Natalie Knight (Ahold Delhaize): 'Finance Accelerates the Sustainability Transition'

How confident are you in the commitments and progress being made in Ahold Delhaize’s ‘Grounded in Goodness’ sustainability strategy?
‘The fact that sustainability is such a core element of how we look at the business is one of the reasons I joined the company. ‘Grounded in Goodness’ is one of our strategic priorities. There are some very quantitative targets behind this strategy, but the most important thing is that it’s a mentality we share at Ahold Delhaize. It’s a view from our company that we want to be one of the frontrunners in the industry in driving a more sustainable food system across the world.
There are few businesses where you can feel the impact that you have on consumers as quickly, as strongly, as you can in ours. Whether it’s our net zero ambition, reducing food waste and plastics, or encouraging healthier eating. We’re really working with our customers to make healthy and sustainable choices easier and more affordable for everyone.
I’ve seen the emphasis on sustainability accelerate significantly in the past two years, both from the consumer and the regulatory side. So it’s also exciting to see that we’re in a significantly different place today than we were two years ago when I joined the company.’

What changes have you seen in collaboration across the value chain since you moved from Arla Foods?
‘Our research shows that in our value chain 95% of carbon emissions come from outside our own operations. So it’s vital to take a full value chain perspective. Even though we have made some great steps already, there’s still a long road ahead. But things are definitely moving in the right direction. We’re committed to working with farmers and other suppliers to help them collect their data and make that important journey. It’s about developing better relationships, giving long-term commitments and providing economic incentives for them to move in that direction. Dairy is certainly one area where we are trying to create a win-win scenario for everyone, like with the ‘Beter Voor’ program of Albert Heijn where they work with hundreds of farmers to produce climate neutral milk and incentivize participating farmers by paying 5 cents extra per liter.’

What is the role of Finance in developing new commercial models and incentivization to drive the sustainability transition?
‘Any company that is truly committed to making a step in sustainability needs Finance to be part of that journey. In addition, sustainability is helping us redefine the future of finance with the integration of non-financial KPIs as one of the most pivotal changes in our function going forward. When you look at the role of the CFO or the Finance function we bring three core things: 1) We define clear and ambitious trajectories for the organization, for example by integrating our ‘Grounded in Goodness’ strategy into our strategic planning cycle and budgeting process. In this way, we help our brands to decide where we want to go and what the improvements should look like. 2) We support the business to secure the necessary investments, making sure they’re available, allowing us to deliver on our sustainability strategy. 3)We track, we report and we drive improvements against those big ambitions by making sustainability part of the regular drumbeat of our performance management.
Companies that are taking big steps on sustainability are bringing in the Finance discipline to provide the trust, quality assurance and rigor and to make clear that we’re not just talking the talk but walking the walk.’

The war for Finance talent is as hot as in any other area. How much is sustainability a competitive factor to attract talent?
‘It’s an essential part of attracting the right talent and we find that there are a lot of people in Finance who have a huge drive to do something which has a more direct impact on the world that we live in. This is one of the reasons why item number one in our Finance Vision is to embed healthy and sustainable in everything we do. And when I talk to people in Finance that differentiating factor is  probably the part of the vision they like the most. Our team is really hungry to find ways they can contribute, big or small, and it starts with driving transparency, looking through the microscope and finding the levers to improve things. Finance people are looking at the strategy, at tracking, reporting and working with business partners,  to make sustainability an even bigger and more relevant part of the operating model. I’m seeing energy in all those places.’

One area that maybe saps energy is the evolving regulatory environment. You’re in the midst of the first year under the elevated EU Taxonomy environment and upcoming Corporate Sustainability Reporting Directive. How are your teams rising to that?
‘When you look at everything that’s coming from a regulatory point of view, from stakeholders and from NGOs, it’s like peeling back and onion: every time you think ‘hey, we’re really starting to get our hands around it’, there’s a new piece coming through. It’s a challenge, with many moving definitions, a lack of clarity and strong dependency on third parties with regards to data availability, but I do feel there is increasing convergence and collaboration between the different ESG bodies in what good looks like and that’s a real positive. For example, in the EU, the Corporate Social Reporting Directive (CSRD) will become applicable in 2023 and the requirements are expected to build upon the requirements of the TCFD, Value Reporting Foundation (previously IIRC), SASB and others. The CSRD will include also the EU Taxonomy disclosures going forward.’

Have you made more investment in the reporting space to enable this?
‘We increased our resources in Finance last year and will definitely be doing it again this year. We’re also working to grow our collective know-how with formal and informal programs about sustainability and the role finance can play in bringing the Ahold Delhaize ambitions to life in this space. And this definitely isn’t a Finance--only exercise. We’re increasing resources in our brands and Health and Sustainability teams too, creating a virtuous circle in the organization that really takes us further as a Group.
From a purely Finance point of view, our immediate focus is on improving ESG data quality across the business and integrating it much more strongly into our performance management. There’s still a lot of work ahead to ensure that we have all the data we need and that our IT systems and automation are in a place to make the whole reporting and tracking piece easier for the business. That’s an important quality assurance piece that Finance can bring. We’re working hard on this and are committed to a very sequential process to get things done.’

