It’s not all about the money
Simon Braaksma - Senior Director Sustainability
From traditional banker to Senior Director of Sustainability at Philips - where Simon Braaksma was mainly preoccupied with figures - his main focus is now to leave the world a healthier place. Fortunately, he sees a growing shift to this mindset. Investors and customers are attaching ever greater importance to climate policy and at Philips, achieving ambitious sustainability targets now weighs as heavily as turnover.
You were once a banker; how did you end up in this position?
I spent eight years at Citibank. After that, I began working for Philips in the department that leverages financial opportunities and averts threats, including those concerning sustainability. In our reporting, we are increasingly explicitly including those opportunities and threats around sustainability, such as the customer demand for more sustainable solutions and the effects of climate change. Partly as a result of this, I’m constantly asking myself: “How can we improve?” Investors now inquire on a weekly basis about our sustainability efforts or our climate policy and, thanks to our reporting, we receive increasingly critical questions at the annual meetings. Rankings, like those from Sustainalytics and the Dow Jones Sustainability Index, help us become ever more ambitious. They’re very critical while also acting as an effective mirror. If you’re at the top of the rankings, that’s a great confirmation that you’re on the right path.
What makes your job so appealing?
What I like about working with sustainability is that you have to deal with virtually every discipline in the organisation: logistics, HR, production, purchasing and marketing. Plus, I have children, and I’ve always considered it important that they inherit a healthy planet.
Why do you, as a company, examine your environmental impact?
““Environmental
impact will become one of
the main reasons to purchase
products from us””
That impact is one of the main reasons to purchase products from us. In the health care sector, many customers are concerned about sustainability. Patient care comes first, followed by sustainability. People are aware that you cannot be healthy while living on an unhealthy planet. Currently, up to 20% of tender requirements focus on sustainability, and that will only continue to grow. We can comply with this by, for example, examining the electricity consumption of our appliances, which immediately makes a positive difference in the hospitals. But we’re also reviewing our own use of materials. We recently introduced a MRI scanner that is free of helium — a scarce and expensive gas — which makes it much easier to maintain.
How does your environmental impact reporting work?
We were getting more and more questions from retailers about such things as the types of plastic we use. And our customers were increasingly wanting to know more about the materials contained in their product. We didn’t have any experience with the so-called “Environmental Profit & Loss Account” for products, so we started with just a few products before rolling this out company-wide at Philips. Hospitals now routinely ask for a raw materials passport for our products. We can provide this very quickly because we already need to know so much about the exact materials in our products for our Environmental P&L reporting. Online retailers now rank our products even higher because we share our sustainability data.
How do you know where the company has its most significant environmental impact? And how do you apply this knowledge?
““We add our customers’
energy consumption to Philips’
environmental impact.””
This can be figured out quite logically: we know our sales figures, we know which materials we need for our products and we know how those materials impact the environment. We can also look at how the production process impacts the environment. Lastly, we even calculate the environmental impact of the customer who will use our product. For example, we add our customers’ energy consumption to Philips’ environmental impact. That may sound a bit crazy, but we do it because, as a producer, we can influence the product design. This means we have a responsibility to design the most energy efficient product possible. With the help of Ecochain, we’ve mapped out the environmental costs — the E P&L reporting we mentioned — for our entire product portfolio. To our great surprise, we discovered that when measured over their entire life cycle, our hair stylers, straighteners and hair dryers had the greatest negative environmental impact. Even greater than an MRI scanner. We knew, of course, that metals are very harmful to the environment because of the impact of their extraction, among other things. But the fact that “hair styling tools”, like irons, would score so high due to their high energy consumption and long-term use was new to us. You can achieve considerable environmental savings with a new design where the hair styler takes ten rather than twenty minutes to do the job. The MRI scanners consumea significant amount of electricity but because we sell fewer of them, the environmental impact of our entire company is lower than that of a hair styler
Milieukosten Philips 2019 in kaart gebracht door Ecochain.
““As CEO or CFO, you also need to
focus on sustainability. Traditional
directors will be left behind.””
