SGS SA (SGSN) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the SGS Sustainability of Ambition 2020 (sic) [ Sustainability Ambitions 2030 ] