20th century foundations
Sustainability considerations have always been part of DSM's culture. As a former industrial chemicals company (with roots in mining), health and safety at work and product safety standards were part of the company's formal and informal 'license to operate'.
Under the leadership of former CEO, Feike Sijbesma, sustainability advanced further as a core value within DSM.
Reporting to investors
To the outside world (including shareholders), DSM started to advocate its belief that companies have the responsibility to play a greater role in returning benefit to society.
The company's first Triple P (People, Profit & Planet) report was issued in 2006 with sustainability reporting being fully integrated into the Annual Report in 2010. This encouraged shareholders and analysts to view the company's approach to sustainability as component of the company's long-term strategy and prospects.
In doing this, however, management were initially met with challenge from mainstream investors who were primarily focused on P&L drivers such as reducing costs and improving margins.
"When I started my coverage of DSM as a mining analyst, I could see the relevance of health and safety - but not in many of the factors beyond that".
Willem Schramade
Transformation time: the start
The period between 2010 and 2015 at DSM was marked by the divestment of its remaining bulk chemical assets and re-investment of the proceeds into specialty nutrition activities, such as Martek and Fortitech in the USA and Tortuga in Brazil.
During this time of strategic transformation, the company significantly reduced its emissions and improved its energy efficiency. However, it was also a period in which the progress on financial results lagged against key targets and expectations.
Investor reporting during transformation time
Over this period, DSM progressed its sustainability reporting and participated in ESG ratings and sustainability indices - consistently seeking and achieving high rankings.
Ongoing transition: Purpose Led, Performance Driven.
"While investors with long-term time horizons could see the company's direction of travel; shorter-term investors were perhaps less tolerant during this period"
Marc Silvertand
With Dimitri de Vreeze (in 2013) and Geraldine Matchett (in 2014), joining the Managing Board, the company embarked on its “Purpose Led, Performance driven” strategy.
In this, DSM formally articulated its sustainability strategy around a message of "it's not a choice between making money and doing good but recognising that the two go hand in hand”. Purpose drives DSM’s performance with more sustainability, more growth and more engagement with stakeholders.
The company argues, for example, that as the UN has identified the priorities for meeting the urgent environmental, political and economic challenges that the world faces and articulated these within the UN Sustainable Development Goals, then it makes sense for DSM to invest in the solutions to deliver on these.
DSM further strengthened its core businesses through bolt-on M&A and through the development of a sustainability-driven innovation pipeline.
Today, around 85% of the company's activities are linked to Health and Nutrition. At the same time, the company has worked to change its leadership style and organizational culture to be more international, more diverse, more open and more agile.
In positioning itself as a “Purpose-led Performance-driven” company, DSM aims to demonstrate that it can develop and provide the solutions that the world needs to address the mega challenges and make itself attractive to investors with looking for long-term growth and a long-term ESG focus.
To innovate and develop new solutions, science-based companies need longer term horizons in their strategy, their culture and their R&D. They also need investor-backing and such investors must share this long-term perspective. In this respect, becoming a shareholder implies the acceptance of a responsibility for the company and for its long-term sustainable strategy.
"Investors that focus on long term sustainable growth and consider themselves as 'stewards' are attractive to us as their objectives align with ours. Of course, we recognise that a long-term strategy can never be at the expense of delivering on mid-term financial targets - which we have done consistently since 2015."
Marc Silvertand
Investor communications in this time of transition
While published reports and questionnaire responses might suffice for a business in a steady state, they are certainly not adequate for a business that is undergoing a transition process. So, throughout this period, DSM operated a programme of sustainable investor communications featuring the following elements - each of which has evolved in line with the company's own transition:
Reporting and data provision
“A company's finance manager's job is typically about getting the numbers right; an investment analyst wants to get the right numbers. IR sits between these two.”
Marc Silvertand
One notable transition has been around the type of sustainability information that DSM has supplied to investors. It is one thing to supply data to ESG ratings firms. However, it is quite another, to identify material, financially-relevant messages on sustainability exposures and management practices for investors.
