coatings are contributing to this continued reduction of VOC content. The company’s overall paints and coatings product portfolio showed a decrease of 5 percent in average VOC content in 20141, compared with the baseline position of 2009. Due to divestments of businesses with very low VOC products, the like-for-like reduction for AkzoNobel over this period was 19 percent.

Drivers for change towards reduced VOC content come from a combination of technological improvements and changing customer and market demands – particularly with respect to the use of waterborne products. We are active in supporting these changes in emerging markets, where we are beginning to see changes in the form of VOC legislation. For example, the recent introduction of VOC tax regulation in China is helping the industrial wood coatings market move to our new waterborne technology.

Our Performance Coatings business continues to achieve a reduction of VOC content in its product portfolio, despite the technical challenges involved in balancing formulation cost and product performance. Although we continue to make technological progress, we remain acutely aware that it is cost/performance that will ultimately define the pace of market uptake. In the marine and protective coatings market, we have reduced VOC by launching several new high solids products. This contributed to an average VOC reduction within Performance Coatings in 2014 of 2 percent, compared with 2012. This represents a further reduction of VOC content in our product portfolio compared with the previous year’s performance.

Our Decorative Paints products also contributed significantly to VOC reduction through the continuous introduction of high quality, low VOC solutions. Sales of waterborne and zero-emission paints are steadily increasing, an effect which we expect to continue in the coming years. Due to a change in product mix caused by divestments in 2014, average VOC content in Decorative Paints actually increased by 5 percent compared with 2012. However, when taking into account the impact of the divestments of the low VOC businesses in North America in 2013, and the Building Adhesives business in 2014, the average VOC content in 2014 was reduced by 14 percent compared with 2012.

For 2015, we forecast a continuation of these trends, with a further reduction in average VOC content for our Performance Coatings and Decorative Paints portfolio.

1 The annual metrics for VOC in products are assessed in the second quarter of the year, which is why the figures above reflect the year 2014 instead of 2015.

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.

VOC

Volatile organic compounds.

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.

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.

Natural resource use

We do not report specific natural resource use, except water. We do report our use of energy and waste from our operations, and indicate the main raw materials used in our products.

Emissions and waste

We report emissions to air, land and water for those substances which may have an impact on people or the environment: CO2, NOx and SOx, VOCs, chemical oxygen demand, hazardous and non-hazardous waste. Definitions are in the Sustainability statements section.

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.

Eco-premium solutions with downstream benefits

Provide tangible material or energy efficiency benefits for our customers, compared with competitive products.

Eco-premium solutions with downstream benefits

Provide tangible material or energy efficiency benefits for our customers, compared with competitive products.

Eco-premium solutions with downstream benefits

Provide tangible material or energy efficiency benefits for our customers, compared with competitive products.

VOC

Volatile organic compounds.