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Finance for Sustainability

One of the 6 principals of Olam’s Strategic Plan is to focus on Long-Term Value (LTV).

This depends in part on the active management of 6 non-financial Capitals which we report against in our Annual Reports. These capitals are not universally assessed in current reporting frameworks, despite driving a significant portion of a company’s market value, so we challenged ourselves to re-imagine business reporting.

In 2017, in our first Integrated Annual Report, we began reporting against these 6 non-financial Capitals to help demonstrate how they contribute to the creation of Long-Term Value for Olam as well as create value for our stakeholders. During 2018, the Integrated Reporting Task Force (a cross functional team) was formed to evaluate our approach to multi-capital accounting. The team was tasked with establishing a numerical link to sustainability using multi-capital accounting methodologies, they went on to develop the Integrated Impact Statement (IIS). 

Testing Our Methodologies

In 2018, we piloted the initial IIS tool with 3 of our business units - Dairy (Russia), Cocoa (Côte d’Ivoire) and Palm (Gabon), covering Natural, Social and Human capital. The tool was also independently validated and shared with experts for their input and further refinement.

Making it Business as Usual

In 2019, we created a dedicated ‘Finance for Sustainability’ (F4S) department to further develop the multi-capital accounting methodologies, to act as a centre of excellence, and to help embed capitals accounting within the organisation. F4S will leverage the expertise of Finance and Accounting to help address the most pressing supply chain sustainability issues. To enhance business decision making, the Integrated Impact Statement is also being deployed at profit centre level. 

Taking the Initiative Forward

F4S will uncover hidden costs and benefits not previously reported, support the leveraging of sustainable financing to address the most pressing supply chain sustainability issues and help support the business to ‘re-imagine agriculture’. Our vision is to be a best-in-class business partner, responsible for maximising long-term intrinsic value for all our stakeholders using non-financial drivers of value.

Internalisation of externalities  Accountants’ culture and mindset change Common numerical language
F4S will internalise externalities via our Business Units, supporting strategic financial business decisions and influencing significant stakeholders. Bringing finance and sustainability concepts together. With no formal framework for measuring these Capitals, we needed a better way to measure, quantify and report our long-term ‘invisible’ value. F4S will create partnerships and collaborations to grow this mindset. We use a common numerical language, where applicable, that everyone can understand, evaluate and articulate. IIS allows Olam to explain the impact of our actions on the ground to all internal and external stakeholders.
Managing Director and Group Chief Financial Officer, Olam Food Ingredients

“Sustainability is at the heart of Olam. The IIS gives finance and business teams the needed numerical link between actions on the ground and their impact and dependency on the Capitals. This will help in both improving the understanding of the Capitals and in taking necessary steps towards increasing the long-term value for the company.”

Rishi Kalra
Managing Director and Group Chief Financial Officer, Olam Food Ingredients
Embedding Multi-Capital Accounting

The IIS takes a systems approach that captures the complexity and reality of today’s diverse and intertwined ‘eco-agrifood’ systems, providing a holistic picture to business decision-making, avoiding the risks and limitations inherent in simplistic metrics such as ‘productivity per hectare’ which ignores Natural Capital stocks, flows, outcomes and impacts. The IIS approach will increase business resilience, allowing Olam to make changes on the ground, to mitigate the risks associated with carbon taxes, biodiversity loss or procurement concerns. Uncovering these risks and opportunities, will enable us to better prepare and respond to the challenges of tomorrow.

We believe the IIS will positively change and differentiate the way we operate and with whom. We are better informed about our Natural, Social and Human Capital impact and can provide actionable management information to better understand key impact areas (by farmer group, by country, by commodity), and devise more appropriate plans to address externalities and enhance positive impacts. Olam endeavours to become a resilient and more reliant partner for all our stakeholders by ensuring Long-Term Value creation. 

How Olam Is Putting Natural Capital Accounting Into Action

In a new research paper by Eco-Business on the financial mechanisms to protect biodiversity, Olam explains how we are accounting for our impacts on Mother Nature through our Integrated Impact Statement. 

FAQs

The Capitals drive Long-Term Value and underpin a significant portion of a company’s market value. The Integrated Impact Statement is a decision-making tool which allows Olam to manage Long-Term Value. This tool will help embed sustainability concepts, such as multi-capital accounting, into the heart of our business, through finance.

The IIS tool is made up of 3 elements - Profit and Loss; Balance Sheet; and Risk and Opportunity Statement; and covers 3 Capitals;

- Natural Capital: The land, water, biodiversity and other ecosystem services required for food, feed and fibre production. This includes the accounting for renewable and non-renewable environmental resources that Olam is dependent upon for its long-term sustainable operations and associated externalities.

- Social Capital: The relationships we forge and nurture for long-term commercial success. This includes the accounting for external stakeholders in society - community, institutions and Olam’s contributions to those relationships through its community-based programmes.

- Human Capital: The talent, skills, dedication and inspiration of our workforce & management and our responsibilities towards them. This includes the accounting for all internal stakeholders, our workforce and management, that Olam relies on and contributes to through training & capacity building,  safe & healthy workplace where rights are respected.

Like a control tower, the IIS decision-making tool effectively reports and allows Olam to manage long-term value.

The Integrated Impact Statement leverages existing frameworks by Accounting for Sustainability, the Capitals Coalition and The Economics of Ecosystems and Biodiversity for Agriculture and Food (TEEBAgriFood).

 

 

Source of framework: Capitals Coalition (https://capitalscoalition.org/)

F4S in 2019 developed the Integrated Impact Statement for the Cocoa business. A summary of some insights from Cocoa’s Integrated Impact Statement on key aspects of Natural Capital is presented in Olam’s Annual Report 2019.

The insights from IIS can positively change and differentiate the way we operate and with whom we operate. We are now better informed about our Natural, Social and Human Capital impact and can provide actionable management information to enable our Business Units to better understand their key impact areas (by Farmer Group level, by country, by commodity), and devise more appropriate plans. This way Olam endeavours to become a resilient and more reliant partner for all our stakeholders by ensuring Long-Term Value creation.

The IIS Natural Capital valuation scope is detailed in the table below.

 Indicator  Valuation Scope Main Data 
 Inputs
Valuation 
 Approach
 Cost /
 Benefit
Country
 Specific
Watershed
 Specific
Biome
 Specific
 Land Use     Y  Farmed
 Area 
 Gain in biome specific   benefits (Ecosystem
 services) 
 Benefit
 GHG
 Emissions
Y      Total GHG
 emissions
 Social cost of carbon  Cost
 GHG
 Sequestration
Y      Carbon  Sequestered  Benefit of sequestered carbon  Benefit
 Water
 Consumption
  Y    Water 
 consumption
 Human and ecosystem damage cost  Cost
 Water
 Pollution
  Y    Fertiliser 
 chemicals and components
 Human damage cost  Cost
Capital Accounting Transparency (Caveat)

The Olam Integrated Impact Statement is not related to financial results or financial reporting. All underlying methodologies are based on well-established databases and frameworks but as they depend on formula and third-party expert studies, they can only ever be an approximation. The results are for internal purposes only. In the coming years, results could be readjusted according to further methodological refinements. Taken together, however, the IIS is a valuable sustainability tool that can help uncover issues and provoke questions necessary to Re-imagine Global Agriculture and Food Systems.

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