Lessons from DSM’s Winning Sustainability Strategy

ESG frontrunner puts impact innovation at the core of its business
Lessons from DSM’s Winning Sustainability Strategy
Publ. date 11 mei 2020
The roots of global specialty chemicals company Royal DSM are as a Dutch state-owned coal mining company that started in 1902. The company’s future, however, is far removed from its past. DSM’s Strategy 2021 describes how the company plans to drive above-market growth through developing innovative solutions addressing Nutrition & Health, Climate & Energy and Resources & Circularity, together with increased customer-centricity and large innovation projects. In this article, DSM’s approach is decomposed by looking at the elements of its sustainability strategy, and we provide tips how to replicate this.

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1. Purpose: Brighter lives for all

DSM’s purpose is to “create brighter lives for all.” While this may not seem very specific, which is a common trap when it comes to purpose statements, DSM makes its purpose come alive through its products and solutions which address societal challenges while creating economic, environmental and societal value. The company supports its statement of “for all” through the Lives Reached metric.

 Tip: Look for business drivers in the value chain to help determine the company’s role in society.

2. Materialities: annually refreshed and connected to risk management

DSM annually updates its materiality analysis in order to assess material topics that are both relevant to society and have impact on its businesses. The company’s most recent materiality matrix (2019) was based upon and aligned with the company’s new Strategy 2021 and resulted from a thorough and extensive analysis including stakeholder interviews, employee workshops and surveys, as well as a stakeholder dialogue.

Additionally, DSM’s matrix was compared with the company’s Corporate Risk Assessment to make sure all relevant topics were captured from a materiality and/or risk perspective. This ensures that the matrix is sufficiently forward-looking and allows the company to stay on top of emerging issues.

 Tip: Conduct a regular materiality assessment that connects sustainability topics to the enterprise risk management process.

3. Business Case: innovating for impact

As early as 2010, DSM formulated a strategy to build on its strength in Life and Material Sciences, capitalizing on what it saw as the most relevant global megatrends to their business, notably health & wellness, global shifts and energy & climate change. This would make the three bottom lines – financial, social and environmental – mutually self-reinforcing.

Today, in DSM’s own words, the key to the company's continued success “hinges on striving for greater organic growth through business activities that make financial and societal sense.” In 2019, 63% of the company’s sales came from its so-called Brighter Living Solutions, products that have a better environmental and/or social impact than mainstream solutions, suggesting that sustainable products are not merely a niche within the portfolio.

 Tip: Look for value chain solutions to uncover a more attractive business case.

4. Differentiation: partnerships for reduced impact and new solutions

In order to grow faster and reduce its cost and risk profile, DSM works on improving the impact of its operations, enabling sustainable solutions for its customers and advocating sustainable business. Collaboration within and across the industry plays an important role in this.

Aside from being a vocal member of platforms such as the World Economic Forum and the WBCSD, DSM actively engages its suppliers to drive down Scope 3 emissions and co-create innovative new products in partnerships with other companies. An example of the latter is the partnership with SABIC and UPM Biofuels to create a bio-based version of Dyneema®, DSM’s trademark ultra-high molecular weight polyethylene.

 Tip: Develop key partnering initiatives in your value chain to differentiate.

5. Targets & Ambitions

DSM’s Integrated Annual Report contains distinct sections dedicated to People and Planet, that are positioned before Profit. In addition to the annual reporting on progress made on targets on the most relevant sustainability KPIs (such as the Frequency Index of Recordable Injuries, Employee Engagement Index, GHG scope 1 + 2 reduction and purchased electricity from renewable sources), they are also included in the company’s half-year results.

Furthermore, a set of environmental and social sustainability targets is linked to the short- and long-term incentives for DSM’s Managing Board.

 Tip: Avoid reinventing the wheel. For instance, dust off the old balanced scorecard and equip it with sustainability KPIs.

6. Means & Tools

In order to implement the required changes within the company and towards its stakeholders, DSM divides its means and tools of action in three ‘categories’:

  • Improve: Optimizing the company’s own operational impact by raising safety standards, promoting health and well-being in the workforce, reducing emissions, increasing the use of renewable energy and unlocking more value from the limited resources;
  • Enable: Creating products and services that enable customers and partners to deliver sustainable and healthy solutions for the planet and society;
  • Advocate: Advocating for the future that DSM believes in and fully accepting the company’s responsibilities as a corporate member of society.

 Tip: Compose a one-page summary of the sustainability strategy. The summary should include top-level targets, SDG framing and clear linkages to the core business.

7. Action Planning

As a final step, the Sustainable Seven model looks for a concrete multi-year roadmap for the implementation of the sustainability program that is actionable enough to drive results. DSM does not communicate about its roadmap, but it boasts the effectiveness of its results by the company’s recognition in ESG rankings including being named #1 of the industry by Sustainalytics, as well as top ratings by MSCI, ISS-Oekom and Vigeo.

 Tip: Develop a vectoring approach to present your sustainability strategy to investors and rating agencies based on ESG factors that connect to your core business.

Accelerating your own company’s sustainability strategy?

Are you inspired by DSM’s approach, ready to roll up your sleeves but perhaps not sure where to start? Take the ESG Acceleration Scan to get key insights into the strengths and weaknesses of your own current approach, along with custom advice for moving forward.

If you’re ready to take your company’s sustainability strategy to the next level, contact Finch & Beak’s Managing Partner, Jan van der Kaaij, at jan@finchandbeak.com or +31 6 505 188 93 to find out how Finch & Beak can help you.

About Nikkie Vinke

Multidisciplinary advisor in ESG benchmarking, sustainability strategy development and execution. | nikkie@finchandbeak.com