Cdp North America, Inc. (ADM) Earnings Call Transcript & Summary

Hi. Thanks, everybody, for joining us today for our Nourishing Resilience panel here at Climate Week. So excited to be part of the CDP Climate Week event series, and we're going to talk about -- my name is Emily Chasan. I was most recently the sustainable finance editor at Bloomberg News. We're going to talk about Nourishing Resilience: ESG as a Tool for Sustainable Food and Agriculture, and we have an amazing panel for you lined up today. But before we start, I wanted to quickly run through some features of Webex for everybody who's new or getting used to this platform. You can use -- you can adjust your speaker views by using options on the upper right-hand corner, and we recommend using the active speaker video view for the session. Q&A can be accessed by clicking on the ellipsis or the 3 dots that you can see in the menu options at the bottom of the screen. And if you want to put questions in there throughout the session for all the panelists, there will be a Q&A at the end of this. So please come with great questions. That's the fun of Climate Week, and at least in virtual land. So well, thank you, everybody, for doing this again. This is such an important issue, resilience, agriculture, our food supply chain. Everybody who's been thinking differently about how to get food in the past few months in COVID, I'm sure, has really thought differently about this. And we've definitely seen that at Bloomberg and throughout different organizations. But I want our panelists to sort of introduce themselves. We have ADM's Chief Financial Officer, Ray Young. We have Kellogg's Chief Sustainability Officer, Amy Senter; and CDP North America President, Bruno Sarda. You'll hear from each of them, but I thought we could all introduce ourselves today and just say, what does resilience mean to you in this day and age in the COVID era, and how does that impact how you've been thinking about ESG. It definitely feels like it's been more front and center.

So good morning, everyone, and thank you, Emily, for the introduction. My name is Ray Young. I'm the CFO of ADM for almost 10 years now, and I'm coming to you from Downtown Chicago. Now over time, I've seen how our company has evolved in terms of its thinking of ESG as, frankly, many other companies around the world. So thank you for the opportunity to participate in Climate Week. Even for me personally and professionally, I have evolved in my thinking. And I often refer to internally, the issue of sustainability as sustainability with a capital S, as opposed to a small block S because it's so broad and so all-encompassing in -- really, in everything that we do. The pandemic did present a lot of new challenges and certainly tested our resiliency on the global food supply chain. ADM has been very much focused on the health and safety of our employees, while at the same time, ensuring that we fulfill our important mission of nourishing the world. We're very pleased that we've kept the global food supply chain flowing around the world. One of our strengths as a company is we were able to adapt and pivot around supply disruptions, whether it's floods, droughts or now a pandemic, to ensure that we can deliver on our -- deliver food and nutrition to our customers. But what's interesting is even when dealing with the immediate COVID-19 issues, we've been -- have not lost sight of the long-term importance of supporting the sustainable environment. And remember, our business of food and ag depends on a sustainable environment. In fact, when you think about our mission statement, our new mission statement is really call it unlocking nature, enriching life. So we have moved forward with our plan to roll longer-term objectives for ESG in the month of April, during the heart of our pandemic, to emphasize how important these are to our businesses. So sustainability truly has become an essential factor as we think about all aspects of the business, including how we build a more resilient business and how we move our strategy forward. So again, thank you for the invitation. I'll pass it on to the next panelist.

Sure. Hi, everyone. Thank you so much for having me. I'm glad to be able to speak to this topic today during Climate Week. I'm Amy Senter. I lead global sustainability for Kellogg. You might hopefully all know Kellogg from your pantry at home. We're a global food company, plant-based food company, focused on cereal and snacks, operating in 180 different countries around the world. So when we think about resiliency, we've been talking about resiliency for a long time within Kellogg, thinking about it from a perspective of financial and performance resiliency in the face of ever-changing market dynamics, but also as we think about environmental, social, governance issues, ESG issues, and thinking about climate change resiliency for ourselves, for our suppliers, into farm supply chains. So this is -- I think COVID has been a really interesting time for a lot of folks to reflect on topics that we've been having for a long time in the abstract maybe, conversations that we've been having, and really understand and put in stark relief the challenge that we're facing with the existing food system. Today, 9% of the world is undernourished, and we know that those numbers are growing. So when we think about what does resiliency mean in an interconnected food system, we really have to think about access to food, affordability of food, nutrition in food and sustainability from an environmental and social perspective, all interconnected. And then what are the partners that we need to work together to unlock that. So it's great to be on a panel here with a whole bunch of partners of Kellogg, where we are talking about these issues because it's really important that we continue to share what's been working and where we need to grow as an industry and continue to ensure that ESG does come to the forefront in commercial conversations as well as part of our kind of broader mandates. So thank you.

