Ecolab Inc. (ECL) Earnings Call Transcript & Summary

Hello, everyone, and welcome to today's webinar. My name is Kimberlee Glinka. I'm a Sustainability Specialist within S&P Global's Market Intelligence division. It is my pleasure to moderate today's webinar titled, From Data to Decision: A Nature-Driven Corporate Transition. Before I introduce my guests, some quick housekeeping items. We recognize that the topic of today's webinar is of great interest to you, and we want this to be an interactive session. So at the bottom of your screen, you should see a row of widget icons. And these icons will allow you to interact with us throughout the session. The Resource widget is also available, and this is where you could find more content on this topic of nature and biodiversity. The webinar is being recorded, and it will be available shortly after we conclude today's session. If you encounter any technical issues during the program, please try refreshing your browser. And if the issue persists, please use the Q&A widget to contact us. It's my pleasure to highlight the panelists taking part in today's discussion. Joining us today, we have Sonia Kim, Global Head of Product for S&P Global Sustainable1; Emilio Tenuta, Chief Sustainability Officer at Ecolab; and Ark Piekarz, Director of Environmental Sustainability for S&P Global. And in just a moment, I'm going to ask my panelists to do a brief introduction of themselves. But before we get there, I just wanted to set the stage a little bit about this topic. So as we sit here today to have this conversation, I think it's important to acknowledge that we are really at a pivotal moment in time. Nature is at a tipping point. The natural materials and the ecosystem services that we are all relying upon to power our lives and our businesses are under massive strain. And this decline in nature is presenting a massive risk. It threatens the survival of about 1 million species, maybe more, and impacts the lives of billions of people. S&P Global Sustainable1 data shows that about 85% of the world's largest companies have a significant dependency on nature across direct operations. And if you put a dollar figure behind this idea, that's about 55% of global GDP that's moderately or highly dependent on nature, and that's according to an analysis released by PwC earlier this year. So it's about $58 trillion. So I think it's safe to say, transformative change in our economy and the way that we do business is definitely needed. For action on both climate and nature, the year 2030 is critical. This is the essential midpoint on the road to hitting net zero by mid-century. It also is the explicit deadline for a recently signed global biodiversity commitments, the Kunming-Montreal Global Biodiversity Framework, or GBF for short. The GBF is anchored in a 30x30 target, which aims to conserve 30% of the world's ecosystems by 2030. For those wondering how to get started, the Taskforce on Nature-related Financial Disclosures, the TNFD, offers an entry point. The TNFD is a market-led risk management and disclosure framework that's helping organizations report and start to act on evolving nature-related risks and opportunities. Final TNFD recommendations were released just last month as part of New York Climate Week. For those already familiar with the Task Force on Climate-related Financial Disclosure, the TCFD, the TNFD builds on this and makes it easier to consider nature and climate topic side by side. With that said, we have a lot to unpack in today's discussion. We're going to do our best to simplify what can be a complex topic and to shed light on what some early adopters are doing to take first steps. So just one more thing before we jump into today's discussion, and that's a polling question for our audience. Okay. So has your organization committed to adopting the new TNFD framework? Yes, we're an early adopter; we have not committed, but we are actively reviewing; or we have not reviewed the new framework yet. So I'll give you all just a brief moment to think about that and answer. [Voting]

Okay. Let's see. Do we have results on our poll? Not yet. Okay. So 12% acting as early adopters; nearly 60% not yet committed, but actively reviewing; and 28.2% not yet reviewed the new framework. Interesting. So I think we'll see this -- these -- the answers represented here, I think you'll see this plays into our conversation that we're having today. Speaking of that, once again, I wanted to welcome you to today's webinar. I'm going to turn now to my panelists for brief introductions. We're going to start with Emilio, then turn to Ark and Sonia. So if you would each just take a few moments, just please tell us about yourself and how this topic intersects with the work that you do. Emilio?

