A.P. Moller – Maersk is a global conglomerate with four core businesses in shipping, port infrastructure and oil & gas. Hence our business helps enable global trade and energy supply. Sustainability is a natural part of our business; whether we are building a new ship or drilling rig, or opening a new port in Africa ─ our investments are for the long-term. We always have to consider how our assets will perform in the next 20-30 years. For example, most of our assets consist of steel. The uncertainty about prices and the availability of a resource such as iron ore will increase in the future. Therefore, it makes sense for us to think long term about our resources. Ensuring high quality recycling of our new ships is a way of building resilience against increased volatility in steel prices.
It is our experience that sustainability adds value if it is tied closely into business and is allowed to help the company take a longer-term perspective on material matters. At its core, it adds value through better risk management whether it is related to protecting reputation, avoid excessive OPEX by better efficiency, anticipating legislation or avoiding disruptions.
Risk Management and Cost Savings
Over the past five years, we have been working to integrate sustainability into the core business processes such as Enterprise Risk Management, leadership training and performance management. Furthermore, we have established a solid executive level anchored sustainability governance and minimum standards and strategies on material topics such as health & safety, climate change and environmental pollution, labour standards, anti-corruption and responsible procurement. There is substantial value at stake. Since 2007, our container shipping company has reduced Co2 emissions “per container moved” by 34% and saved more than USD 750m in fuel costs in 2013 alone. At a global level, the UN estimates that corruption adds 10% to the cost of doing business and 25% to the cost of procurement contracts in developing countries. This work forms the backbone of our efforts to manage sustainability related risks, which we will sustain going forward.
Unlocking Growth for Society and Maersk
However, we are convinced that sustainability holds a bigger promise and have the potential to add to growth and value creation if a company is capable of identifying and delivering on hot spots for synergies between societal needs and the company’s core capabilities. Just last month we launched a new sustainability strategy – Unlocking Growth – focusing on accelerating the positive impacts on society of our core business. The purpose of our new sustainability strategy is to address significant sustainability challenges in society, which at the same time constitute bottlenecks to our growth strategy.
One of the areas where we will intensify focus is how we can enable more people to be pulled out of poverty by enabling more trade. Trade contributes to economic development and improved living standards; recently in Bali, political leaders reaffirmed the importance of facilitating trade with the WTO agreement on trade facilitation. Again, huge value is at stake. The World Economic Forum estimated in their 2012 ‘Enabling Trade Report’ that if non-tariff trade barriers were reduced only half way to global best practice, trade would increase by 15% and global GDP by 5%.
With our transport and infrastructure companies, Maersk Line, APM Terminals and logistics provider, Damco, facilitating trade is part of our core business and we are working to make trade more efficient every day. However, in order to address larger bottlenecks to trade we need to engage with broader stakeholders outside our own gate. This will require patience and a longer time horizon but we believe it will also accelerate value creation for Maersk and society at the same time. In Kenya, for example, deployment of refrigerated container technology and teaching avocado farmers how best to package their avocados has expanded the avocado markets for smallholder farmers from the Middle East to all of Europe and Russia, and prices are up to five times higher. This result was also facilitated by investment in road infrastructure on the Government side as well as improved extension services, and it illustrates the point that proactive engagement with societal challenges can facilitate solutions and company growth at the same time. Kenya now has an avocado export of more than $300m USD.
We will now put our knowledge and competencies in play to help drive the trade agenda beyond our own operations. This new direction is still unchartered territory and we will face challenges along the way. However, we are confident that this way of working can accelerate many of the positive impacts of our business and open up for more business for Maersk at the same time.
Most ESG-based valuation of companies focuses on governance and sustainability risk management. And rightly so given the many material risks facing global companies. However, building on the examination of risk management in their investment portfolio, investors could also consider to what extent their investment targets are harvesting the opportunities present in the space between sustainable development and their core business competencies – also at this level, to the benefit of society, the company and the investor.