Thanks, Amy. And hi, everyone. Yes, Bruno Sarda, President for CDP North America. For those of you who don't know CDP, we're 20 years old this year. We basically pioneered environmental disclosure. We are the global disclosure system and platform for business in cities on 3 specific topics: climate change, water security and commodity-driven deforestation. And we started really with the central idea that it was important to create a systemic link between environmental information and financial information, then to create an interface between business capital and regulators and policymakers to help inform both governance and policy over time with this idea, specifically that if we help shift capital in the capital markets, that it would accelerate the transition that we needed to see. For us, resilience, or certainly for me, resilience is basically the ability of an institution or a system to keep performing under stress. And certainly, we've seen with COVID that a lot of systems and institutions have been stressed. We know there's plenty more stress coming with the likes of, again, water shortages, climate disruptions and ecosystem and biodiversity degradation, and in some cases, collapse, whether it's fisheries and other parts of the food system. So the work we do at CDP is really to create transparency and to drive ambition on the part of actors in the kind of -- the voluntary space, if you will. We're not a policy shop per se, but trying to kind of front run the need for governance and policy by demonstrating the -- both the potential and the willingness of private sector actors, both on the business and capital markets side, to act because it makes sense to do, not just because regulation tells us to.

Great. Thanks, everybody, for those introductions. It was really good to hear about the systemic way you're thinking about this space and the changes that we need and are going to be forced to make in the system as we go forward. I guess we talked a lot about ESG in the past few months and how that's performed in the downturn. And one thing that's really emerged from this is that ESG and using these considerations seems to be a tool for getting more resilience in the downturn. We've seen ESG strategies, at least on the investment side, perform better in the 2018 downturn, in like little tiny downturns. And also just most recently, in the last few quarters, about 90% of ESG strategies, at least, were outperforming their benchmarks.

So we've been looking at that. I'm curious, Ray, from the company perspective, people say COVID is an accelerant. There's a lot of questions about climate change that have come up in the past few months. What are ADM investors asking for in terms of ESG and resilience?

Emily, what's interesting is, yes, the amount of interest and the accelerating interest on the part of the investor base regarding ESG. Not just the European investors, which always have been very active in terms of following our developments, but now the U.S. investor base as well. In fact, the last 2 weeks, I've done a whole bunch of non-deal road shows and investor conferences both in Europe as well as the United States, all virtually, of course. And I spent extensive amount of time talking to investors about what we're doing at ADM on the ESG front and what I call sustainability with the capital S. So the interest and the questions that we're getting from the investors are not only regarding what exactly -- what specifically ADM is doing on the ESG front, but more importantly, how we're thinking about ESG on a more strategic, more broad sense, how we're holding ourselves accountable to sustainability, and how we're showing continuous improvement in these areas. The feedback we're getting is they're not expecting us to seek -- get perfection overnight on the area of ESG, on the area of sustainability, but do expect us to show continuous progress and to have a good reporting process in place to ensure that we're monitoring and measuring that progress. Now I mentioned earlier that in April, we announced aggressive new goals for ESG. And these include reducing absolute greenhouse gas emissions by 25%, reducing energy intensity by 15%, reducing water intensity by 10% and achieving 90% landfill diversion rate, all this by the year 2035. We did conduct a feasibility study to help us understand how to meet these goals, and we're planning investments around innovation and technology to help us achieve these aggressive targets. We've seen sustainability continue to grow in importance over the years, and we've prepared the company to be in place to address all of these issues. Lastly and importantly, our Board did create a sustainability committee, which in the United States is quite unique, to help provide guidance and oversight to ensure that we're continuing to move forward in this journey. Thank you.