Thank you, Kimberlee, and thanks for having us today. I want to thank S&P Global Sustainable1 for hosting this very important topic. And so Emilio Tenuta, I'm the Chief Sustainability Officer for Ecolab. And today, I'm in Naperville, Illinois, which is where our water hub is. Our world headquarters for Ecolab is in St. Paul, Minnesota. I am pleased to work for Ecolab, which is the global leader for water, hygiene and infection prevention technologies and services. We operate in 170 countries and focus on really helping our customers around water, climate, food and health. Those are key pillars in driving what we often refer to, protecting what's vital to life. When it comes to nature, water is very, very important to our core business strategy, and it's one that as a sustainability leader as an organization, water, hygiene and infection prevention solutions, really water is a primary platform across all of our businesses. And I can't think of a more important aspect to the way we think about nature, the importance of how water quality, quantity and access really plays a critical role in the environment and the nature implications that has to the -- not only the businesses, but the communities that we serve. And so my connection, I think, is that water is core to our company's business strategy, but it also supports our operational footprint and the way we operate in terms of driving our water stewardship strategy for the organization.

Perfect. Thank you for that. Ark?

Yes. Thank you, Kimberlee. And yes, so I am Ark Piekarz. I, alongside my corporate responsibility, the environmental sustainability for the company. This, for example, this goes with our climate change, net zero goals, road to zero impact on water and waste. And then, of course, nature is all connected. For me, I'm by background a climate scientist, and the thing I see here is the connection of climate change and nature and how climate change, the impact of climate change is going to test the resiliency of nature. So I think this is why it's important.

Absolutely. Thank you. Sonia?

Hi. I'm Sonia Kim. I head up product for Sustainable1. Sustainable1 is a business unit at S&P Global that focuses on company, portfolio level, risks and opportunities with a focus on sustainability and climate. Naturally, nature and biodiversity is an area that we're increasingly focused on. The market is increasingly focused on understanding and uncovering all of the risks and opportunities related to climate and environment. So I work with a great team of research analysts that are focused on helping both companies and financial institutions who are investors and lenders of those companies, understand how companies are increasingly exposed to nature and biodiversity risk and the dependencies that their companies have on natural ecosystem. So we'll be talking about that today. Thank you.

Absolutely. Thank you. Thank you to all 3 of you for those introductions.

So Ark, I wanted to start our conversation today with you and with a little bit of context here. So S&P Global Sustainable1 and the United Nations Environment Program, WCMC, collaborated on the Framing the Future for Nature pilot program, which is meant to really help accelerate the shift of capital towards nature-positive outcomes using that lens of the TNFD. So Sustainable1 codeveloped this pilot program, but S&P Global Corporate was a participant, right? And so that's where you're seated and that's the perspective that you're taking in here. Can you speak to us about kind of that decision for S&P Global Corporate to take a role as a participant of the pilot program?

Yes, of course. And then so it's all really started like in 2020, 2021 when we did an internal analysis and we identified from our internal stakeholders and everything. So it was a pretty comprehensive materiality analysis. And we identified biodiversity and natural capital as material risk or topics. And so it started there. And I think some of that comes not just from our operation per se, but the fact that we do offer solutions towards climate change, nature and all the good stuff we do. And then also as a consequence of all these 2 factors is that we also have committed to publishing a TNFD report, I think, by 2025. And so to get all of this started and to get -- to introduce nature and biodiversity to our internal stakeholders, we needed to start somewhere. And so what is our overall impact on nature in our direct operations, which is mostly offices? It's a great start. Where, what offices or assets have the most risk or impact? I mean let's just start there, then we'll use that to digest that information, form some strategy around it. And then if we go on further for impact and risk related to nature independencies and all that, we're going to have to go through our value chain. So I see this as one pilot a good starting point just to introduce this concept into the company and form some strategy going forward.

Absolutely. Yes, I mean we have to start somewhere. I appreciate that perspective, Ark. Emilio, I want to take this question to you as well. Can you share with us a little bit more about the impetus behind Ecolab's interest in nature and biodiversity and your choice to become an early adopter also of this pilot program?

