Transparency is the first step in any sustainability strategy. In fact, several of the sustainability ratings agencies grade companies specifically on their disclosure and transparency. Internally, being transparent about environmental, social and governance issues allows a company to diagnose weaknesses, set targets, and engage employees in a common effort to improve. Externally, transparent disclosure gives investors and other external stakeholders the tools they need to analyze and engage.
At Pirelli, we are constantly involved in internal and external communications efforts. We created software to enable us to collect all the data we need as input for our sustainability strategy, goals, targets, and reporting, as well as for our engagement with analysts. We devote time and resources to using this data to engage with ratings and rankings agencies, investors, and indices, as well as within our supply chain. We engage with the car manufacturers we work with on sustainability in a transparent way, as well as with our suppliers, whom we audit on their sustainability practices. We have also asked our suppliers to join us in reporting transparently to the Carbon Disclosure Project on their carbon footprint.
Our vision is for continuous improvement in all ESG areas. In order to carry this out, we have created a Sustainability Steering Committee which reports to the Board of Directors and includes Pirelli’s Chairman and CEO. It also includes the heads of most of the important functions in the company, given that one of the challenges in Sustainability is cross-functional integration.
All of Pirelli’s industrial and strategic planning travels hand in hand with sustainability planning. So each time we introduce an Industrial multi-year plan to the market, sustainability is woven into the plan throughout, and we announce sustainability targets alongside financial targets. As an example, when we announce the profitability targets we expect to reach through sales of premium tires, we also announce the percentage of our sales that we target from “green performance”, environmentally friendly high performance tires.
Perhaps less common is Pirelli’s inclusion of sustainability targets in the long-term incentive (bonus) plan for executives. It is one thing to engage executives by talking to them about sustainability in a meeting; it is another thing altogether to tell them they will not get bonuses if sustainability targets are not reached.
We demand from our executives both short-term and long-term thinking. They are asked to optimize cash flow and profitability while simultaneously implementing ESG strategies with a timeframe up to 2020. Value creation must be solid and pass the test of time.
In particular, a part of the management incentive plan is linked to the specific positions Pirelli reaches each year in the ATX Auto Components sector of the Dow Jones Sustainability Index and in the Automobile & Parts sector of the FTSE4Good Global Index. The bonus amount changes according to Pirelli’s position in these rankings, and if Pirelli is confirmed as a leader there is an extra premium. The two indices are complementary and cover a wide range of ESG themes, so this is a simple way to ask for management’s attention to a long list of points and principles, including environmental criteria like carbon emissions and water and waste management, human resources practices and supply chain and community engagement, and good governance. Internal communication about what needs to be done in order to maintain the leadership positions is clear and clearly followed. So far, so good; Pirelli has globally and continuously led the DJ sector group for eight years in a row and the FTSE group for three years with a 100/100 rating.
This kind of internal engagement generates continuous improvement. Our R&D engineers work on more sustainable raw materials, compounds impacting on green performance tires, and solutions related to end-of-life tire reuse. Our purchasing department improves in green sourcing, supply chain engagement on sustainability, and CSR to help sustain small rubber farmers in Indonesia. Our factory engineers work to cut emissions, improve water and energy efficiency, and recycle waste. Our enterprise risk management department, integrated within our sustainability department, works across functions and geographic regions to identify and mitigate risks, including ESG related ones.
We then take all of this and package it for transparent external communications. Our annual report follows comprehensive GRI fourth generation standards. We engage with ESG investors through roadshows and webinars, and have worked with the United Nations Global Compact and UN PRI (United Nations Principles for Responsible Investment) on their “Value Driver” model to promote dialogue between companies and investors on sustainability. This model helps focus on how sustainability contributes to the bottom line financially, including through new revenue opportunities and decreased costs and risks.
Our commitment to sustainability leads us outside of our own company boundaries, to join in the call for increased sustainability action everywhere. Pirelli believes that corporations today bear a great responsibility to the planet and its citizens, and we do our best to make this a driving force behind all our actions.Filippo Bettini is Head of Sustainability and Risk Governance at Pirelli & C. S.p.A. Eleonora Giada Pessina is Group Sustainability Officer at Pirelli & C. S.p.A.