KPMG - Sustainability as a Business Strategy

SUSTAINABILITY AS A BUSINESS STRATEGY PROJECT PARTNER

Anne-Cecile Moreno

B U S I N E S S I N T E RV I E W

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ith growing pressure on companies to focus on their sustainability strategies, Jerwin Tholen and AnneCecile Moreno at KPMG have been tasked with helping companies to achieve net-zero.

Jerwin Tholen

Jerwin Tholen, Partner Sustainability at KPMG Netherlands, and Anne-Cecile Moreno, Director in KPMG Global Climate Risks and Decarbonisation Hub, share their thoughts on net-zero, greenhouse gas emissions and decarbonisation.

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Net-zero commitments have flourished over the last 18 months, so what would they say have been the main drivers? Anne-Cecile begins, “The main drivers span different dimensions.

Investors, for example, are putting on the pressure.

A couple of years ago, BlackRock sent personal letters to companies to ask them to consider climate change and its impact. In November, a transformative COP in Glasgow was a follow-up to the Paris Agreement (COP21). It aimed to implement the commitments of the Paris Agreement. We also had the sixth report of the IPCC a few months ago, which is pressing governments, companies and society to act on climate change. We see governments making net-zero commitments, such as China, which has said it will reach net-zero by 2060, as well as Japan, Korea, the UK, and Europe. The governing bodies are putting increased pressure on climate risk first; emissions and decarbonisation are following.”

Jerwin continues, “Many companies enter into 4

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conversations with their banks on refinancing debt and new loans which are more sustainability-linked and have clear requirements for the companies to reduce their carbon footprint. The banks are making demands of the companies to have a decarbonisation plan that goes beyond their current plan, stretching them to put more skin in the game. It is a real opportunity to look at finance differently.”

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Net-zero presents several challenges for companies. First and foremost, it should include value chain emissions (scope 3) to be meaningful and credible. Anne-Cecile says, “Challenges include the economy and society. The world has been releasing greenhouse gases into the atmosphere for more than 100 years, and now has to move close to zero within 20 to 30 years. Having the right regulations, innovations, and incentives in place presents further

“Digitalisation plays a vital role in every stage of any net-zero strategy” Jerwin Tholen, Partner Sustainability at KPMG Netherlands

challenges, but the main challenge is time. You have to understand what you need to reduce by measuring your carbon footprint, and then you need to act quickly to reach net-zero by 2050.”

It would be best to look at the entire value chain from a company perspective. Jerwin explains, “How do you influence your suppliers when you do not necessarily have direct control? You are just one

client, so how do you persuade them to reduce their carbon footprint? On the other hand, what can you do to make the consumer use the product differently with less hot water, lower electricity use, and more efficiency? The net-zero of companies is therefore determined by many things they cannot control, and that complexity is a challenge.”

Intuitively, companies often know the carbon footprint of their value chain, but before they measure it, they need to identify which parts they can influence. This takes time, and technology is required to get it right. Jerwin says digitalisation plays a vital role in every stage 7

of any net-zero strategy. He continues, “From procurement data to field data, digitalisation has a role to play. Smart data, including data obtained through advanced remote sensing, gives farmers worldwide information on how to make their farming systems optimal based on the weather patterns, which products to grow at which time of the year, where to plant shade trees, how to minimise

emission reductions. They enable companies to run simulations on how to structure a low emission network whilst running a profitable business.

“To lower the carbon footprint is not always the primary driver in that case. The primary driver could be to optimise shipping routes, for example. Therefore, the classical supply chain

“It is something you obviously need to do for society, but as a business, if you are not reducing your emissions, you will be potentially lost in the future” Anne-Cecile Moreno, Director in KPMG Global Climate Risks and Decarbonisation Hub

fertiliser and pesticides, and how to have better price expectations.”

Companies often have hundreds and thousands of suppliers, which need to be trained to understand what scopes 1 and 2 mean for them, and how they can be measured and reported using digital tools. There are multiple lenses to these digital solutions, bringing a scope of benefits such as cost reductions and optimisation.

Jerwin adds, “You don’t always need new technology. Some supply chain tools like AIMMS, Llamasoft and other network optimisation tools can help to drive the carbon 8

optimisation tooling is now used to bring another layer to articulate the need for optimisation.”

It helps to have a collaborative platform where you can see what others are doing in another part of the world. Anne-Cecile says, “The collaboration is between the suppliers, but it can also be within the whole sector. Companies are joining forces to develop tooling solutions, so there are multiple lenses of collaboration.”

Jerwin adds that one of the difficulties companies face is which technology to choose.

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“The commercial and carbon footprint reductions go hand in hand. The challenge lies in finding new pathways where a company needs to pay to reduce its carbon footprint” He explains, “There is so much technology out there. At KPMG, we have built a platform for farmers that categorises all of the optimisation tools available to them to help them navigate the technology they require for a particular business challenge.

