For Vattenfall, a Sweden-based energy company, sustainability is crucial to achieving competitive advantage and an integral part of doing business. The company has three products—electricity, heat, and gas—and its core markets are Sweden, Germany, and the Netherlands.
How, exactly, is sustainability influencing the company’s strategy, practices, and governance? The Boston Consulting Group’s Ingrid Velken sat down with Andreas Regnell, Vattenfall’s head of strategy and environment, and Agneta Rising, the company’s head of environment, to discuss how the company is integrating its sustainability agenda into its overall strategy. The interview was conducted as part of an ongoing research initiative by BCG and MIT Sloan Management Review. The purpose of the interviews is to gather diverse views on the ways that sustainability is driving change in business strategy, practices, and leadership.
Ingrid Velken: How does your company define sustainability?
Agneta Rising: We use the “triple bottom line” definition: economic, social, and environmental impact.
Andreas Regnell: It can also be presented very simply as caring about our people, planet, and profit. We work toward ensuring profit for the company while limiting our environmental impact and maintaining security of supply (which is a prerequisite to staying in business).
Has your definition of sustainability changed over the years?
Rising: The focus narrowed down to climate change and environmental implications for a few years, but we are now back to a broader focus on the triple bottom line. Some of the issues that drive the way we approach sustainability will never change. For instance, given the nature of our business and our carbon footprint, we will always focus strongly on carbon dioxide emissions and climate change.
For some of our business units, the social aspect is also very important. For example, our nuclear business strongly depends on social considerations. Without local support and acceptance, it is impossible to build a solid position in nuclear energy. Social considerations are also present in the coal and biomass fields—particularly, in relation to sourcing and the selection of our partners.
Regnell: It is becoming more and more clear what sustainability means to business. I believe that most of our employees are familiar with the expression, and even more important, that they are able to say how it translates for their specific business unit and operations. For instance, this year is the first time the environmental risks are being collected and evaluated using the same process as all other business risks. It used to be a separate process, but we have realized that environmental risks and other business risks belong together.
In the same way, all business units have sustainability KPIs that are relevant to them, and the head of each unit is responsible for these numbers. Just like all other KPIs, these have an impact on performance evaluations and bonuses, because I believe that sustainability considerations are not very different from other key performance measures. Now that we have a sustainability platform for discussing and evaluating sustainability per unit, I believe that in the longer run, this will be more and more integrated in the overall business review.
You mentioned that sustainability needs to be translated into real business implications. How do you achieve this?
Rising: As a part of our sustainability platform, we have developed a tool that we use to collect standards, obligations, recommendations, and business performance for a broad range of sustainability-related dimensions—from CO2 emissions to social considerations. For each business unit, we are able to evaluate performance on these dimensions. This allows us to identify risks and opportunities: risks of lagging behind, risks of not complying with new standards, and risks of being outcompeted by others; and opportunities in fields in which our business units outperform the competition.
Regnell: Our business units have different levels of maturity on sustainability issues, depending on how long ago they started to act on them. This evaluation allows us to make sustainability a very tangible consideration across the board.
What kind of sustainability risks do you face?
Regnell: As Agneta mentioned, sourcing and selection of the right partners is a rather complicated question. We establish standards and procedures to ensure that we work with the right suppliers and that our suppliers do not operate in a way that is misaligned with our (or international) standards. It is so easy to receive bad publicity and lose credibility in the increasingly transparent world we live in. A company’s public trust can be severely damaged if its partners make wrong decisions related to working conditions or waste treatment, for example. And without public trust, you cannot do anything. Our whole business depends on it.
And what are the most important opportunities that sustainability opens up for your company?
Regnell: Sustainability allows us to continue both to be profitable and to grow. It helps us be a responsible business and is crucial for our competitive advantage.
So would you say that you have developed a business case for sustainability or, rather, that you are building sustainability into your business cases?
Regnell: Sustainability considerations are a prerequisite for staying in business: if we do not have a sustainable business, we do not have a business in the long run. That is why we are not overly focused on translating the positive values or costs of sustainability into numbers when we are making the case for a business decision. The reasons for letting sustainability concerns drive certain decisions are often preeminent. For example, we have decided not to build new coal-fired power plants without a carbon capture and storage strategy. To support this decision, we do not need to quantify the cost of the risks caused by the CO2 that we would emit over the next 50 years. Similarly, we have opted in favor of developing a biofuel strategy, because firing our plants with pure coal is simply not a long-term option, and we need to ensure a power supply for the future.
But there are cases in which we evaluate a business opportunity through the prism of sustainability. A good example was our biomass-sourcing project in Liberia. We are spending time evaluating the cost of ensuring that we do it the right way and assessing the risk of not applying sustainable solutions. The sustainable approach definitely makes business sense. In addition, there are significant positive social effects, which is clearly something our employees value, and this helps create a “license to operate” in new areas. The fact that we now have a proven track record of how to operate such projects makes us a more competitive bidder for future contracts.
In your industry, what considerations are the strongest drivers of sustainability?
Rising: There are many. Customers are clearly an important force. They increasingly demand energy that is produced in an acceptable way—in addition to its being reliable and cheap. Also, governments and the European Union play a significant role in setting standards for our operations.
We’ve talked about the importance of complying with standards, but how do you approach problems when no standards exist yet?
Regnell: It is very difficult to act before standards are set, but we cannot afford to wait and be outperformed by competitors who are more proactive. Situations like this generate dilemmas, because having rules that are significantly stricter than the competition can be a source of disadvantage. That is why it is crucial to try to work together with the industry to ensure that there is a level playing field. An example of this is the Better Coal initiative, for which we are working with competitors, NGOs, and regulators to agree on similar standards for all.
How do you institute sustainability priorities and practices throughout the company?
Rising: Management attention is important…
Regnell: …as well as the capacity to demonstrate concretely what sustainability means for business—in every business unit. This is why it is so important to have someone (for example, a head of environment) in charge who understands the business implications and is a true partner for the business. If this is achieved, then the whole organization will realize that sustainability is just smart business. Furthermore, we believe that it is important that all aspects of sustainability (environmental, social, and economic) are integrated into our business and are not handled separately.
Previous interviews in the series are available on http://sloanreview.mit.edu/innovation-hubs/sustainability/.