Sure, Kimberlee. I mean as I mentioned earlier, Ecolab is a global leader in sustainability from a -- when you focus on water hygiene and infection prevention solutions and services that protect people and what we call resources vital to life, nature is very germane to that mission and purpose. Water is core to our business strategy. And climate, as you stated earlier, climate, water, nature are intertwined, right? So climate change is already having significant impact on water resources and ecosystems around the world. And these -- it's being disruptive to the natural water cycle impacting the health and resilience of ecosystems all over the world, which has repercussions to GDP and the industries that support the major markets around the world. And so we're seeing this, Ecolab is seeing this firsthand across 170 countries that we serve. We serve 3 million customer locations, by the way, and we see firsthand how water, nature and climate are impacting our customers, whether it be in food and beverage industry. For example, the San Joaquin Valley, I was there -- I was in California a few weeks ago; or mining, when it comes to extracting precious minerals and metals in water-stressed areas like Chile in South America. So Ecolab also operates over 100 facilities around the world. And we're also monitoring the water-stressed areas that impact our business due to the accelerating effects of climate change. And so to us, this new nature reporting recommendations that we're talking about today, we see it aiming to help companies assess their impact on not only the risk, but also the opportunities that exist for companies to really leverage nature. And someday -- it isn't today. Today, it's voluntary, but it could become mandatory one day. And so getting ahead of that was important just like we did with TCFD, the Task Force on Climate-related Financial Disclosures. And so some of the key elements at Ecolab feels, from a framework that are aligned with our business strategy and our global enterprise footprint are, that water is a vital resource to our economy, number one, and for communities to thrive. The second is businesses are at risk of -- and water stewardship practices can help us be more proactive in mitigating those risks. And I would say the third is water, climate and nature are intertwined. So we did think of this holistically. And then the last is probably most important, which is we can't do this alone. And so for Ecolab, collaboration is key. And so being a convener for us, given our business strategy is really important, which is one of the impetus for the kickoff and the being a founder of the UN CEO Water Mandate, Water Resilience Coalition, which is a CEO-like coalition around raising the water crisis up the corporate agenda, was a big reason to drive collective water action and at-risk watersheds around the world, which has a strong link to nature. So just a few things that really focus on the impetus for Ecolab.

Thank you for that. Yes, what you said there about getting ahead of it, getting involved in this pilot program was to really get involved and get ahead of understanding these issues. And I think that's -- it's -- when it comes to sustainability strategy, it makes so much sense to really lean in, right, and to be on the front edge. Sonia, taking this idea over to you for just a moment, we are seeing companies lean in. We are seeing early adopters like Emilio and Ecolab. And while we see that corporate pledges are increasing, right, to commit to nature and biodiversity, formal commitments are still somewhat rare. But what are you seeing and hearing at a market level and for this larger appetite around information on nature and biodiversity?

Yes. Thanks, Kimberlee. That's a great question. And I just want to also congratulate the work that Emilio is doing with Ecolab. I mean it's great to see companies taking the lead and being very proactive about disclosures. And I think the appetite and attention to nature and biodiversity risk right now is certainly increasing. I mean based on the conversations I have with our customers who are also investors and risk managers that we serve, they're certainly paying more attention. I think, look, you, Kimberlee, you've given us some data points earlier on. And there's plenty of research that -- and if you believe science, there's plenty of research and data that points to the fact that world economies are dependent on nature. And you combine that with the fact that we're seeing record-high levels of biodiversity loss at a rate that's increasing, a lot of this is a result of industrial activity. And that's impacting nature and how climate now is also threatening natural assets as well. So I think these trends have motivated policymakers and business leaders to support the development frameworks like the Task Force for Nature-related Financial Disclosures, calling for companies to assess, disclose on these risks and opportunities. And looking at impacting dependencies is really critical. So I definitely think that TNFD is a very big step in the right direction, and it's really exciting, but it is early days. And I think that the conversations are expanding, building off of COP15. You mentioned that earlier, too. Almost 200 countries have committed to the goal of 30x30. That's going to take a lot of capital and investment to hit those goals. So it's a huge opportunity for the financial markets. And I know, as I said, I'm talking to a lot of our customers where nature and biodiversity is becoming a more frequent topic of discussion. Many of them are starting to look at TNFD. They want to know how companies are contributing to deforestation or how businesses are impacting indigenous people and their habitats. We recently developed a methodology in partnership with the World Conservation Monitoring Centre, WCMC. This is a dataset that evaluates and identifies companies' impacts and dependencies on nature and biodiversity. And it's an analytic that's designed to help companies, financial institutions identify risks using an approach that's closely aligned with the TNFD. So going back to your question, look, investors, they lack confidence in understanding these risks right now. It's complicated. There is a lack of data out there, so it's very hard to measure and assess what these risks and opportunities are. But I think more and more, our customers are relying on datasets like the ones that we've just launched to better engage with companies that they're exposed to. And they want to understand how companies are managing these risks, right? How is the Board and executive accountable for the company's impacts and dependencies on nature? And how are they actually measuring and monitoring their business activities and planning around resilience? So again, I think we're going to see a real step-up in the attention and focus from investors. And I -- and the hope is that, that will help motivate companies to be more proactive into -- like Ecolab, take something that's voluntary now and really get on ahead of that.

