For the Denmark-based biotechnology company Novozymes, the United Nation’s Sustainable Development Goals (SDGs) serve as an inspiration. More than 190 countries of the U.N.’s General Assembly in 2015 adopted the SDGs, comprising 17 goals including ending poverty and hunger.
For Novozymes, combating climate change is a major priority among the SDGs. The company has incorporated a sustainable approach to business into its strategy, technologies and products. Novozymes works with its suppliers to carry forward that approach all the way to their end-customers. For example, it has devised ways to lower the temperature needed in washing machines, saving energy and water. The $2 billion company (2018 revenues) helped save 88 million tons of CO2 in 2018 through customers’ applications of its products. It is also working to help build sustainable cities.
Peder Holk Nielsen, president and CEO of Novozymes, says the company sees the SDGs as both an inventory of business opportunities as well as inspiring goals that get the best out of the organization. In this interview with Knowledge@Wharton, Nielsen explains why Novozymes decided to align its business strategy with the SGDs, the challenges in executing such a strategy and what other firms and CEOs could learn from the company’s experience.
An edited transcript of the conversations follows.
Knowledge@Wharton: Peder, you spoke at the U.N. Climate Action Summit about Novozymes committing to keeping the temperature rise due to climate change at less than 1.5 degrees Celsius. Why was that an important goal?
Peder Holk Nielsen: I don’t need to belabor the point why climate change is one of the most critical issues – maybe the most critical issue – man has ever faced, but I’m absolutely sure it needs to be dealt with. The emission of climate-changing agents like CO² is something that both companies and governments need to take seriously. And we need to do it fast. Companies also need to play a role in this. I actually see it as being good business.
When we set ourselves that type of goal, this usually also leads to better efficiency and therefore better competitiveness. While we’re doing the right thing for the planet, we’re also doing the right thing for Novozymes and for its other stakeholders who also take an interest in returns from the company. So, for us, it’s also business. It’s a way of driving our own performance. It helps us steer our innovation pipeline towards something that is long-term and sustainable, and therefore has a lower risk. Investors appreciate this.
At Novozymes, we have formulated nine goals, of which three are financial and six are non-financial. One of these goals is to look at the CO² emission savings that our technology achieves compared to the best available alternative technology. We do a lifecycle analysis on all our product offerings.
Since the mid-1990s, we have been on a journey of trying to give our operations a lower footprint and developing solutions that would help our customers become more energy efficient. The first wave for us was to get our own house in order and making sure that we did not leave an unnecessarily large footprint in terms of our products or the way we operated. The next wave was to look at the value of our products from a sustainability point of view.
I can give you an example of something we did. We happen to have our headquarters and roots in Denmark, where we also have a large plant. Years back, the Danish government created a market for renewable electricity. We made a deal with our supplier of electricity that they would help us in our plants to become more energy efficient. The deal was that for every dollar we saved with reduced consumption of electricity, we would spend 50 cents on procuring the slightly more expensive renewable electricity, and we would put the other 50 cents to other needs in the company, or to the bottom line.
“It helps us steer our innovation pipeline towards something that is long-term and sustainable, and therefore has a lower risk. Investors appreciate this.”
We thought that journey would take almost a decade. Within less than three years, we had made a total transformation. So after three years, we were on wind turbine power in Denmark. At the same time, we had put as much money to the bottom line. That’s a good example of how, if you tee up these goals, they will not only be doing the right things for the planet, but it’s also good business to save on the inputs that we all know will be more problematic. It’s not only energy; it’s also water and other inputs. If you can save on them in your own operation, you have a more sustainable operation, but you also have a better business.
Novozymes has a footprint of close to a million tons of CO² per year. But we saved 88 million tons of CO² in 2018 through our customers’ use of our technologies and products. That is audited by PricewaterhouseCoopers. That means our contribution through our activities is a hundredfold larger than the footprint we have. The bigger impact is to be had through the improvements we’re delivering to our customers.
It’s also important for Novozymes to take the lead, then, and inspire other companies and customers to try to do the same things because it might also create the demand for the technologies and products that we are supplying.
Knowledge@Wharton: What were the main obstacles you faced as the strategy evolved from the mid-1990s, and how were they overcome?
Nielsen: I have a management team and a non-executive board of directors that is buying fully into this strategy. I wouldn’t call it obstacles, but when you start with the SDGs, the difficulty is to make them tangible and to get them down to a level where you can operationalize them and turn them into programs and projects and activities. It’s easier to take a simple quantitative financial goal and turn that into a set of actions. It’s more difficult when you look at some of the more ambitious – and, to some extent – more amorphous SDGs.
Knowledge@Wharton: Were your customers also willing to adapt to more sustainable ways of doing business? Or, was there any resistance there? And if so, how did you overcome it?
Nielsen: All our stakeholders, and customers are a very significant group, are buying fully into this. For our employees, this is one of the most powerful elements of their motivation and their desire to work for the company. Most shareholders look at this as risk mitigation. We cater to long-term shareholders in particular, and for them sustainability and sustainable solutions is risk mitigation on a 10-15 years horizon. Then come the suppliers. We’re pretty tough with them. Luckily, in most cases, we have a lot of suppliers to choose from and we choose those that are committing to our way of looking at sustainability.