You were one of the first movers on TCFD in terms of assessing risks and giving transparency on the organization’s exposure to climate change. How is that openness to stakeholders working out?
‘Being one of the first with this in our industry, TCFD has been a really interesting activity for us. For me, the biggest thing that changed was that it really helped us to expand our sustainability thinking as a company. We shifted the focus from looking only at the impact we have on the environment to a more outside-in perspective: what is happening with climate change, with decreasing crop yields, increasing hurricanes, droughts and floods and what does that mean for our stores, our heating, our product availability?
TCFD is not just a box to be ticked for external stakeholders. It’s about taking a longer term perspective and speaking the language of those stakeholders. When I talk to investors, they really see us as a front runner in this respect. Our 2021 annual report includes comprehensive information about our journey to date with regard to the TCFD which includes scenario analysis and initial actions. The annual report also includes information about our EU Taxonomy disclosures and our net-zero ambitions, and thus provides some additional insights into our plans around carbon emissions.’

Ahold Delhaize is doing some pretty innovative things in funding the transition to more sustainable business models. How do you see that space evolving and how does it impact your reporting requirements?
‘In 2019, we issued our first sustainability bond. We then added a sustainability-linked revolving credit facility and now we have a sustainability-linked bond. I think those things have been very appreciated by the market because they prove that we put our money where our mouth is. It’s something we’re very proud of. Having said that, today these forms of funding are still considered out of the ordinary, but in five years’ time they’re what all investors and creditors will expect.’

How important are sustainability ratings?
‘Investors really care about sustainability credentials. So getting recognition here is not only about doing the right thing but also providing clarity and confidence for our stakeholders. As I mentioned, with the changing regulations and definitions consistently delivering improvement is a real accomplishment. The MSCI AA rating that we were given last year and our position the Dow Jones Sustainability Index ensure third-party accountability and credibility that were doing the right thing across a wide variety of industry topics. It’s the same with funding. Investors appreciate that we give transparency, that it’s audited in our annual report and measured the same way across different industries and different continents.’

How do you ensure that sustainability is relevant both globally and locally throughout Ahold Delhaize?
‘It’s very much about a united message that starts at the top and cascades through the whole organization. ESG is not a one-hit wonder. How we look at it today isn’t going to be the way we look at it a decade from now. So everybody has to agree on the direction of travel and commit to the steps it takes to get there. In our company we’ve increased the financial incentives considerably and we’ve got the top 7,500 people all marching towards the same goal in terms of how we’re looking at things.
We’ve put the guardrails in place and made the targets very clear but we want each of our brands to feel empowered and put their own stamp on sustainability initiatives. For instance, Delhaize has introduced a sustainability-linked loyalty program in Belgium where Finance was instrumental in helping them build the business case. We just had the CFO of Hannaford in the USA talk to our 1,500 Finance people about how they became the first brand in the North East really to have zero food waste going to landfill. So we’re sharing knowledge about tools and how to set things up so we can take benchmarking to other parts of the organization.’

Ahold Delhaize is obviously looking at opportunities to grow through acquisition. How big an angle is the ESG commitment of potential acquisition candidates?
‘ESG plays a crucial role in our thinking about potential organic and inorganic growth. For instance, when we acquired FreshDirect in the USA one of the things we loved, apart from them filling a whitespace in the biggest metropolitan market in the US, was thereason behind their name. They are focused on fresh products and have set up a hyper local value chain that gets product out an average of three days earlier than our competitors. So we’re really able to deliver a different quality of product.
More pragmatically if companies don’t have a similar commitment to ours on ESGs that implies a big financial commitment to be included in our thinking about acquisitions. It’s also an area where some adjacency could be interesting, for instance when we think about new technologies packaging or other items as part of a broader Ahold Delhaize ecosystem. A good example of this is bol.com’s recent announcement to acquire a majority stake in delivery expert Cycloon which will allow both brands to accelerate low carbon delivery with strong growth opportunities.’

You’re very clear that Finance can really make a tangible impact on the organization’s sustainability transition. On a personal level you’re also passionate about the topic. Where does that stem from?
‘I’ve lived most of my life in areas where there was a big push for sustainability. I grew up in the Pacific Northwest of the USA and worked in Scandinavia for many years. When my daughter decided to become a vegetarian her reasoning was that she only wanted to eat products and support the economics of a place that is not harming the world we live in. At that time I was working in a company that had a huge role to play in providing nutrition for the world but was also asking: how do we become part of the solution instead of the problem? Having those conversations at home and in a company that focused on becoming part of the solution made me realize that you can become a champion for healthy and sustainable no matter what function you are in.’

Interview by Harvey Christophers, managing partner risk advisory & lead partner sustainability at Deloitte. Published in Management Scope 04 2022.