Environmental Management Case Study of AkzoNobel

Abstract

In modern business, sustainability has become of great importance when determining a company’s strategy.  AkzoNobel, a company that produces chemicals, paint, paper and pulp, is well aware of this evolution and has built its business model around it. This case study aimed to analyze and review AkzoNobel’s environmental- and sustainability performance by exploring the company’s webpage as well as other critical resources. The management of the company was analyzed, along with the tools, methods and metrics that are used to reach set objectives. Furthermore, the environmental- and sustainability policy was related to the ISO14001 requirements. It was determined that, although AkzoNobel puts in significant effort to include environmental aspects in its long term goals, it is clear that their sustainability agenda is a tool for boosting their reputation to outcompete their competitors.

Table of Content

Abstract 2

Table of Content 3

Introduction 4

Environmental Management 4

Executive body 5

Driving forces 5

Objectives/Comparison with Sweden 5

Environmental Policy 7

Sustainable systems 7

Tools, methods & metrics 8

Eco-premium products 8

Environmental Assessment Tools 9

Safety 9

Product stewardship 9

Managing scarce resources 9

ISO14001 and AkzoNobel 9

Suppliers & sustainability 11

Supplier visit 11

Vendor compliance letter 12

Key supplier management program 12

Sustainability focus areas 12

Climate change & AKZO Nobel 12

Position 12

Achievements 13

The Future 13

Discussion 14

Conclusion 15

References 16

Introduction

AkzoNobel is the largest global paint and coating manufacturer in the world and a leading producer of specialty chemicals, pulp and paper. It is a company of about 57,000 employees that are situated in more than 80 countries. The company’s slogan is “Tomorrow’s answer today”. In other words, their strategy is to produce products that are far more advanced compared to their competition. With today’s concern about environmental issues, this competitive edge comes with producing products that are deemed sustainable. Therefore, the forefront of AkzoNobel’s agenda, it can be said that sustainability is the key word in AkzoNobel’s business.

The aim of this report is to review the environmental and sustainability management performance of AkzoNobel.

The objectives of this report are to:

Give a short description of AkzoNobel’s activities and to investigate their executive body;

Analyze the driving forces behind the environmental management performance of the company;

Define the most significant environmental aspects of AkzoNobel and relate them to Sweden’s Environmental Objectives;

Critically analyze the environmental/sustainability policy;

Identify and analyze the different environmental and sustainability management tools, methods and metrics;

Provide AkzoNobel’s position on global warming;

Describe AkzoNobel’s supplier and vendor policy;

Examine their business strategy in relation to business opportunity;

Judge their actual sustainability performance; and

Comment on outside criticism of the company.

Environmental Management

When a company sets its goals towards sustainability, it is often necessary to completely rework the way in which the company is managed. In order to successfully improve negative social and environmental impacts, it is essential for the company to integrate these factors into every day decision making (Epstein, 2008). AkzoNobel’s management team has claimed to have done this by the appointing a management team that has sustainability at its utmost priority.

Executive body

AkzoNobel has established an executive committee (ExCo) which is composed of five members of the board of management and four leaders with functional expertise. This arrangement allows business and function to be taken equally into account while managing the company. The functions that are now representing the ExCo are: HR & Organizational Development, Research, Development & Innovation, Legal and Supply Chain/Sourcing. The ExCO shares powers and responsibility for managing the company under the chairmanship of the CEO, Hans Wijer. (AkzoNobel, 2011c)

AkzoNobel also has a special Sustainable Development Group. This team is composed of 13 individuals with background studies ranging from chemistry to economics and from environmental sciences to policy and management. (AkzoNobel, 2011g)

Driving forces

In 2008, AkzoNobel put in place a strategy with a sustainable agenda. Their specific sustainability objectives were to:

Remain in the top three in the Dow Jones Sustainability Indexes;

Reduce the total reportable rate of injuries to 2.0 per million working hours by 2015; and

Deliver a step change in people development, in part through substantially improving the diversity in the company. (AkzoNobel, 2011e)

The first point connects the company’s business side and its environmental objectives together. Investors are increasingly focusing on investing in companies that set industry-wide best practices with regard to sustainability. Sustainability has become attractive to investors because it aims to increase long-term shareholder value. Sustainability leaders are increasingly expected to show superior performance and favorable risk/return profile (Dow Jones Sustainability Indexes, 2011). Consequently, a company with a sustainable agenda is considered a good investment. AkzoNobel is well aware of this as can be seen in their business principles when they state: “We need to make sustainable profits if our business is to thrive” (AkzoNobel, Business Principles, 2011a).

