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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

The AkzoNobel value chain (graphic)The AkzoNobel 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. In addition, sustainability is being embedded into our new 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. These were identified as population growth and the new middle class, urbanization, long-term constraints of natural resources and climate change.

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 that are focused on making 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 the planet – will also benefit. For more details, see the Strategic performance section of this Report 2014.

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

  • Sustainable business: Involves 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 revenue from eco-premium solutions with a downstream benefit by 2020
  • Resource efficiency: Focused on 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 being defined, mainly at Business Area level

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. For these elements, we have key performance indicators with 2015 targets, some of which have been 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 2014 illustrate our performance against these goals.

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

Sustainability framework (graphic)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.

Management structure

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 through the Operational Control Cycle using dashboards, which specify indicators against strategic objectives.

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 HSE, 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. The key sustainability business KPIs and targets form a dashboard which is monitored at least every six months as part of the Operational Control Cycle. All businesses have also 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 from across the company have regular meetings to exchange best practices and identify opportunities for further development.

Meanwhile, each function in the value chain has identified focus areas for sustainability, with targets where appropriate. Functional management teams, such as Procurement, Supply Chain and RD&I (which are made up of both corporate and business representatives), are in place to support the implementation of the functional strategy, including the sustainability elements.

The safety, product stewardship, employee and environmental foundation elements are managed by the HR and HSE cross-business management processes. 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

We include key 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 – which are reported in other sections of this Report 2014 (see Strategic performance and Governance and compliance). Each year, there are two dedicated sustainability sessions in the Operational Control Cycle. Relevant sustainability aspects are also discussed in other functional reviews. Specific challenges are reported in the Strategic performance and Business performance sections.

We set global standards for the foundation elements (health and safety, environmental protection, product stewardship and compliance, including social and labor aspects) and our governance processes. Corporate compliance and audit processes are supplemented by specialist functional audits. These standards are also the basis of our supplier management processes and investment assessments. 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.

To further embed sustainability in the way we do business, we are piloting a new 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. The overall improvement plans will be reviewed alongside current performance as part of the Operational Control Cycle.

Each business carried out a pilot assessment in 2014, and held a Business Area moderation meeting to review and compare the results, identify areas of common improvement potential and areas of good practice. The credibility of the total AkzoNobel results was then reviewed by senior Business Area representatives.

The results helped all our businesses to identify specific areas for improvement and some common opportunities. Priorities for 2015 include:

  • Working with suppliers to identify and deliver cost effective carbon footprint improvements
  • Equipping a broader range of managers/employees across functions to drive sustainability improvements

We will use learnings from these pilots to further refine the tool for full roll-out in 2015.

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. Since 2009, half (from 2013 onwards 30 percent) of the conditional grant of shares for Board members and all executives is based on AkzoNobel’s performance in the RobecoSAM assessment over a three-year period (see Remuneration report in the Governance and compliance section).

Benchmark and review

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 of this section). Full details of the boundaries and management processes for each aspect are included in the Global Reporting Initiative G4 additional information document, which is available on our corporate website.

We also benchmark our performance against our peers using external assessment processes such as the RobecoSAM assessment for the Dow Jones Sustainability Indices.