The Challenges in Making the Value Chain More Sustainable

The Challenges in Making the Value Chain More Sustainable
Mark van Kruijsbergen of construction company Royal BAM Group and Douglas Lamont of chocolate brand Tony’s Chocolonely have completely different challenges in making the value chain more sustainable and socially accountable. What they share is their intention not only to do better themselves, but also to get the rest of the industry moving. By being transparent about their starting point and steps yet to be taken, for example. And also: ‘By proving that you can do the right thing and still make a good profit margin.’

The two executives discussing the future of the value chain have rather different backgrounds when it comes to sustainability. When Mark van Kruijsbergen became Director Strategy & Sustainability at Royal BAM Group in 2016, the second part of that job came more or less as a surprise. ‘Only two weeks before signing my contract I was told that in addition to strategy I would also be doing sustainability: a completely new area for me. And frankly, until two years ago, 80 percent of my time was spent on strategy and 20 percent on sustainability. Today that ratio is 40-60, which shows how the world is changing.’

Douglas Lamont always worked for companies that want to improve the world. After 15 years as CEO at the people- and environment-friendly British juice brand Innocent Drinks, he has been CEO of Dutch company Tony's Chocolonely since 2022, founded with the goal of eliminating exploitation in cocoa farming. The founders were journalists who in a documentary exposed how large cocoa manufacturers were not complying with mutual agreements on eliminating child and forced labor in the chain. They to a certain extent started their company as a stunt, but soon realized that they could only change the industry by setting a good example themselves. Van Kruijsbergen and Lamont talk with Allen & Overy partner Gijs Linse.

Tony's Chocolonely started with a mission, then became a company in 2005. BAM, over 150 years old, formulated a comprehensive strategy with sustainability goals last year. Can you both talk a bit about the journey since then?

Lamont: ‘Our mission is still the same: to prove that you can grow cocoa beans responsibly, pay people decently, address child labor and at the same time be a successful company with double-digit growth. We are not a charitable organization in the chocolate business. I believe in capitalism, but sustainable capitalism with a better balance between profit, planet and people. Tony's has in recent decades grown to become one of the leading chocolate brands in the Netherlands, with sales of 150 million euros last year, on its way to 200 million this year. We are also growing rapidly in Europe and the rest of the world because our brand resonates with consumers. That is fantastic.’
Van Kruijsbergen: ‘In 2020, BAM ran into problems after several mega-projects with millions in losses and we had to revise our strategy in a fairly short time. Our new CEO, Ruud Joosten, decided to focus on a limited number of markets and sell a number of German and Belgian subsidiaries. Sustainability was hardly mentioned at the time. A very conscious choice, because when the company is on fire, Ruud said, nobody is waiting for great, green stories. But once the strategy was in place, we did start working on it and last year we presented our sustainability strategy with ambitious goals in areas such as decarbonization, circularity, climate adaptation and biodiversity. People-oriented goals were also set in areas such as social values and inclusiveness. Sustainability is now an integral part of our corporate strategy. Building a sustainable tomorrow: that will be the core of what we will do in the coming years. Meeting some of our set goals will be a significant challenge, but we are very transparent about that.’

How can you ensure that other actors in the supply chain, over whom you have no direct influence, have the same focus?
Lamont: ‘Obviously every industry is different, but it starts with a system of control. We have 17,000 small farmers as direct suppliers. We visit them every year to check for abuses. Next, behavior is important. Tony's is far from perfect, but when things go wrong, we disclose it ourselves: we screwed up, but we discovered it precisely because we have a control system. Many companies fall into the trap of not disclosing things that go wrong for fear of negative publicity or a stock price drop. My dream would be for companies to hang out all their dirty laundry and say: this is the current situation. We have a long journey ahead of us, but we are going to make that journey consistently, and from now on be very transparent about what is or is not going well. Managements tend to be too afraid of the consequences of transparency, while that fear is unfounded if you are transparent with the intention of getting better.’
Van Kruijsbergen: ‘Setting up control systems for a company like BAM with 24,000 suppliers is not uncomplicated, but we are working on it.
At the same time, we have to be honest. You can have a procurement policy with preferred suppliers that you check yourself or which gets certified by others, but you can never be completely confident that there are no abuses. In construction, people sometimes work in deplorable conditions, and I would not dare to say with 100 percent certainty that in our projects, with 50,000 to 60,000 people at work every day, it does not happen. Ultimately, the industry as a whole will have to make agreements on eliminating excesses. You need your customers to work with you on this too. If they only want the cheapest option, things will go wrong. To work sustainably, it is important that to be successful, our clients must want those sustainable solutions, and frankly those customers are still in the minority.
It was not for no good reason that the tender for the Van Brienenoord Bridge in Rotterdam failed because only one party applied. BAM has since decided to stop bidding on major projects if we cannot distinguish ourselves regarding sustainability.’
Lamont: ‘The problems are so enormous that ultimately nothing will happen if each individual company tries to solve it in its own way.
I too am a big proponent of collaboration in the chain. That is why we launched Tony's Open Chain model, sharing our way of working and knowledge with other chocolate producers. This allows others to buy our beans in a fair way. For example, Albert Heijn uses them in their private label chocolate. By competing on the shelf but cooperating to some extent on the back end, we all move faster.’