Many of our customers are excited about our sustainability profile. There are also customers who reward us with more business because we have a long-term corporate approach to becoming a more sustainable company and a company that delivers on the SDGs.
There are some customers who only look at the cost performance of what’s being supplied and they couldn’t care less about what Novozymes thinks about SDGs. We’re trying to talk to these customers, both to let them know what we’re doing, and also to inspire them. I find more and more companies are receptive, particularly in our parts of the world. I also find larger companies to be more receptive.
Knowledge@Wharton: You have focused not just on Novozymes, but also across the value chain, trying to spread these values. Could you give some examples of how that has been happening?
Nielsen: We’re working with our suppliers. The majority of our input as a biotech company is ag-produced – soybeans and cornstarch. [Another input is] energy. The major part of our engagement is with our customers and their customers, and eventually, [end]-consumers.
One example is when you wash your clothes, Novozymes, in all likelihood, is inside the detergent formula that you’re using. Our products have consistently, over the last 30 years, helped us take wash temperatures down. The effect on the energy consumption in a household by taking wash temperatures down from 40 centigrade to 30 centigrade is quite large.
We are working with our customers, consumer groups and the media to educate consumers that technologies can handle dirt and cleanliness at 30 degrees C. We will be pushing lower, I’m sure. That’s a good example of how we try to integrate along the chain, try to pass on the message of the capabilities of the technology that will lead to a changed behavior in most consumers and eventually lead to use less energy and possibly also less water.
Knowledge@Wharton: What are some of the more interesting technologies that you see on the horizon that can help business be done more sustainably?
Nielsen: We are working to lower wash temperatures, [and lower] water consumption. We’re working to improve on extraction yields in many industries, such as in grain milling and palm oil extraction. At least in the laboratory, we’re seeing up to a 5% improvement in extraction yields, while lowering the energy [consumption]. The proposition is you can use 5% less land with fewer effluents for the same amount of oil [extraction]. I think that’s a good example of things you can do with these types of oils.
Knowledge@Wharton: Are there companies that you collaborate with that are doing interesting work in this area?
Nielsen: Yes, there are many companies that are contributing to this agenda, both by virtue of their technologies and by virtue of their values – what they want to do for their customers and their [end]-consumers. Those are the companies with whom we are forming partnerships and alliances. The first word in our “purpose statement” is “together.” So, that’s an important part of our genetic makeup at Novozymes.
The last sentence of our purpose statement is “Let’s rethink tomorrow,” which is a call to action. Often you tend to believe that you’ll reach a goal through some marginal improvements. While marginal improvements should not be ignored, and they’re probably also important in striving for the 17 Sustainable Development Goals, many of them will need a total rethink of how we do things.
“Somehow we have ingrained in our minds that the bigger bottle is better than the small bottle, even though rationally, that’s not true at all.”
So, rather than trying to improve on the individual steps of processes that are well established, we call out that sometimes you should probably look at the entire process and see whether that’s the right process from the very beginning, and then maybe try to re-engineer that, rather than optimizing it.
Knowledge@Wharton: Could you give me an example of rethinking an entire process so that you almost re-imagine it, rather than just tinkering around the edges?
Nielsen: When you start to rethink the processes, then that also quickly becomes a question of capital investments, and therefore things slow down. Coming back to the simple act of washing clothes, think about how consumers all over the world carry big buckets of liquid detergents or big bags or boxes of powdered detergents. When you think about how much of that could be compacted, it’s very difficult to get that compaction through the retail, because eventually we all shop for volume. Somehow we have ingrained in our minds that the bigger bottle is better than the small bottle, even though rationally, that’s not true at all.
The emergence of e-tail is changing that, and it’s enabling that. A lot of new technologies would be very difficult to pass through the old chain onto consumers but [through online commerce that] starts happening. Our technologies can enable much more compaction than what we’re seeing. We could get wash loads into very small volumes, which would enable first of all a lot of savings in water, transportation, and plastic, but also allow for the e-trade. Another example relates to some of the processing industries where it probably becomes a bit too technical for this discussion, but where we have been able to redesign an entire process, rather than optimizing individual bits and pieces.
Knowledge@Wharton: In addition to companies, it’s also very important to look at how cities function in a sustainable way. I wonder if you have any thoughts on how companies can work with cities in a way to change life and make it more sustainable?
Nielsen: I was a bit skeptical of the movements in individual cities and also amongst the collegiums of cities that that would really move the needle. Our focus was much more on national or provincial governments. But it was eye-opening to me to have a conversation with Mark Watts, the CEO of C40 (a group of cities committed to climate action), which is much more than 40 cities today, but has the largest cities of the world. That made me realize that the biggest cities are important for how we evolve this agenda.
There are several reasons for it. One is urbanization. Over the next decade, we’re going to move about a billion people into cities, and that corresponds to roughly building the urban area of London every month. Those of us who have our lives in the more mature markets – Western Europe or the U.S. – don’t really see that because it all happens in the emerging markets, and particularly in Asia.