As 'mainstream' investor interest has grown, it has become increasingly important to base the narrative on sustainability strategy around the company's operational and capital investment strategy.
"Investors don't just like to see cost-cutting approaches to sustainability solutions, they also like to see sustainability visible within the R&D and capex spending plans of a firm."
Willem Schramade
Sustainable investment roadshows
As the company's business has developed, so DSM has seen changes in the types of analysts and investors that it meets during its ESG engagements
- ESG/SRI specialists: Initially, the company met primarily with ESG and governance specialists at investment firms who were not that much interested by the financial implications of their sustainability approach. DSM still have dedicated meetings with stewardship teams where sustainability topics are high on the agenda, particularly those within passive funds.
- Integrated ESG/SRI teams: Then, the company started finding itself in meetings with integrated ESG teams - where sustainability and financial analysts worked together in the same team - rather than having a specialist team focused only on sustainability issues.
- Mainstream investors: More recently, the 'mainstream investors' that the company meets on roadshows have started showing a strong interest in the company's sustainability programme, sometimes pushed by their asset owners. Such investors, of course, change the nature of the debate as discussions are now held with investors who know the company's business and strategy well and can also discuss the sustainability elements within their investment thesis.
- Impact investors: Most recently, DSM reports on the emergence of a new type of portfolio manager: those that run impact funds. Willem Schramade was one such manager that DSM encountered early on. However, interest of this sort has been growing rapidly. These managers generally have a strong financial background, but also a very clear focus on what is the company's positive societal impact.
It seems likely that this evolution investor types has occurred partly because of the growth of interest in sustainability across capital markets, but also because of the changing shape and focus of DSM's business.
ESG rating agency engagement
DSM has traditionally placed a strong emphasis on being highly-rated by ESG rating agencies and upon inclusion with sustainability indices.
"As an investor, I never found much value in the emphasis the company placed on ESG ratings. While it sounds great to link management compensation to DJSI, it only creates incentives to 'game the system'.
Willem Schramade
Like other companies, DSM has faced a number of challenges with providing information to sustainable investment research, data and rating providers. This has been simplified somewhat by the application of a 'fair disclosure' principle - whereby information (including answers to some questions sent in) that is given to some agencies is made available to all.
"Simply, we put as much as detail as we are prepared to disclose on the website so that all can access it"
Marc Silvertand
The future
In September 2021, DSM announced an intention to accelerate its 'purpose-led, performance-driven strategic journey' by focussing fully on its Health, Nutrition & Bioscience capabilities. At the same time, it announced 'Food System Commitments' linked to 'health for people; health for planet and healthy livelihoods'.
It is noticeable how the presentation to investors on this extension to the company's strategy fully-blended discussion of sustainability drivers and business strategy in a way that is rarely seen in presentations to 'mainstream' investors.
Tips for other companies
In conclusion, we asked Willem and Marc which investor communications activities have been most helpful during the company's transition and which have had less impact. They answered:
"It really helps when a company makes the effort - in its communications - to link sustainability factors to key value drivers of the business such as growth, margins and capex".
Willem Schramade
"There is a critical role for IR in ensuring that the most suitable numbers on sustainability are presented to investors:
- Sustainability managers and our accounting department have to make sure they report the numbers RIGHT for all stakeholders- i.e. they have to be accurate - under 'reasonable assurance'.
- IR, however, also has to highlight the RIGHT numbers to investors- i.e. the ones that are meaningful and useful to them… as well as accurate. We use an ESG Factbook to highlight these numbers and to make them easily accessible '.
Marc Silvertand
"As an investor, I will always look to understand whether the culture of the company is consistent with the company strategy and purpose and whether the company has capabilities to match that purpose."
Willem Schramade
"Just as many of the operations have changed, so the whole culture of the company has also changed over the last 15 years … and much of this process has been facilitated by our focus on sustainability. At DSM, sustainability is our core value and our core business driver"
Marc Silvertand