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Environmental Profit And Loss: And the Triple Bottom Line

Wed, 01/07/2015

By Susanne Stormer , Vice President, Corporate Sustainability, Novo Nordisk and Annie Lancaster , Senior Consultant, Salterbaxter MSLGROUP

Novo Nordisk has been called the ‘world’s most sustainable corporation’. Here, Susanne Stormer – Vice President, Corporate Sustainability – describes to Annie Lancaster how measuring the company’s EP&L is just one strand of a corporate philosophy that balances economic, social, and environmental perspectives.

Tell me about how the EP&L fits within Novo Nordisk’s broader philosophy.

SS: For more than 25 years our approach to sustainability has been built on the philosophy of the Triple Bottom Line. This gives us a 360° lens on how we make decisions: we consider the potential implications for the environment and for society, as well as the financial dimension.

This way we are able to make more balanced choices; by recognising their implications, we can take action to mitigate any potentially negative impacts.

On the social side, it is possible for companies to have a net positive contribution. In the case of Novo Nordisk, we benefit patients through the products that we provide; we can develop the skills of our employees so we have a positive social dimension there. If we were to do a social P&L it would most likely be a positive one.

But on the environmental side there is a cost. We need to understand that cost, and recognise that if you consider the externalities, some of these costs are not currently priced adequately.

The link to the EP&L is clear. By default any company using resources to produce its materials has a negative environmental footprint. So how can we reduce that negative footprint? That is what we’re trying to answer with the EP&L.

And what have you learned through this approach?

SS: Inspired by Puma’s activities, the Danish Environmental Protection Agency (EPA) wanted to look into whether it would be possible to do an EP&L for a company such as Novo Nordisk.

So we agreed to be a pilot, working both with the EPA and Trucost. Over several years we’ve been reporting on our environmental performance, but we wanted to go further – to take a value chain approach. So we looked into our supply chain, going several steps deeper than our standard reporting.

What we learned when we added it all up was that of the total cost of our environmental impact, about 87 per cent, is generated through our supply chain. Only the remaining 13 per cent happens within the company’s own operations.

Having understood that the majority of environmental impacts are happening outside of your direct control, what steps are you now taking to mitigate your impact?

SS: This is where it ties in with our ongoing sustainability initiatives. For over a decade we’ve been managing our supply chain on the basis of responsible sourcing – asking our suppliers to meet certain standards and requirements. Now we’re seeking to understand what kinds of suppliers generate the biggest environmental impacts, and what we can do about it.

We are working with our suppliers to help them be more sustainable. We’ve found that our suppliers are keen – they see the benefit. And it translates into a better financial bottom line because it can be tied to energy savings, or conversion to renewable energy, or smarter processes in so many ways.

As the first pharmaceutical company in the world to run an EP&L account, have you experienced challenges in being the front runner?

SS: I think any innovation initiative such as this will have challenges. One we’ve faced is a practical one – how do you find the data for a robust analysis?

As a science-led company we are generally quite data-driven in our approach, and the fact that we’ve been working with data reporting on our environmental and social performance for many years has facilitated that process, but clearly Trucost needed to go into lots of what you might call ‘sensitive data’ – for instance data relating to financial interactions with suppliers – so it requires a large degree of trust in your partners.

Another challenge, having understood the data, is what are you going to do about it. If you’re just going to say ‘oh, that’s interesting…’ it’s a pointless exercise.

A third challenge is how to translate the impact into a value in a monetary sense. We don’t have a currency for these things; the closest we get is with carbon, because there is a price on carbon. When it comes to something like water – how do you put a real cost on the availability of fresh water?

Given these challenges, was it difficult to convince the whole company that an EP&L assessment was the right road to go down?

SS: When reaching out internally in order to compile the data needed, we were aware that we were asking people to do a lot of extra work on top of their already busy schedules. When you are persuading people to go out of their way to dig out data, they have to appreciate the reasoning behind it.

Here, again, we benefited from the fact that we have been working with responsible sourcing and data analysis for many years. As a result of our Triple Bottom Line philosophy, there is an understanding within the company of the importance and value of sustainability.

Nevertheless, you need to be able torely on good working relationships, not just with external partners but with colleagues.

A lesson we’ve learned is that while you can push your way through an organisation to get the information or results you want, if you are unable to convince internal partners that it is meaningful and value-creating for them, you’ll have a very hard time.

Having gone through that process, do you feel the EP&L assessment has generated real value?

SS: It certainly reveals perspectives that we previously may not have thought about. For years we’ve been working at reducing our environmental impact, so we have a pretty good idea about how that impact is split out amongst our own operations. But looking at carbon emissions as an example, we began by focusing on the emissions generated from production, which was the immediate largest impact, and then worked our way into managing emissions from transportation of products and people.

Now we can see that production, and indeed the direct impacts of our activities, is actually only a small contributor to total carbon emissions – with the majority coming from other parts of the supply chain. That kind of information is a real eye-opener, and facilitates conversations about what we can do across all the functions of the business – from offices all the way through to the selection of materials or processes. It becomes a much richer and more nuanced discussion than it would be were you just looking at your impact from a ‘helicopter’ perspective.

The EP&L remains a somewhat ‘niche’ measurement & reporting tool at current; do you think we will see a broader uptake in the future?

SS: The expectation is definitely growing for companies to be accountable for their performance throughout their value chain. In that regard the EP&L is most likely the best method. But then again, it’s only one dimension – looking at environmental performance.

What would be more beneficial would be to be able to also look at the social and economic dimension of a company’s contribution.

And that ties into some of the other approaches we’re looking at in Directions – such as Net Positive.

SS: Novo Nordisk hasn’t made a formal commitment to being Net Positive the way some other companies have, but that is exactly what we are trying to achieve with the Triple Bottom Line: our impact should be a net positive one. If it weren’t, the world would be better off if we weren’t here.

By implication I would say that every company should be able to say its contribution to global society is a net positive one. Otherwise we are in big trouble!

Read more insights on sustainability from leaders around the world with our report Directions 2014: New Sustainability Thinking

Susanne Stormer

Susanne sets strategic direction for Novo Nordisk as a sustainability leader and pioneer in demonstrating long-term business value of incorporating economic, social and environmental perspectives into its market proposition. She and her team manage sustainability-driven programmes, the Annual Report, engagements with ESG investors and stakeholders in the professional sustainability community, and communicate the value of the company’s Triple Bottom Line business principle. Follow her on twitter: @susstormer

Annie Lancaster

Annie has been a part of Salterbaxter MSLGROUP since May 2014, she previously worked as a research analyst with The Nielsen COmpany. Follow her on twitter: @AnnieMWL

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