Thanks, Ray. It's great to hear what investors are asking for. And definitely, I always hear this issue about you can't manage what you're not measuring. So they definitely want to see more measuring. But Amy, it's interesting too because there's also a lot more pressure from consumers, especially when you think about food and agriculture. What's Kellogg's hearing about the role of consumers and what consumers think the company's role is in driving social and environmental impacts and how that -- how does that influence your ESG agenda?

Yes. It's really clear and have been for a number of years. People care where their food come from, how is it made, who's making it, how are we ensuring that there's responsibility throughout the supply chain. But what we've also seen, and we weren't sure as an industry in a -- as COVID came to be and consumer insights were starting to come in, would interest on environmental and social topics change? Would they drop? What would that look like in a kind of COVID world that we're now in? And we were so happy to see from our point of view that, that had just accelerated. That wasn't an obvious thing necessarily going in that people would make that connection between personal health and planetary health. And that they see the responsibility, but also their role in purchase intent around brands that live their values. And so we've seen that continue to come through, continue to grow. And so we're grateful because we've been on that journey as Kellogg for a long time around having really good transparency. So just like investors, consumers who are interested in these topics want to be able to have that information on their fingertips. And so how can we continue to help them find this information, disclose this information, they want to know how much ingredients that we waste as Kellogg. And I can share with them, "Oh, well, 99% of our ingredients end up as food that goes to people, either through people buying it at their store or through donation." So it's that reassurance that's really important. And for certain brands, we're happy to be a long-term leader in plant-based proteins, in plant-based meat alternatives with MorningStar Farms, looking at how do we even push it further and really demonstrate that, that brand's purpose is tied to environmental, social, governance, nutrition, sustainability and the like. So I think it's a really important area that's growing and an opportunity for all of us to really think of this with people like yourselves as an asset to investors to share about how -- not only does it reduce risk, but it drives growth going forward.

That's great, Amy. Yes, it's so important to think about this time period as an opportunity to show resilience, to use resilience as an opportunity. A lot of people always hear us talking about climate change and they get scared, and they don't know that you can focus on these solutions so much. And I think you're right, that they have to get a little bit more attention about that purpose and the solutions and the options there. Bruno, I'd love to hear about CDP. When we're talking about solutions, obviously, that's a big area for you guys in the carbon disclosure project and how that started and just thinking through climate change and corporate disclosure around that. I love what you were saying earlier about the systemic link between environmental and financial markets. But what are some of the key trends that you're seeing and how the role that you're playing is changing ESG in this environment?

Yes. Thanks, Emily. I mean as an environmental NGO, our -- we're in the business of driving change at scale and speed as possible. The key role we play and we have played for a long time, I love the quote years ago from Christiana Figueres, who said, CDP is to the future of business, but the X-ray machine was to then the future of medicine. Once you can see inside the patient, you kind of know where to intervene. And that's exactly what we do, is that we create, if you will, this kind of transparency and mapping of not just where we see emissions, et cetera, but in the disclosures from companies, it's to really actually engage in a dialogue and create a dialogue between these companies and their key financial stakeholders on where they see both risks and opportunities. In fact, this year, we'll have collected information from nearly 10,000 businesses, representing about 60% of global market cap. So we don't have the entire market yet, but a decent chunk. And we organize this information, make it useful to the financial marketplace in a variety of ways, whether it's literally data that goes into platforms like that of Bloomberg and others. It's insights. For example, last year, we published a seminal risks and opportunities report that identified clearly that the risks of inaction are great. There was just 200 large companies sampled, identified over $1 trillion of near-term risks, 3 to 5 years for lack of climate action, but the same organizations actually saw over $2 trillion of potential opportunities associated with climate action and actually, a cost to achieve of about just under $300 billion. So this was about a 7x payback if we were to deploy capital in the direction of these solutions. So these are just some examples of through data, obviously, as the lifeblood of decision-making, we inform the ESG space. And then for sure, we also -- because we have this interface with companies, we're the founding member of the science-based target initiative. Around the time of COP21, there was barely 100 companies in that family. I think this week, we might cross 1,000. I think we brought 990 yesterday. These are companies whose collective emissions are about the size of Western Europe. I mean that's a significant amount of emissions who have set or committed to set science-based targets. So again, that's another way that through our levers, if you will, really work with the organizations to set ambitious targets. And then we do the same in -- with cities, trying to connect them to capital and finance to actually accelerate the deployment of climate-resilient solutions, whether it's rebuilding their green infrastructure and tree cover or storm water management systems or other tools. So these are just some of the ways we try to intervene as an NGO but in -- really at the intersection of kind of business and finance.