We also help farmers in Africa, Latin America, and Asia to optimise their farming practices using technology.

Agricultural trainers are instructed on how to bring technology to the farmer.”

In many cases, companies focus on upstream emissions, particularly category 1 procurement emissions (i.e., emissions from all the purchased goods and services). Anne-Cecile explains, “When companies start measuring their carbon footprint, they categorise their value chain emissions using the Greenhouse Gas Protocol. Upstream emissions include everything around logistics and procurement, and downstream is around the customer, use of the sold 10

product, and end-of-life emissions.

For many sectors, the emissions are generated very early in the value chain, so they are largely upstream, and these emissions are embedded in what you buy.”

Companies are therefore focusing on procurement because it is something they can influence. Jerwin adds, “There are often quick wins if you help your suppliers reduce their energy spend, then they can lower the product’s price for you. The commercial and carbon footprint reductions go hand in hand. The challenge lies in finding new pathways where a company

needs to pay to reduce its carbon footprint. You need to get quickly to the point where you can influence.

The natural procurement cycle is important because you can only reduce something in your procurement cycle if you have a new contract and can influence your supplier. A five-year contract presents fewer opportunities to influence because you have agreed on the terms over five years. If you know when a change is happening, that is the moment a carbon discussion can happen. If you don’t do it, you could lose the opportunity to influence. Everyone has to drive their emissions down fast, so you

might have to invest more in the long run.”

So, what is required to decrease these emissions? Anne-Cecile answers, “Aside from technology, you need to understand how your contracts are structured and their end term. If you have a contract ending next year, you want to discuss ahead of the new contract emission measurement, target setting, and what can be done to reduce emissions. In addition, connecting with your suppliers and the sector more broadly enables companies to share their best practices, so everyone can 11

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work towards decreasing their emissions.”

Understanding where to invest depends on the type of industry you are in, whether it is an ingredient you need to tackle or a packaging material. Jerwin continues, “You might need to focus on using the lowest footprint packaging material by making it lighter, replacing it, or reviewing its production process

but it is about today versus tomorrow. In the future, it will present new opportunities, new jobs, and new ways of thinking.”

Anne-Cecile believes decarbonisation will become an even bigger topic in the next few years. She adds, “It is great that everyone is moving towards decarbonising their suppliers, but what about the impact of this plan versus people? For

“If you are not reducing your emissions, you will be potentially lost in the future” for a more energy-efficient option.

Optimising scopes 1 and 2 will result in better packaging materials and the company becoming more profitable, and, in turn, you strengthen your relationship with that supplier. You need a lot of data and insights to be successful.”

example, suppose you want your suppliers to access renewable electricity, such as solar panels. In that case, they need a lot of land, leading to greater competition between food and energy production, so how will the plan fit with the local economy?”

Anne-Cecile views reducing emissions not in terms of sustainability, but more from a business strategy point of view.

She explains, “It is something you obviously need to do for society, but as a business, if you are not reducing your emissions, you will be potentially lost in the future.

Being future-proof is key. It costs money to have digitalisation, data, engagement and innovations,

Jerwin agrees that such complexity means you need an ecosystem of tools, technologies and alliance partners to get things done. He explains, “Every challenge may have a different solution, and all major technology providers are bringing in ESG lenses. We help our clients to navigate this landscape. We are technology agnostic, which means we do not sell a specific 13

solution, but work with a select group of highly accredited alliance partners that are leaders in their fields of expertise, including Microsoft, Salesforce, ServiceNow, IBM and Appian, and can bring our tools, like KPMG CarbonView, built on our proprietary Sofy platform for data and analytics and workflow management, if there are no tools available.”

Two of KPMG’s alliance partners include Appian and Coupa Software.

Jerwin enthuses, “The Appian Low-Code platform offers organisations the opportunity to break down corporate silos that hinder ESG management. With data sources seamlessly integrated and crossfunctional workflows orchestrated and automated, ESG processes and management are simplified. Appian enables companies to quickly address evolving ESG criteria, including managing changes to processes, inputs collected, and reporting designations.

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“The Appian Low-Code platform offers organisations the opportunity to break down corporate silos that hinder ESG management. With data sources seamlessly integrated and cross-functional workflows orchestrated and automated, ESG processes and management are simplified. Appian enables companies to quickly address evolving ESG criteria, including managing changes to processes, inputs collected, and reporting designations” Jerwin Tholen, Partner Sustainability at KPMG Netherlands

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Appian for a Sustainable Supply Chain

In 2022, organisations across industries will continue to improve agility and resilience across their supply chain ecosystems. With ongoing disruption caused by the pandemic, changing customer expectations, an evolving technology landscape, and the demand for more sustainable practices, supply chain managers need efficient and transparent supply chain and environmental, social, and governance (ESG) processes more than ever before.