Yes. So on that point, for those companies, some of whom might be listening today, right, they're hearing what's being said, they know this matters. They're thinking about getting started in this journey. What kind of information is needed, right? If someone wants to undertake a nature and biodiversity assessment, what are the inputs that go into conducting that assessment?

This question is for me, right?

Yes.

Okay. Right. So actually, what you're seeing on screen are the building blocks of our approach, and that's the methodology that underpins the dataset I just mentioned. And you can see from the boxes towards the bottom there, so our analysis starts with understanding the location of assets tied to a company, a company's operations. And also, we -- the TNFD does call for looking at the entire value chain. So that's obviously something that we'll be doing more work around. At the moment, we're evaluating direct operations. So companies starting on this journey would need to know things like what are the locations of your assets? Obviously, you know what type of assets they are because that matters. And then the size of those assets or your land use. Those are the key components or the beginnings of understanding how your business is either relying on an activity that is dependent on a natural ecosystem. For instance, you need to know if a big part of your revenue is tied to maintenance or regulating service that nature is providing such as filtration or pollination, soil. There's natural flood and storm protection that without your business could be at big risk. But also, we're relying on more companies to provide nature-based solutions. So there's also lots of opportunity around understanding how your company is going to be a part of that transition and sort of transitioning business models to be more resilient. So those are the types of things that companies need to start thinking about when they're starting this journey and measuring and disclosing on their impacts and dependencies on nature.

Yes. Thank you. So it sounds like -- I mean, based on what you're describing, I mean, this is all information that should be pretty relatively available, not too difficult for organizations to kind of assemble and collate. So a low barrier to entry so to speak, right? If you want to start taking steps in this direction, most companies pretty much have this information at hand to get started, to get the ball rolling. So turning this back now to Ark and Emilio. This question is for both of you, so whoever wants to jump in here first. You've been through the pilot program. You have a nature and biodiversity assessment report in hand. Presumably with that, now you have a baseline understanding of those impacts and dependencies related to nature and biodiversity. I'm sure you're still sort of digesting all of this, but what now? What are some of the first next steps that you have taken or are lining up to take?

Yes, sorry.