Great. Thanks for that overview. That was really great, Bruno. And it is interesting to see the risks of inaction that you're talking about. This is definitely not a time for inaction in the world when we look at things out there. Just thinking about agriculture, and I want to go back to you, Ray, for a minute, because agriculture probably occupies about 1/3 of the land in the world right now according to the UN and the huge percentage of emissions. But agriculture also has this opportunity to be a sink and a net area where we can reduce emissions. So ADM is sort of really in a unique position in the agricultural value chain, and I'd love to hear how the company is leveraging that position to influence sustainable practices, both upstream and downstream.

Yes. It's -- Emily, you're right. I mean I think ADM is a very unique company. We are a very important nutrition company, but we're also one of the great agricultural food supply chain managers in the world, whereby we're a bridge between the producer on the farm and the consumer-facing brands on our tables. And Kellogg's, as an example, is one of our most important customers here. From an upstream perspective, it's important to understand that we don't do farming, but we are trusted advisers to the growers and have long-term relationships with them. We're in a unique position to really influence the farmers and help them develop sustainable practices and measurement tools. And for example, we currently have about 900,000 acres enrolled in sustainable farming practices. I mean using Kellogg's as an example, we partnered with Kellogg's and their Kashi brand to source their Bolivian quinoa from small land owner farmers. And we take a percentage of the proceeds in order to help fund solar panels for the farmers, in order to bring reliable light to the farmers there. So I mean, those are examples of how we kind of work with our customers, our partners and the growers there. On a downstream basis, we're attacking this issue from -- really from 2 sides. First of all, we're working on developing alternative protein solutions in plant-based ingredients. And ironically, we're one of the -- actually one of the largest plant-based ingredient providers in the world. And this is important for us to continue to find alternative proteins, applications of plant-based proteins and other proteins beyond -- other alternative proteins beyond just simply plant-based, for example, microbial-based. And this is going to be very important in order to help us reduce the amount of meat consumption in the world, especially beef consumption. As you know, that's actually -- raising cattle, for example, is not necessarily the most environmental-friendly activity in the world. At the same time, we're working on sustainable animal feed solutions because we know that we're not going to eliminate meat long term. And so for example, we've recently developed a new animal feed additive called [ Extract ] that targets key metabolic pathway in ruminants, a cattle and sheep, lamb, that can result in lower methane emission levels from these animals. So as you know, methane is a very potent greenhouse gas. And so our development of these additives will help address an important issue of sustainable cattle farming in the future. In addition, sustainability is a key component of our 5-year planning for projects. It's part of our core funding. So now I'm speaking from a CFO perspective here. It is part of our key funding. It is an important factor in terms of how we think about future capital projects. It's a very important part of how we're thinking about R&D funding, technology investments. In fact, this week, we have our quarterly executive council meetings, 2-day meetings. And on the agenda for the strategic meetings, sustainability is in the forefront there across all of our 3 business units. And this will lead, frankly, into the next iteration of our 5-year plan, whereby, again, sustainability and the investments around it will be a critical part of that particular plan. It'd be also interesting, just to give you an example of like -- an example of a capital investment that we've done to support sustainability, and it's really our investments in carbon capture sequestration technology in our big Decatur corn processing plant in downstate Illinois. We're currently safely and currently storing more than 1 million tonnes of carbon dioxide a year from the plant in a project we've coordinated with the Department of Energy to evaluate and better understand this technology. It's cutting-edge technology. And even a few years after we've built the plant, it's a good example of how investments in innovation and technology is going to play a very important role for our company going forward. Thank you.

Thanks, Ray. Just a quick follow-up on that. How are you measuring your progress?