The company’s sustainable agenda also mentioned that they aim to reduce the reportable rate of injuries. AkzoNobel is a company that works with substances and chemicals that have high environmental and health risks. Companies fear having a reputation for a high number of injured employees or for causing environmental damage. Because AkzoNobel handles these types of substances it is consequently under the microscope. In order to avoid pressure from environmental advocacy groups such as Greenpeace or to avoid bad media, it is of strong interest to account for environmental aspects as well as the safety and health of its employees.

Objectives/Comparison with Sweden

According to the company’s website, AkzoNobel set its targets on the following objectives towards sustainability:

Improving safety performance;

Increasing turnover from eco-premium products which are both eco-efficient and attract a premium;

Developing sustainable water management  at all sites;

Reducing carbon emissions from cradle to gate;

Adherence to and training in the companies Code of Conduct ;

Strengthening the diversity of the company’s workforce; and

Implementing leading people development programs (AkzoNobel, 2011b).

From these targets it is clear that AkzoNobel considers a well trained and ambitious workforce an important step towards sustainability. It can also be seen that there is an emphasis on the responsibility of the workforce. It is important for the company that its personnel are aware of the sustainable targets and that the employees take part in reaching them.

In comparison, Sweden’s Environmental Objectives are the following:

Reduced Climate Impact

Clean Air

Natural Acidification Only

A Non-Toxic Environment

A Protective Ozone Layer

A Safe Radiation Environment

Zero Eutrophication

Flourishing Lakes and Streams

Good-Quality Groundwater

A Balanced Marine Environment, Flourishing Coastal Areas and Archipelagos

Thriving Wetlands

Sustainable Forests

A Varied Agricultural Landscape

A Magnificent Mountain Landscape

A Good Built Environment

A Rich Diversity of Plant and Animal Life

(Government offices of Sweden, 2011)

The management of AkzoNobel is in line with most of Sweden’s environmental objectives. They are aware of the need to reduce carbon emissions and employ sustainable water management. Furthermore, the production of eco-efficient products is a step towards a non-toxic environment.

Eka Chemical is AkzoNobel’s daughter company that specializes in specialty chemicals, pulp and paper. Their goal is to have pulp and paper products that are made from sustainably sourced fibers (i.e. sustainable forestry), while using energy from renewable sources and discharge only of water that is cleaned after production (AkzoNobel, 2011d).

Taking into concern its environmental aspects, AkzoNobel has a clear aim towards one of Sweden’s Environmental Objectives, which is A Good Built Environment.

Environmental Policy

Within a company, the principles of environmental policy are the foundation for implementing a sustainable system. Usually full support at the top management level is needed to make such a system work and to gain the attention of all employees inside the organization (ISO 14001,2010).

The term “Environmental Policy” can be defined as:

any […] action deliberately taken […] to manage human activities with a view to prevent, reduce, or mitigate harmful effects on nature and natural resources, and ensuring that man-made changes to the environment do not have harmful effects on humans. (Fairbridge Technologies, 2009).

As mentioned previously, AkzoNobel really takes care of its reputation for being a sustainable company. This, again, is mentioned in their Vendor Policy. The slogan “Tomorrow’s Answer today” shows that this topic is omnipresent and AkzoNobel not only explains that “…sustainability is at the heart of everything we do” but also that they have integrated sustainability into every area of their business. (AkzoNobel, 2011a)

Sustainable systems

Sustainable systems are considered ones that take into account not only environmental aspects but also social and economic ones. The main goal of an Environmental Management System is to improve all three aspects simultaneously without losing performance in one.