No, no, I was just going to set the stage for you, Ark, if that's okay because I think Kimberlee's question, just from a company that like Ecolab that has gone through the pilot, I think we see the role that nature has in supporting the healthy ecosystems required for not only our operations, but industries and communities to thrive. That includes our ability to deliver reliable, high-quality solutions from our operations around the world to our customers wherever they operate. One of the guiding principles for Ecolab and where we started before the pilot that we continue to promote is this -- is water stewardship. And we're a founding member of the Alliance for Water Stewardship, a global freshwater standard that with a mission that is focused on global and local leadership. It's a water stewardship standard that supports and secure social, cultural, environmental and economic value of freshwater. It's a standard that you adopt at the site level. There's also The Water Council out of Milwaukee. It also has an enterprise-level water stewardship certification called WAVE. That's also very relevant to this conversation. But one of the things that we did as a foundation was this -- what we refer to as our net positive water impact goal, which is a target that we set by 2050 and halfway there by 2030. So what does that mean? So it requires us to go through a robust water risk assessment, which we monitor and update every year. Net positive water impact is about, in simple terms, contributing back to the watershed more than we take from it. It's about quantity, quality and access to freshwater, and it starts by reducing demand through Ecolab's smart water management solutions, but also, as you heard earlier, increasing supply in the watershed through nature-based solutions, which we actually provide and have implemented in many of our locations today that are at risk. So in partnership with Sustainable1, Ecolab participated in a pilot on the TNFD framework. We targeted our 25 largest global facilities. The TNFD builds on the 4 pillars of TCFD on governance, strategy, risk management and metrics and targets. The work involved, detailed evaluation, and I'm sure Ark can elaborate on, but for Ecolab's operation, really to profile nature from a risk assessment in our -- in this pilot specifically, which we accomplished that through this lens of LEAP, another acronym, forgive me, which is an integrated assessment process, which stands for Locate, Evaluate, Assess and Prepare. So when you think about the strategy, the goal-setting and reporting, when we went through the pilot, it was really around the first 2 of the 4 phases around Locate and Evaluate, which were very relevant to us. And the impact analysis findings was -- we went through a heat-mapping process with Sustainable1 and we're going to identify site locations, one in particular, Garyville, Louisiana which is in the Gulf region between Baton Rouge and New Orleans. And so it was an area that we have also identified being it's in a coastal wetland. Wetlands obviously are natural water filters that can contribute to the health of the ecosystem, so that's really important. It's a very sensitive ecosystem. And so we've focused on really driving not only -- and by the way, we source the Mississippi River Basin to source the water that we need. The challenges are immense, biodiversity in nature. They are focused on flood challenges, as you know, because of accelerating climate change. So these are some of the things that, to Kimberlee's point, the impact analysis unveil for us in terms of, hey, in many cases, we're on the right track with the water risk assessment that also has a really strong link to nature. The other area that we also focused on, which is important, I think is, again, future potential regulatory risks such as key biodiversity areas. So understanding where those locations are. These are areas of international importance, as you know, in terms of biodiversity conservation. And so KBAs are not currently regulated, but just being able to understand where your facilities as an enterprise are operating at either near or on these areas is really critical to make sure that we're being proactive, not reactive to the regulatory frameworks that change day to day. So I just wanted to set the stage a little bit, Kimberlee, for Ark in terms of some of the things that we learned from the pilot.

Yes. Thank you. I appreciate that. So it sounds like working with partners on these kind of key priority areas to implement nature-based solutions and staying ahead of the curve, right, staying ahead of those regulations and being proactive. Ark, taking this over to you, tell us about what the learnings have been so far, where -- how you're digesting these first next steps.

Yes. So just the benefits of doing this pilot for us, at least for me, too, is we have examples. So I took an ecology class, a couple in college and nature is complex. The TNFD framework, a lot of terminology to learn, a lot to digest, how do we do this and that. So this pilot gave me an idea of where to focus on. So I learned best from examples. I think that we know areas of high impact or assets that have a high impact ratio, as they call it in the tool, or near diverse -- or not diverse, biodiverse areas or protected areas. So using these examples to educate ourselves, our internal stakeholders and what -- and just because the highest impact, it has more significance when you talk to someone about it. And then we can learn and apply this to the TNFD. And it's just having that metric, just overall impact and then be able to identify key places to focus on, I think, makes it easier, and it's awesome. It's not just reading a framework. This is our company. This is our impact. We could focus here first. I love examples that apply to the company. Just reading the TNFD itself is not really that exciting. And this is something that I think the whole company can learn about itself and get excited about it.

I love what you said there about learning from those examples and giving you a way to focus and also to have those conversations with internal stakeholders. So playing off of that, Ark and then also Emilio, can you talk to us about who those internal stakeholders are? Who have been your corporate allies that you've needed to get on board or who have helped you advance down this path of nature and biodiversity?