You often hear that shareholders only go for short-term value creation and thus slow down the sustainability transition. Is that something you recognize?
Van Kruijsbergen: ‘Of course the concern for shareholder value is an issue, so you have to manage that well. But for both our executive board as well as supervisory board, the dedication in this area has grown enormously compared to when I started here eight years ago. Our choice for sustainability originates absolutely from inner motivation. We believe that we can use the intelligence in our company to create more sustainable solutions than in the past. At the same time, we think we can gain a competitive advantage as well as a solid profit margin by doing so. We are certainly not a charity organization either. We do it for society as well as for our shareholders. In the short term, however, we must accept that it is not necessarily only about growth. We will have to say 'no' more often to projects because they do not fit our purpose. This is a conscious decision. By doing the right thing ourselves, we hope to ultimately move the entire industry forward.’
Lamont: ‘If a leadership team passionately conveys where it wants to go, as seems to be the case at BAM, I do not think any group of shareholders will put on the brakes and only go for short-term profits. Mediocre leaders sometimes hide behind that argument, but I do not find that credible. It really comes down to the mindset of the management.’

You may know what is morally right, but it must also pay off. How do you make that assessment in daily practice when making decisions?
Lamont: ‘There is a difference between having a purpose and being a purpose-driven company. In the latter case, that purpose guides all your actions and it becomes much easier to choose from the many shades of gray when making decisions. Our purpose is to eliminate child labor and exploitation, not only at Tony's but throughout the industry. If it were just about us, we could accept less profit by investing even more in further improving the value chain, for example. But to remove the fear of change in the industry, we have to show that ‘despite’ or precisely because of our mission we can make 10 percent profit, attract customers and build a positive reputation. Our small Dutch company wants to be a leader in cocoa and change the whole industry. We also try to do milk and sugar as well and as responsibly as possible, but we do not put the same energy into that. In those areas we want to be good enough, but others need to take the lead.’
Van Kruijsbergen: ‘We have roughly 14,000 employees. To make the right decisions, it is necessary that all those people understand what we are doing and make the right decisions based on that. To achieve that, one of the things we have done is redesign the stage-gate tender process. Before, my department was not involved in that at all. Now we look at social and environmental aspects in all major tenders. If there are challenges in that area, we advise the board to agree only if the client is willing to accept a sustainable solution. It has happened that a tender team that has been working for months were told by the highest management level: we are not going to do this, unless ... Believe me: that message travels through the organization lightning fast, with the result that employees look at the subject differently and bring to the table better analyses and proposals.’

Do we need legislation or is it sufficient for leaders to take responsibility?
Van Kruijsbergen:
‘Legislation certainly does help. Two years ago, very few people within BAM were interested in our sustainability performance. We have been reporting on it for years, but it is only because of the CSRD that it is now on everyone's radar - even the people who are perhaps less intrinsically motivated. I do not have to explain anything to young people. They choose BAM precisely because of our sustainability ambitions.’
Lamont: ‘You need legislation to get the herd moving. Tony's job is to raise the ceiling and show what is possible. The legislature's job is to raise the floor - because the transition to a more sustainable way of doing business is not happening fast enough. I expect the CSRD and the CSDDD to create a major shift. There will always be companies doing the minimum, but at some point, it becomes more work to simply check boxes than to just do the right thing. In the cocoa industry, for example, panic is now setting in because last year's harvest was very poor. That will cost the industry billions more in the coming months and the expectation is that this will happen more often due to climate change. That realization is slowly filtering through. Thus, in many industries, the effects of the short-term everything-goes-well bubble we have lived in for the past 40 years are now becoming apparent. As a result, the mindset is changing. The question is where the tipping point is.’

Essentially, what do executives need to do now - or do differently - to be able to conclude in ten years’ time that they have indeed done the right things?
‘Look in the mirror and ask yourself honestly whether you will then be proud of what you have done now. Do you genuinely have the right intention, or will it remain just empty promises? Clearly, we do not have enough directors with the right intention at this time, otherwise change would happen much faster. We are the most inventive and capable species on earth and can do a lot with attention and focus, but there is simply not enough attention and focus. The question of how we can change that mindset keeps me busy every day.’
Van Kruijsbergen: ‘There are so many issues that have priority that you simply cannot address them all at the same time and with the same speed. We choose to focus on the issues where we are most likely to have an impact. At the same time, we do try to start a movement in other areas. For example, we employ ecologists who focus mainly on biodiversity, even though that is not yet a very well-developed topic. Others are mainly working on electrification and hydrogen. Their work in turn stimulates others and in time will hopefully have a ‘fan-out’ effect on the entire organization.
When we drew up our sustainability goals, we discussed whether we would offer solutions in the areas of climate adaptation and biodiversity to customers who did not ask for them themselves. Many people did not see that as something to do in a procurement competition. Our board decided to do it anyway, starting with the larger projects. If in ten years we are so purpose-driven that we no longer take on any job if the client says ‘no’ to our biodiversity plan, for example, I would be quite impressed with the progress we have made. We are not there yet, but the foundation has been laid.’

This interview was published in Management Scope 04 2024.

This article was last changed on 09-04-2024