According to Forrester’s State of Environmental Sustainability in the Fortune Global 200 report, sustainable targets are top of mind with companies across industries taking these actions:

58%

55%

23%

Appointing a sustainability lead.

According to Forrester’s analysis, 58% of G200 firms have created a position for a director, VP, or executive to lead the sustainability program.

Establishing GHG emissions reduction targets.

55% of G200 firms have established a target date for the partial or total elimination of GHG emissions.

Setting carbon neutral dates.

23% of G200 firms have set a date by which they will reach carbon neutrality, typically 2050 (in line with the goals of the Paris Agreement).

Manufacturing’s role in supply chain sustainability.

Most manufacturers are taking a look at their supply chains as a core area for improvement in the move toward sustainable operations. On top of the demand for more sustainable practices, having a sustainable supply chain is a competitive differentiator. And as an added benefit, good sustainability practices reduce risk overall. While sustainability is often at the top of manufacturers’ mission or purpose statements, too many lack visibility and don’t have the right processes in place across the supply chain to achieve their goals.

Incremental steps toward a sustainable future.

While there is no one right way to approach sustainability, Forrester advises looking for ways to make incremental changes that help reduce waste and boost efficiencies.

Organisations that want to increase resiliency and sustainability in their supply chains are using low-code tools for agile change. The Appian Low-Code Platform provides the capabilities and centralised view of data that companies need to make well-informed short- and long-term sustainability decisions.

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Unified dashboard view of carbon footprint data in Appian.

APP

A unified platform for a simplified approach to ESG. Our platform integrates data from anywhere—no migration required—and optimizes processes by automating workflows with intelligent document processing, Robotic Process Automation (RPA), and more to simplify your approach to ESG initiatives: •

Adapt to evolving regulations. Quickly address evolving ESG criteria by managing process changes, inputs collected, and reporting designations.

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Embed ESG in automated processes. Orchestrate people, systems, data, and bots in a single workflow to streamline ESG activities.

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Integrate with ESG data sources. Easily integrate with pre-existing data systems and virtually any third-party data source, including ratings, benchmarks, and analytics providers—no data migration required.

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Ensure visibility and control. Gain a single, unified view of all your data in a secure platform to easily share ESG status with stakeholders. Quickly access data to support audits, meet compliance requirements, improve ratings, and escalate issues while maintaining data security.

For more information about ESG visit: https://appian.com/solutions/use-case/corporate-esg-strategy-and-measurement-platform.html For more information about Appian for Supply Chain: https://appian.com/solutions/use-case/supply-chain.html

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Build a Sustainable Supply Chain With Coupa, your business spend can create measurable impact for both the bottom line and the world. By optimising supply chain routes and suppliers, your business can minimise its carbon footprint.

Support Executive Goals for Ethical Business Practices Make business spend a lever for change to keep your company positioned to attract and retain the best customers and talent, and to support executive ESG commitments. Supercharge initiatives with proper governance across the supply chain to deliver greater impact.

Minimise Supply Risk in the Value Chain Develop a multi-level third-party risk assessment model that includes each third party and their relevant fourth parties.

Coupa’s global alliance with KPMG enhances our ability to help clients truly transform their business spend management processes.

To truly gain an ESG advantage, companies should go beyond compliance, combining data with technology. KPMG’s Powered Procurement, enabled by Coupa’s Business Spend Management tools, embodies this mindset by empowering procurement teams with the necessary insights to make responsible, datadriven business decisions to turn ESG aspirations into action.

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www.coupa.com

“Coupa help companies make their procurement processes smoother and play an important role in collecting supplierspecific data to optimise their carbon footprint”

At the moment, Coupa is mainly used in procurement and supply chain optimisation. They help companies make their procurement processes smoother and play an important role in collecting supplierspecific data to optimise their carbon footprint.”

With many companies continuing to focus on the measurement of emissions, Anne-Cecile worries that they are spending too much time on this as opposed to leveraging what is already in place. She explains, “Suppliers should primarily focus on the purpose of the measurements, which is to reduce their carbon footprint. Measuring is great, but reducing should be the end goal.”

Jerwin adds, “You don’t need to have perfect data to know where changes should be made. If you think the data is inaccurate to go to action, you will fall short of the timelines. It would be best if you moved intuitively. The data that tells you when tenders change is more helpful than an accurate estimate of your carbon footprint.”

The leaders started measuring their value chain emissions more than four years ago, and are now looking at supplier-specific data. Those not part of the leading pack require a tool that will allow them to go to the next level. Anne-Cecile concludes, “The leaders do not necessarily have the tool in place just because they were the only ones focusing on it. I feel that the companies waking up today will get to the same level quicker.”

For further information on KPMG Netherlands, visit www.home.kpmg/nl 19

www.home.kpmg

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