AkzoNobel uses a sustainability framework which is part of the “managing our values” ideal. Former key points such as integrity, governance and compliance are now being replaced with new topics such as value creation through process excellence, innovation and talent development. More specifically, AkzoNobel’s sustainability framework focuses on three concepts:

Improve: continue to comply with environmental and social regulations to ensure a license to operate. This point is considered to be the core element of how AkzoNobel, as a company, operates.

Manage: include sustainability in all aspects of the value chain.

Invent: integrate sustainable value propositions to develop a long-term strategic value.

(AkzoNobel, 2009)

Tools, methods & metrics

The global strategy of AkzoNobel is to integrate sustainability in all aspects of the value chain, to decrease their carbon footprint and to make profits from these standardized systems. It starts in the early stage of market research across sales and ends in cooperation with stakeholders. Furthermore, AkzoNobel highlights the essential aspect of “long-term opportunities” for their business which should be reached by these tools, methods and metrics. In the following there’s a detailed list of the sustainability actions in the company.

Eco-premium products

AkzoNobel analyzes all of their products by quantitative or qualitative measurements every time they bring a new product on the market. In order to be deemed an eco-premium product, the product must score significantly better than a currently available product in at least one of the following categories:

Toxicity

Energy Efficiency

Use of Natural Resources and Raw Materials

Emissions

Waste

Land use and risk

(AkzoNobel, 2009)

Environmental Assessment Tools

As mentioned previously, AkzoNobel quantitatively and qualitatively measures the sustainability of all products before they are considered suitable for sales. In order to conduct these assessments, the company implements the use environmental assessment tools such as life cycle analysis, environmental impacts analysis, carbon footprint analysis, eco footprint analysis and eco efficiency assessment. Environmental tools, such as the ones mentioned, are essential for turning data into environmental business strategies. Data for each of the tools is gathered from in house personnel, measurements, authorities, etc. and the conclusions from each report are used for negotiations, reducing costs, meeting permit requirements, improving efficiency, meeting customer demand and setting sustainability targets. (AkzoNobel, 2010b)

Safety

The establishment of a behavior-based safety program and a new “Safety Leadership Program” for head management is an efficient method of improving the injury rate for employees and contractors. This figure is also influenced by the integration of standards for “process safety and occupational health” and the, so called, “Health, Safety, Environment and Security (HSE&S) audit process.” The aim is to share good practice all over the company with corporate HSE&S audits to analyze progress. (AkzoNobel, 2009)

Product stewardship

To guarantee that AkzoNobel fulfills all legal and ethical requirements for their products (according to REACH, GHS etc.), a Global Product Stewardship and Regulatory Affairs Council has been established. Their tasks are to integrate good practice from the company into a “product stewardship framework” and to ensure that supplies, training and audits are optimized step by step. (AkzoNobel, 2009)

Managing scarce resources

AkzoNobel puts in a significant amount of effort in reducing the carbon footprint of their products and creating more value for the customer at the same time. Sourcing managers have been installed to identify focus areas for improvement and develop a carbon management plan in a dialogue with suppliers. In the future, AkzoNobel wants to learn more about customer applications to become more efficient in their environmental management. (AkzoNobel, 2009)

ISO14001 and AkzoNobel

The ISO 14000 family of environmental management standards can be used to implement a successful environmental management system. Specifically, ISO 14001 can be considered the most important framework for organizations around the world to reach their environmental goals and keep an effective environmental system running. The cyclical process of plan, do, act and check are similar to the ISO 9000 family (Quality Management) but focused on environmental issues. Nevertheless, it is possible to combine the two because it is voluntary for companies to implement these systems. Therefore, every organization regardless of size or sector has the ability to implement ISO 14001. Two different companies can run two completely different environmental management systems but both according to the framework in ISO 14001. The basic principle which distinguishes ISO 14001 from all other strategies is the Concept of Continual Improvement Process (CIP). This concept ensures that products are continually being monitored and improved to adhere to environmental and safety regulations. (Envirocip, 2011; Environmental Management System, 2011; ISO, 2009)

ISO 14001 consists of four basic points (figure 1). They are similar to traditional generalized strategic planning and are following:

Plan

Do

Check

Act

(ISO, 2009)

Figure 1: ISO 14001(Jonsson, L. 2011)

An explanation of each step and its connection with AkzoNobel’s business policy is as follows.