Well, first of all, we've got the metrics that we've -- the targets that we've -- I mentioned earlier, and that is going to be closely monitored every year in terms of our progress towards that. But secondly, when we think about our growth strategies in the future, sustainability is actually part of our growth strategy. So a lot of people view sustainability as a cost of doing business. We don't view it that way. We actually -- sustainability is actually a critical part of how we're going to grow the company in the future. And so when we think about value creation for ADM in the future, we're going to measure ourselves in the context of the type of projects, the type of plans and how we're going to be able to execute these plans in order to grow the company. And one thing that we made a decision this year is that we have a project management tool called Wave, and we're going to put all the key sustainability projects into Wave in order to kind of hold us accountable in terms of the execution of these projects, just like any other project within the company. So this is what I call convergence. It's converging sustainability with a capital S, which is how we run the business every day.

Great. Yes. I think a lot of companies, like you, are starting to see this intersection and all the opportunity in making those connections between finance and sustainability. A good example of that is, obviously, it's been sort of a weird time in the pandemic to get where you're going and all your goals. I wanted to ask Kellogg and Amy, how did you guys pull through supply chain in this area and all the sort of machinations you had to do with getting people in the right place and food to the right places, maybe changing places? And what are -- how did you identify areas for sustainable investment going forward?

Yes. So you'll see some common themes, I think, between me and Ray, especially because I think there's a -- we have maybe 3 territories that we're really trying to drive that we think will be systemic in helping to unlock sustainability, both for us as well as for like the food system overall. So the one is continuing to drive leadership. The second is engaging our suppliers, and then third is building partnerships. So from our driving leadership, we have 2030 sustainability commitments that we launched last year as part of our broader Better Days cause platform. And so those are tied explicitly to our Deploy for Growth strategy as a company. So our corporate growth strategy includes work around feeding people in need, nourishing with our foods, nurturing the planet and letting our [ farmers ] values. So it's right there, core to what our executive committee have signed on to as part of our growth strategy as a company. And so we have commitments framework. They are science-based targets around climate as well as a number of other areas of focus as we look at the intersection between climate, well-being and food security. And so we know that those are inextricably linked. And as Kellogg, I think we have a unique role as well as a number of other food companies to kind of drive forward that. And so to do that, we've got full transparency in all of our commitments and reporting, not just through voluntary reporting, but integrated into our 10-K. We're one of the very few U.S.-based companies that have climate and outcome reporting as -- in that 10-K document. We're CDP, of course, respondents for more than a decade as well as Dow Jones Sustainability Index, SASB and a number of other reporting platforms. So that's really important to show our leadership and be advocates for ourselves and our peers as well as our suppliers to kind of join us on that journey. The second piece is that supplier engagement. And that's asking our suppliers to report to us on certain metrics. So we do -- we're members of CDP supply chain as well. So we ask our suppliers to report greenhouse gas emissions to us. And in those processes, that is one example that same on human rights and a number of other topics are built into our procurement processes. It's expectations for our suppliers. It's built into contracts, and it is a requirement around doing business with Kellogg that you share our values on these different topics. And then we build partnerships to execute on the ground. And that's wide-ranging. Ray brought up one of my favorite projects, not that I can have favorites. But that quinoa project was one of the first ones I worked on when I joined Kellogg and such an impactful and wonderful program. And that's just really thoughtful about all of the interconnected challenges that come from sourcing globally. And so how can we unlock that? How do we think that way? But we have a goal to reach 1 million farmers and workers by 2030. And we do that in partnership with our suppliers, with trusted NGOs and others. And we also have a responsibility, kind of bringing it back to COVID, around our food security work. This year alone, we've donated $18 million worth of food and donations in response to the crisis that we have around food security globally. So these partnerships are important. They help us environmentally. They help us be good citizens within our communities, and they drive better outcomes by working together. So that's the approach that we've taken, and it's allowed us to really engage our supply chain on these topics and drive really actionable outcomes. And we were proud to announce last week that we've exceeded our greenhouse gas emissions reductions that we're sunsetting in 2020. In 2019, we actually exceeded that goal by over 5%. So we're really starting to see those measurable outcomes come through because of that approach.

Just a follow-up question on that, Amy, because it's amazing to hear about all these different projects you guys have going on. And I was curious, thinking about this time period and where everybody wanted to show resilience and show that they had resilience, is there anything of those investments in those projects sort of like taught you lessons learned that you could sort of use in this crisis period?