After users, our suppliers have the biggest environmental impact. So we’re trying to influence them as much as possible. We discuss the impact of their product with all our business partners. This is often completely new information to them. We discuss our sustainability objectives with all our suppliers and indicate how they can contribute. For instance, we’ve proposed energy-saving options to various suppliers in Asia, which they subsequently implemented. So, we also use the experience we’ve gained with our partners. As for our targets, our ambition in 2020 is for 15% of Philips’ sales to come from the revenue earned on circular products and services. We want to be able to take back 100% of our large-sized medical equipment from our customers. By 2025, we want to extend these circular practices to all of our medical products. And none of our industrial waste should end up in a landfill (“zero waste to landfill”), with at least 90% of the waste recycled. Our methodology is available online for those who are curious. Anyone can hold us to account if they think our CO2 price is too low, for example, or even for being too ambitious.
What other decisions do you take based on environmental costs?
We’re phasing out certain materials in our products, designing more energy-efficient products and, for example, we no longer wish to standardly provide a new charger with our products. We’re also tackling our packaging. Not every product has to be delivered in harmful, high-gloss white packaging, especially if it’s distributed via an online retailer. Every department that shares in the responsibility for a product discusses its environmental impact. This has already been eye-opening for many. When evaluating our targets, we look just as seriously at our environmental targets as we do at our sales figures. Our bonuses are also linked to both targets.
Do you consider products that generate considerable sales but also cause significant environmental damage to be profitable?
In our view, such products are not profitable. Despite their financial “profit,” we believe that products like these do not create value for our customers, employees, suppliers or even our investors. That’s why our annual report includes information about the impact of our products throughout their life cycle. If our sales go up, our negative environmental impact should fall. For example, you can’t book a 2% increase in sales while simultaneously raising your environmental impact from a 7.25 to an 8. That would lead to questions from our stakeholders and shareholders. By including information on the environmental impact of our products in our annual report, the CEO and the supervisory board also provide feedback on where we need to increase our focus.
Does your CFO agree that products that are very harmful to the environmental are not profitable?
I believe that CFOs are generally a bit more traditional. But our CFO now understands the importance of taking our environmental impact into account. He regularly invites us to think about how we can create more value in the broad sense of the concept. He also sees that the market is evolving. Even the most traditional investors are now asking questions about environmental impact. We’re even working towards integrated profit & loss reporting. This means that the environmental impact of our products during the production and use phases will be converted into a financial value. Soon, we’ll deduct this value from our profits. We would also like to calculate our social impact. Our CFO is already examining Philips’ value creation more broadly. We’ve identified different value elements for ourselves that he incorporates into his decision-making.
Will CFOs have more broad-based responsibilities than just financial ones?
Absolutely. In the near future, the financial, social and environmental impact reporting will be the CFO’s responsibility, enabling him or her to become the Chief Value Officer. It’s all value creation, profit and loss. I already see that happening; it won’t even take five more years. Even traditional investors are asking: ‘How do we create value beyond financial value?’ CFOs and other directors need to have a vision on the issues of sustainability, and they must be able to report on and account for their vision. At Philips, we already have a good story to tell, and as first movers, we’re better prepared than our competitors. Traditional directors will be left behind. As the CEO or CFO, you also need to focus on sustainability.
What ambition should a CEO have?
In just a few years’ time, your company will cease to exist if you’re only looking at the financial figures. As a director, you’ll have to focus on the bigger picture. Shareholders, financiers and customers, as well as employees, all want to see broader value creation. Who wants to work for a company that damages people or the environment? Take the CO2 pricing, which is inevitable. If you fail to get ahead of it, you’ll go bankrupt. Start preparing for the future because it will be here much sooner than you think. Think about where your impact lies and begin there. And take a good look at the companies around you, at what they’re already doing. It’s fairly virgin territory. But have a look at an impact report from ABN AMRO, for example, or an Integrated Profit & Loss report from Philips, and see if you understand it and what you can learn from it.
Headquartered in the Netherlands, Philips is a leader in diagnostic imaging, image-guided therapy, patient monitoring and health informatics, as well as consumer health and home care. Its products range from MRI scanners to hair dryers.