The other thing is that cities are “stressful” for human life in many ways. Therefore, there are many things you need to do in cities to make human life good in cities. That agenda is very much a city agenda as opposed to a national agenda, possibly. The appetite for making changes and for rethinking tomorrow is larger in cities than it is in countries. Countries often have the complication of many different stakeholders and constituents and citizens in different parts of the country, whereas a city is a more homogeneous territory.
“Nature does not waste anything. If you’re looking for energy-efficient technologies, then nature is a good place to go looking.”
Knowledge@Wharton: Is Novozymes working with any of those cities? Or, do you see any city being proactive and thinking thoughtfully about these issues?
Nielsen: Yes, and the only one I would call out is the one that’s very close to our headquarters – Copenhagen, which is one of the more progressive ones. And of course, being so nearby, there are things we can do together. We have a good cooperation with Copenhagen on wastewater treatment, which is another part of our business where we are introducing new technologies that will help save energy and [achieve] better water conservation and wastewater treatment.
Knowledge@Wharton: You and Novozymes have been on this journey for a while. What are some of the main lessons that other companies could learn from your experience in terms of doing better business through biology?
Nielsen: There are two chapters in the book. The first chapter is about how you integrate sustainability in your business. My experience is that it improves on your own efficiency. It helps you deliver better innovation to your customers, and it’s a fantastic proposition to the young people you want to have work for your company. That creates a lot of passion with employees – much more passion than you’ll ever be able to create by talking about some of the other value creations.
The commitment to making tomorrow a better environment and better conditions for societies and for citizens is an immense driver for the company and creates so much passion. Eventually, any company is, of course, an organizational structure. It’s a mobilization around a strategy. But the effectiveness of all that comes back to how much passion people bring to work in the morning.
The second chapter is biology. Biology is nature, and nature has a lot of technologies embedded, and most of them we don’t understand yet. But nature does not waste anything. So if you’re looking for circular technologies, and if you’re looking for energy-efficient technologies, then nature is a good place to go looking. There are many technological enablers and drivers for sustainability. Biotechnology is one of those drivers. A couple of others would be something like storage technologies or battery technology.
In terms of process and systems engineering, one should definitely not underestimate digitalization as a driver of sustainability. We play the biology piece of it, and we do see a world where many strong companies’ deep pockets were created in the previous century on the basis of fossil energy and chemistry.
Biology or biotechnology was brought to action at the end of the previous century. And this is the century where biology will really start to matter. We still need to prove that, and it comes with the flow of innovation where biology helps create better lives in a growing world.
“We get totally fooled by the light – what can be measured is then [seen as] important. And that’s not always the most important thing.”
Knowledge@Wharton: What are some lessons that other CEOs could learn from what you and Novozymes have accomplished?
Nielsen: The first question you have to ask yourself is whether there is a future or current behavior in your corporate activity that compromises the SDGs. I’m afraid that there are still companies who feel that long-term this will go away, it will evaporate, and they can continue to perform activities that compromise one or more of the SDGs in a significant way.
If you believe that you can continue to do whatever you have done in the past, then of course there’s no reason to change. But that’s the first thing you need to take a look at – is the way you work today sustainable?
If your answer is no and that there are areas where you need to change, or take the company in a particular direction, or look at your individual footprint, then I think it’s just about getting into gear and deciding on what elements of the footprint do you want to look at. How do you want to direct your company towards contributing to the SDGs as opposed to compromising the SDGs? I think that’s the easier part of it.
The tougher part is to understand that the company a CEO is leading has activities that are compromising the SDGs, and that we should do the best we can to move away from that.
Knowledge@Wharton: I’ve spent some time talking to companies that are trying to align their business strategies with the Sustainable Development Goals. In trying to get that alignment, they focus on activities that are measurable. It’s almost like checking off a list of things that are measurable, that may be both good and bad. Are there things that are not measurable that are getting lost because of that?
Nielsen: I’m sure there are things that are not measurable. It’s a good question and a good observation. On one side, there is a clear drive towards measurability, and it’s partly because business schools are teaching that if you can’t measure it, you can’t do anything about it. There is, of course, some truth to that. It’s also driven now by the desire to distinguish between strong performance and weaker performance and no performance. When your investors, shareholders and other stakeholders want to have a way of describing how companies are performing, that then becomes measurement systems.
But of course there are many things you cannot measure, and often they are the more important things. [For example], how do I ever get to measure the impact of our purpose that is closely linked to the 17 Sustainable Development Goals? How do I ever get to measure the impact of that purpose on the passion and drive that our employees have in the company? Those are difficult to measure. Eventually we might get indicators, but they are hard to measure.
I remind myself of this old story of this man who came back home late at night. He was trying to let himself into his house but couldn’t get in. Then the neighbors came home at the same time, and they asked him, “What’s the problem?” He said he had lost his keys and that he was looking for them. They helped him look for his keys, but didn’t find them. Eventually, they asked the obvious question: “Is this where you lost your keys?” And he said, “No, but here’s where there is light.”
Sometimes we get totally fooled by the light – what can be measured is then [seen as] important. That’s not always the most important thing.