Absolutely. And it's never without its bumps. I mean I think that, that's important to recognize. One thing that we've really felt like was important is that we are in it to partner with others. Often, Kellogg, because of where we sit in the supply chain, we don't have direct relationships with farmers. We're not directly selling to the consumer. We're not necessarily at the hub of all of the impacts. But we are absolutely at the core of a number of those relationships. So how do we convene and help connect the dots and find different ways to build programs that have impact on farm to partner with NGOs that maybe have the technological solutions, but maybe don't have the access, whereas our suppliers may have that access. So it's really -- it's all about that partnership and taking the learnings. Often, we do know a lot of these best practices or the business case or what have you, and can we share them in a way that's effective. And we saw that a lot in -- when we were looking at logistics supply chains not for us but for our feeding bank partners in face the COVID. Their traditional supply chains weren't the way that they used to be. So how can we problem solve together? We knew how to kind of adjust on the fly, and we saw what best practices were happening across our supply chain and other supply chains. How can we translate those learnings to a food bank who is looking to optimize their supply chain? So those are different ways that we kind of got creative in this time. And for us, the must-have is to be with good partners.

Yes, the partnerships are so important. I often hear people say that not one company is going to be able to solve climate change at once. It's definitely a collective problem that needs a collective solution. Bruno, I'd love to talk to you about that. But first, I want to tell our audience to start submitting your questions because after this question, it's going to be your turn to ask some questions that I'll pose to our panelists here. But Bruno, I'd love to ask you about in what way CDP disclosures and sort of having this track record of disclosures on greenhouse gas emissions, on carbon intensity, on solutions and investment in the space, how is that facilitating progress in critical ESG issues? And what solutions are you seeing are really helping companies reach their goals and become resilient and have this kind of impact that they're seeking?

Yes. I mean that's a great question, Emily. I mean just listening to Ray and Amy talk about all these different initiatives, all these different programs, these commitments, this new Board-level committee, all of these things, and you ask yourself, all of this is 100% voluntary. None of this is mandated, required. And frankly, even though we're starting to see push from consumers and even from investors, frankly, the push hasn't been so hard that companies haven't been able to resist them. And in fact, many have. And so first, I want to really both honor but also recognize that all of this lives well above, if you will, the state of compliance. So then you have to look at, okay, so how do you motivate that? How do you motivate them? And by obviously -- you mentioned it earlier, I think, Emily, what gets measured gets managed. And so our role is to really help both through the development, the power and the scale of our questionnaires to help companies see where they are for themselves, where they are relative to their key competitors. Amy mentioned our supply chain program. We have about 150-or-so large organizations who collectively have over $4 trillion of procurement spend using CDP supply chain actually to really try to understand what the -- where, again, they could see both risk and opportunity in their supply chain. So we have to inform, again, both the risk of inaction, but as much as possible, really, the benefits of early action, the benefits of competitive differentiation through these initiatives. We've seen time and again that there's a good correlation. I think we score companies that disclose to CDP every year, those that get an A go on what we call our A List. For 7 straight years, the A List companies, if you will, they were a little mini basket of stocks, have outperformed their peer benchmarks by an average of 5.5% per year for 7 straight years. So that's not accidental. So really trying to, again, infuse the right level of metrics to the right levels. Again, the creation of these Board-level committees, reflecting back to management teams is critical and also really encouraging transparency, sometimes uncomfortable transparency. Companies, again, disclose all of this information voluntarily. And often, their general counsels ask them, "But why?" But I think even where you guys at ADM have even put a dashboard now live on your website with some of this information. I think, Amy, you mentioned, again, throughout from your science-based target, your supply chain engagement all across the value chain, both transparency and accountability. And I'll stress again how this is 100% voluntary. And not just here in North America. We get disclosures from companies literally everywhere in the world, and there's not a single one that doesn't because they're required to. Nobody, no jurisdiction, no regulator anywhere in the world requires this level of disclosure, this level of commitment, this level of ambition. So I think, again, we have to look at, in order to reach that kind of speed and scale, if you will, of business and capital to achieve change, what needs to motivate that. And that's really the role we try to play in that kind of systemic link between environmental data and financial data that I referenced earlier, Emily.