How finance can assist businesses in walking the sustainability discourse
Natalie Knight and the CFO of Ahold Delhaize
Ahold Delhaize Senior Vice President of Health & Sustainability Daniella Vega
21 March 2023, Zaandam, The Netherlands – At Ahold Delhaize, we think that by providing the focus and transparency required to ignite the necessary change, finance can play a significant role in a company’s path towards sustainability. The future of the Finance function is being redefined by the incorporation of non-financial KPIs into business performance management, and we think finance professionals have a critical role to play in advancing the sustainability agenda. This is also evident in our just-released 2022 Annual Report, where ESG has emerged as a major and interwoven theme. After the article was published earlier this month, we wanted to take this chance to share some information about how finance can help to better ESG data and transparency and the advantages it has provided for us.
The path to more advanced ESG reporting
At Ahold Delhaize, we started a journey in 2020 to further professionalise our performance management and reporting of ESG statistics. More than 80 distinct non-financial KPIs were already being reported by our Group through a variety of departments, frequently using different methodologies and levels of market coverage. We were moving forward, but it felt sporadic, occasionally unexpected, and we were frequently on the right track but not quite. Therefore, our first move was to very strategically concentrate our efforts on four crucial indicators:
own businesses’ carbon emissions, food waste, own-brand plastic packaging, and strong sales.
These emphasis areas were chosen because they closely matched the “elevate healthy and sustainable” part of our group strategy and because they serve as key performance indicators for our sustainable financing. These four KPIs got our primary focus, attention, and inclusion in our Group’s incentive plans while we continued to monitor other KPIs. We progressively increased our level of scrutiny on additional sustainability-related KPIs like diversity and inclusion and social compliance to provide more rigour on the Sustainability (S) and Governance (G) elements of ESG reporting only after it was obvious that progress had been made in this area. And this can be seen in our most recent annual report, where ESG has been completely integrated throughout all sections and takes up more than 30% of the total number of pages.
How finance promotes sustainability, trustworthiness, and accountability
The finance sector has been crucial to Ahold Delhaize’s progress towards sustainability by offering clear direction on what and how we should assess as well as by enhancing transparency to support the conversion of our aspirations into actual actions. To achieve this, we have developed standard definitions, reporting procedures, and documentation standards and integrated them into a comprehensive ESG Accounting Manual. Additionally, we collaborate with frameworks like the Sustainability Accounting Standards Board (SASB) standards, the Global Reporting Initiative (GRI), and the Task Force on Climate-related Financial Disclosures (TCFD). We also consider forthcoming events and how they might affect Ahold Delhaize, such as the coming into effect of the Corporate Sustainability Reporting Directive. (CSRD). The implementation of the EU Taxonomy, a classification scheme used to make clear which investments are environmentally sustainable in the framework of the European Green Deal, is supported by the financial community on a local level.
Additionally, we have examined our data gathering procedures and security measures, and we are constantly working to make sure that the reporting instructions for our regional brands are clear, accessible, and simple to follow. This means that in order to support the constantly shifting competitive and regulatory environment, we continue to monitor for blind spots in our strategy and tweak guidelines to maximise relevance and consistency across brands. Primary reporting and performance management have been moved from operations to finance. In this manner, our Group can use its expertise in finance to raise the standard and calibre of non-financial reporting. Due to factors like the absence of a dual ledger system or the lack of readily available ESG reporting systems, we continue to encounter numerous obstacles in this area. However, finance is constantly collaborating with operational and IT coworkers, as well as Health & Sustainability, to find ways to improve our data gathering and reporting procedures.
The biggest benefits of adding the finance component
We are beginning to experience significant successes in this field as a result of the close cooperation between our Finance and Health & Sustainability functions:
1. Better conversations and more responsibility are ensured by increased measurability
To demonstrate our steadfast commitment to sustainability, we at Ahold Delhaize have incorporated ESG into our regular performance management drumbeat and it is now a key component of our incentive structures (representing 25% of our performance measures). This has sparked serious bottom-up and top-down discussions about the KPIs’ quality and how what we track can have unintended (positive and negative) effects. Additionally, by monitoring our key KPIs more frequently and precisely, we have gained the knowledge necessary to establish goals more strategically and to proactively drive improvements towards our objectives.
2. Enhanced ESG data accuracy and quality results in greater external trustworthiness
We monitor errors and inconsistencies in the application of guidance by carefully examining our data gathering and reporting procedures. We then made improvements to our policies to better align our reporting with market and regulatory changes. As a result, we are raising the calibre of our ESG data, enabling us to produce more trustworthy insights into how we are doing in terms of our sustainability goals while also increasing transparency. Additionally, this increases our credibility with our external stakeholders, as evidenced by the AA ranking we have on the MSCI Sustainability Index.
3. Transparency enables us to make wiser investments, putting our aspirations into reality.
We can now work with the company to assess, plan, and secure the capital required to carry out our sustainability strategy. Additionally, the sustainability, commercial, and operational teams work well together in this field to create thorough roadmaps and scenario planning. Additionally, even though we have already begun to take sustainability factors into account when making investment decisions (for instance, by implementing a carbon pricing model), we are constantly improving how we assess the cost, scale, and phasing options of sustainability investments. Our robust sustainable financing, which includes the issuance of sustainability bonds, is one specific example of how we obtain the money required for our sustainability plans.
4. The addition of sustainability to the finance role sparks new vitality
The financial community of the Group has shown a strong intrinsic motivation to assist the Ahold Delhaize sustainability transition. We have been able to increase sustainability’s importance and importance to the operating paradigm by extending duties and ownership beyond the Health & Sustainability teams. In reality, “embed healthy and sustainable into everything we do” is the first goal in our financial vision. As we observe an increasing internal drive among our associates to have a positive effect on the world in which we live, this has also demonstrated to be a crucial component of attracting new talent.
The following measures for sustainable finance
Continued openness about ESG will enable us to make even greater strides on the numerous opportunities and challenges that this subject presents as regulations become more stringent and stakeholders’ interest in sustainability increases. (e.g., increased focus on Scope 3 emissions, biodiversity and the demand for more visibility on the costs and benefits associated with sustainability). As a result, we are convinced that businesses that are genuinely dedicated to sustainability will profit from leveraging the expertise of finance to offer the trust, quality assurance, and rigour needed to show that they are not just talking the talk but also walking the walk when it comes to achieving their sustainability ambitions.