Sustainability in focus
case studies
BHP
Explaining the rise of sustainability on the board agenda
BHP, the world’s largest mining company, is undergoing a dramatic shift in its business, disposing of its fossil fuel assets (including its entire oil and gas business and various coal assets) and pivoting its mining activities towards “future-facing commodities”, meaning the raw materials needed to fuel the sustainable transition (copper for renewable energy, nickel for electric vehicles, potash for sustainable farming etc.). This change in focus has had a significant impact, with increased M&A activity disposing of old businesses and buying new ones, organic growth in new geographies and sectors, and changes in the use of technology (exploring, for example, green steelmaking). BHP’s governance structure was comparatively well equipped for this uptick in activity, with a dedicated board committee focused on sustainability that has been in place since 2006. This is all underpinned by a corporate purpose centred on decarbonisation and an accelerated energy transition.
Whilst criticised in some quarters for not going far enough, BHP’s public commitments to decarbonise (net zero by 2050 for operational emissions (scope 1 and 2) and other commitments for scope 3 (being upstream and downstream emissions from a business’ supply chain) by 2030), its publication of a climate strategy and its decision to offer shareholders a vote on that strategy all add up to a case study of how sustainability-related concerns can drive changes in corporate behaviour and strategic decision making. Similarly, efforts to make supply chains more sustainable, continued focus on indigenous peoples’ and human rights issues, and a more robust approach to closure planning of extractive sites, all contribute to a collection of corporate decisions and actions which are much more obviously influenced by sustainability-related concerns than in the past.
Philip Morris international
M&A strategy
Just under six years ago, Philip Morris International (PMI), one of the world’s leading international tobacco companies and best known as the producer of Marlboro cigarettes, announced its intention to transition away from cigarettes to smoke-free products. To that end, PMI has set aspirational goals of accelerating the end of smoking, with a near-term goal of being majority smoke-free (in terms of net revenues) by 2025 and a longer-term goal of transforming the company into a smoke-free business. In the name of sustainability and creating a net positive impact on society, PMI has more recently set out its strategy to build beyond this transition and go ‘beyond nicotine’. To that end, it announced a near-term goal of achieving $1bn in revenue from non-nicotine products and an aspirational goal of evolving into a ‘broader lifestyle, consumer wellness, and healthcare company’. These goals have transformed PMI’s activities, internally and externally with product portfolio adjustments, new product launches and some substantial M&A, enhanced R&D efforts in ‘reduced-risk products’, and a business-transformation-linked financing framework which connects its corporate decisions and performance with the goal of a smoke-free transition. Executive incentives are also aligned with this strategy, with metrics such as year-on-year growth in smoke-free shipment volumes and the growth of current ‘reduced-risk product’ platforms to scale being used to assess performance.
PMI’s M&A strategy has featured prominently in this journey with a recently-announced public offer for Swedish Match, a company with a stated vision of ‘a world without cigarettes’ which primarily manufactures a range of smokeless products. This builds on a spate of transactions in 2021 that saw PMI acquiring the inhaled drug company OtiTopic, pharmaceutical and well-being product manufacturer Fertin Pharma, and UK pharmaceutical company Vectura. These three acquisitions were announced as key drivers of PMI’s ‘beyond nicotine’ strategy, contributing to its health and lifestyle business arm, but also providing expertise to aid PMI’s expansion in the smoke-free market.
PMI’s annual integrated reports and ‘ESG Highlights’ presentations provide regular updates and metrics for investors and stakeholders to keep track of its progress towards its goals. Notwithstanding all of this, ‘leadership in [PMI’s] conventional business’ is still established as a strategic priority in PMI’s executive compensation policy, which has led some to question the nature of its commitment to its sustainability strategy, although others would argue – as is the case in oil and gas and the extractive industries – that scaling back more traditional operations has to take place over time as newer, more sustainable lines of business are scaled up.
AllBirds
Access to Capital
A cautionary tale in this regard is the New Zealand-American shoe brand Allbirds which, after initially offering what it described as the world’s first ‘sustainable IPO’, had to retract its commitment1 with an updated prospectus following objections from the US Securities and Exchange Commission. Despite the forced retraction (and separate litigation challenging the company’s sustainability claims), Allbirds’ shares surged2 90% post-flotation.
IBM
M&A (and organic alternatives)
In January 2022, IBM announced the acquisition of the environmental performance management data firm Envizi. IBM said that the acquisition would assist in its service provision to companies who "are under mounting pressure from regulators, investors, and consumers to progress toward more sustainable and socially responsible business operations – and to demonstrate these measures in a robust and verifiable way.3
Built with Shorthand