Plan: Environmental management system implementation

In the first step of the PDCA-cycle, environmental goals are defined and strategic processes are created to reach them. Ideally those targets are measurable so it also gives a framework for a control system. AkzoNobel installed sourcing managers to take care of their carbon management plan and to find new focus areas for improvement and development together with suppliers. (AkzoNobel 2009; ISO, 2009; U.S. Environmental Protection Agency, 2008)

Do: Conduct life cycle assessment and manage environmental aspects

During this step, the company begins the life cycle assessment process and determines how to manage environmental aspects. This step requires that documentation be taken throughout the entire assessment, control systems are run, employees are educated and emergency plans are established. One example of how AkzoNobel deals with this step in the ISO 14001 process is the implementation of the EU’s REACH-Project in 2007. This program involved changing the requirements and rules for suppliers which how AkzoNobel educated their contractors to manage environmental aspects differently. (AkzoNobel ,2007a)

Check: Conduct audits and evaluate environmental performance

The “check” step in the ISO 14001 involves screening, measuring and controlling all processes and products controlled by internal audits etc. AkzoNobel is very proud of its Eco-Premium Products. They give this label to new products after positive analyses of their carbon footprint. (AkzoNobel 2009; ISO, 2009; U.S. Environmental Protection Agency, 2008).

Act: Communicate and use environmental declarations and claims

During this stage, companies determine whether their goals and targets within their Environmental Management System were fulfilled. In AkzoNobel, a Product Stewardship System controls and improves all activities from cradle until gate. An effective way to follow this step of the ISO-framework is to check the current situation, and go back and find a better solution in a continuous process. (AkzoNobel 2009; ISO, 2009; U.S. Environmental Protection Agency, 2008)

Suppliers & sustainability

As mentioned previously, AkzoNobel claims to have implemented sustainability into every area of their business. As per this initiative, part of their long-term strategic goal is to build relationships and work with partners that help the company increase its sustainability. Currently, AkzoNobel requires suppliers of raw materials to adhere to certain restrictions with regards to social and environmental standards. This is laid out by the AkzoNobel Vendor Policy- a document that formulates the conditions that suppliers are legally bound to. The conditions that vendors must comply to have been broken down into four categories: supplier visits, vendor compliance letter, key management program, and sustainability focus areas. (AkzoNobel, 2011h)

Supplier visit

AkzoNobel regularly conducts support visits with their vendors. The purposes of these visits are to not only ensure that AkzoNobel’s restrictions are being met but also to provide sustainability counseling. AkzoNobel’s personnel give suggestions and act as environmental consultants to their suppliers. Continual regular visits ensure that the suppliers have implemented the sustainability measures and have maintained their new strategies. This process is laid out in the Vendor Relationship Management Framework. (AkzoNobel, 2011h; AkzoNobel, 2011j)

Vendor compliance letter

As part of the legal obligation for vendors to adhere to AkzoNobel’s business principles, vendors are required to sign the Vendor Compliance Letter. This document contains AkzoNobel’s core values as well as a framework for labor, environmental, safety, and business relations guidelines. (AkzoNobel, 2011i)

Key supplier management program

This program aims to work with suppliers to increase and improve Eco-premium solutions for their customers. Regular meetings are conducted where suppliers and AkzoNobel agree upon new products that will continue success not only in economic terms, but also environmental & sustainability terms. (AkzoNobel, 2011h)