Yes, it's a great question. And I really think this is important to those that are considering the TNFD framework in the near term is being able to really engage with the right partners within your -- within the different functions that can have a significant impact on the work that you do, not only in terms of effectiveness, but also efficiencies. So one of them, I would say, is the real estate team within our organization who are managing the changing list of owned assets over time. As you know, companies are acquiring, they're divesting, they're expanding, they're contracting. And being able to have a really good list of sites that need to be evaluated is just really important. The second is the finance team. And I think all of us have experienced this through the TCFD work is the role -- and the SEC potential final ruling that's coming out or the corporate statement reporting directive, how important the finance team is in incorporating these type of indicators in our -- whether it be financial reporting, or the case when it's regulated or also just understanding the financial implications of nature to our business. I would say the legal team, ensuring that we're, as a company, acting and putting the right strategy in place to be not only compliant, but also to help us navigate some of the potential future risks that we see, as we talked about, an example with the KBAs. My sustainability team, our team is very much involved in this. And then you go into the, I call, outside defense line. So NGOs obviously play a critical role if you think of allies to companies in advocating for nature conservation and environmental protection. Water authorities, as I mentioned a few weeks ago, I was in Sacramento. We had a big water forum there. We had a number of water authorities in the state that were there. They play a vital role, obviously, with the health of the ecosystems and the agencies that are responsible for managing those water resources. They need to be included. I would say government agencies are more broadly, not just the water control boards, but government agencies that would have a role from an environmental perspective and land management. These are -- and let me just end with this because I think TNFD does a nice job of the indigenous and tribal groups that we also need to think about. Recognizing the right to knowledge of indigenous and tribal groups is vital when designing a nature conservation strategy. We have 2 facilities in Southern California. One of the nature-based solutions that we implemented because we source water from Lake Mead was a Colorado River Indian tribe project that absolutely has implications to the Lower Colorado Indian tribe in terms of the work that we're doing to help them manage and modernize their irrigation practices that supports freshwater supply in Lake Mead. So I think those are just great examples. And of course, your -- the last but not least is the financial institutions and investors that are also becoming more and more aware of nature. So I think those are some of the organizations, the stakeholders that come to mind.

That's helpful. Thank you. It's useful to think through those internal allies and stakeholders, but also appreciate you bringing in that context, the outside parties, particularly also your mention of the indigenous communities. So I appreciate all of that very much. Thank you. Ark, is there anything that you would add to what Emilio shared from your experience?

I think Emilio did a great job there. But just for S&P Global, like we would engage at all levels, colleagues in terms of volunteering, right, or philanthropy, partnering with NGOs, of course, legal, finance, all of the departments, real estate, you name it. And also, I think S&P Global, we also have a -- our team has -- we work on this pilot with S1, and so our input in making the product better and actually have a better impact towards our customers. So S&P Global, besides our own impact, I think our commercial solutions are half of our impact toward the world and doing good.

Perfect. Thank you. I just want to remind everybody who's listening, that we do have a Q&A function, the widget. So if you have questions arising, please feel free to drop them into the chat. We will be turning in just a few minutes to a more open Q&A dialogue. Okay. So covered a lot of ground already. I think I'd like to shift the conversation a little bit to some forward-looking questions. Sonia, taking this next question to you first. As we think about -- I mean, again, we've said this before, right, we are early days. There's a lot of ground to cover just where we stand right now, right? A lot of folks to get on board, a lot of assessments to be done, a lot of kind of baseline understanding to be established. But with that acknowledged, do you have any expectation or hope for how you think this nature and biodiversity assessment tool will evolve as the market gets more familiar with this risk? Maybe you are muted. If you're speaking, we can't hear you. [Technical Difficulty] No audio. Maybe I will hop over to Ark and Emilio with a question while we get tech sorted out for Sonia. Sorry about that, Sonia. So I'll take sort of a forward-looking question to Ark and Emilio here. Oh, Sonia, can we hear you?

I don't know. Can you hear me? My mic got...

Yes. No, you're back. Okay.