Sustainability focus areas

AkzoNobel has developed sustainability focus areas (SFA) in order to source products and services that give the company the opportunity to significantly reduce their ecological footprint. These areas include:

Logistics & Travel

Waste Management

Packaging

Carbon Management

Renewable Raw Materials

IT

Lease Cars

(AkzoNobel, 2011h)

Climate change & AKZO Nobel

Position

AkzoNobel’s position on climate change is laid out in the document AkzoNobel’s Position Statement. This document states that AkzoNobel recognizes climate change as a man-made global issue of great importance and, therefore, it is necessary to mitigate CO2 emissions. In an effort to reduce their carbon footprint, AkzoNobel monitors, measures and studies all CO2 emissions related to industrial or production activities. Yearly, this data is compiled into reports that are in accordance with the Greenhouse Gas Protocol and provide an analysis of direct, indirect, and total CO2 emissions. From these reports, reduction goals and mitigation objectives are developed that the company aims to achieve by the following year. The 2015 target is to reduce carbon emissions by 10% (based on 2009 emissions) per ton of product and the 2020 target is to reduce carbon emissions by 20-25% (based on 2009 emissions). (AkzoNobel, 2008)

Achievements

AkzoNobel has been recognized as the global leader in sustainability in the chemicals industry. From 2006 to 2007 AkzoNobel has managed to decrease their carbon dioxide emissions from 5.2 (Million T c) to 3.3 (Million T c). From 2007 to 2008, AkzoNobel decreased their carbon dioxide emissions 1 percent per ton of production. Because AkzoNobel aims to significantly reduce their ecological footprint, they have set up a strategy to help reduce carbon-intensive processes and improve energy efficiency. Thus far, they have achieved the following:

73% of worldwide power consumption is based on zero and low carbon sources

37% of electricity in the production process is based on hydropower

Considered in the top ten percent for energy efficiency in manufacturing salt-chlorine-PVC loop- on our their most energy intensive processes

Use low carbon energy sources to produce their other two most energy intensive chemicals- sodium chlorate and hydrogen peroxide

Trying to replace fossil fuels with renewable resources such as wood chips

Assessed the eco-efficiency/carbon footprint of key products

Developed several carbon efficient solutions for our customers

Include energy efficiency and carbon footprint criteria in their investment decisions

(AkzoNobel, 2008)

Additionally, Scandinavia’s pulp and paper industry and Holland’s base chemical production are AkzoNobel’s most energy intensive production plants. These two industries combined are responsible for 82% of AkzoNobel’s total energy use and 73% of their CO2 emissions. Recently, the pulp and paper chemicals production plant shifted 58% of its energy to hydropower. Also, the base chemicals plants were retrofitted with highly “energy efficient, gas fired cogeneration units that produce steam and power”. (AkzoNobel, 2007b)

The Future

AkzoNobel has made plans to invest in creating a system that produces steam from waste and biofuels. AkzoNobel also supports implementing a cap and trade system that encourages plants to become sustainable while punishing the unsustainable ones. Their position states that they support the development and implementation of the “most energy efficient technologies” worldwide. For the future, AkzoNobel is revising their 2008 Carbon Strategy to build new sustainability goals. This strategy will include plans to reduce carbon emissions in the area of manufacturing. (AkzoNobel, 2007b)

Discussion

After reviewing AkzoNobel’s business strategy, it is clear that AkzoNobel looks at high environmental/sustainability performance as a business opportunity. The company specifically aims to produce products that are economically as well as environmentally rewarding. Currently, sustainability and climate change issues are at the forefront of the global agenda. If AkzoNobel chose to disregard these issues and continued with “business as usual” their reputation would lack the high integrity which has been a key element to their success. Because this company has managed to significantly reduce their ecological footprint, they have received several awards, media attention, and PR. This attention does not go unrecognized as consumers are attracted to companies that hold such a high esteem. Additionally, it is well known amongst the general population that chemical production as well as pulp and paper production are two notoriously environmentally harmful industries. As the general population becomes increasingly involved and aware of environmental issues, AkzoNobel’s business and purchasing decisions begin to reflect it. It is, thus, in AkzoNobel’s best interest to address the company’s sustainability and remain at the forefront of the global sustainability arena. If AkzoNobel chose to disregard sustainability issues it would, in the long-term, cause AkzoNobel to not be able to compete with its competitors in the market. This is in line with AkzoNobel’s philosophy of environmental stewardship and their understanding of customer demand as can be seen by the following AkzoNobel quotation:

[Sustainable innovation process] SIP is driven by the need for better product performance – but it’s always connected to sustainability and environmental performance. We can’t bring a product to market that is less environmentally friendly than its predecessor and expect it to succeed. Equally, a new eco-product will only do well if it also offers real competitive advantage.

(AkzoNobel, 2010a)

Regardless of the company’s attempt to address environmental/sustainability issues, AkzoNobel is nonetheless environmentally harmful. Producing chemicals, paint, paper, and pulp products is never done without an ecological price. However, AkzoNobel has made a significant effort to increase the company’s environmental sustainability as much as possible. This has been done by developing strategies, goals, and plans through rigorous sustainability planning and the success of the activities have been monitored via environmental testing. Because reductions in VOC’s, CO2, SO2, and NOx emissions have been proven, the business activities of the company are in correlation to the environmental planning.

As mentioned, companies in modern business are aware of the importance of being green. Unfortunately some of them fail to act green even though they present themselves as such. Greenpeace has set up a campaign to stop this so called Greenwashing and ask companies to: “Clean up your act, NOT your image” (Greenpeace, 2011). While surfing AkzoNobels webpage, it was clear that AkzoNobel was extremely proud of all its positive achievements but hardly mentioned when it didn’t succeed or have a bad performance. However did SOMO (Centre for Research on Multinational Corporations) make a report in 2009 about AkzoNobel to provide additional information that AkzoNobel itself might not have reported, focusing on the 2008 annual report. In this report it was stated that in 2008 the Political Economy Research Institute (PERI) of the University of Massachusetts had ranked AkzoNobel in the 85th place on the Toxic 100 Index. This index indicates the top 100 air polluters in the U.S. “on the basis of total human health hazards resulting from air toxics emissions at their facilities”. (Knottnerus, 2009). It was also noted that in 2008, AkzoNobel had not fulfilled requirements about the usage and purchase of renewable energy. Knuttnerus mentioned more cases that were not environmentally friendly, though many were old, some even stationed back in the 1980’s. Sustainability first became a fundamental principle in AkzoNobel’s business in 2004. The company had a quick success and already in 2008 it was in 2nd place on the Dow Jones Sustainability Indexes. (Knottnerus, 2009). The company has succeeded a lot in a short time and it’s understandable that some things can’t happen over a night.

From our point of view AkzoNobel could think about taking part in the “Chemical Leasing” program coordinated by UNIDO to mitigate their environmental pollution. The idea of ChL is to establish a service-oriented business model and to guide customers away from buying and using too much chemicals for the purpose of the environment. “The producer mainly sells the functions performed by the chemical and functional units are the main basis for payment.” (UNIDO, 2010)

Conclusion

After analysis of AkzoNobel’s environmental/sustainability management performance, it is clear that the company has a strong sustainable agenda that is supported by all levels of management- an essential aspect for successful implementation of business strategies. To execute this plan, AkzoNobel established an Executive Committee and a special Sustainable Development group that focuses on these matters. The main driving force for the development of this strategy is to increase long-term share holder value. The company monitors and develops both their internal production as well suppliers through the use of several sustainability tools. It was determined that AkzoNobel uses this sustainability strategy as a business opportunity as well as a means of boosting their public image. Since it was difficult to find figures or statistics that showed negative environmental performance, it is unclear whether the company adheres to Greenpeace’s campaign slogan “Clean up your act, NOT your image.” Either way, it is important that modern day companies are transparent and do not forget to report their bad performance. Transparency and honesty in business is the best way to be trusted and to avoid being classified as a “Greenwashing company”.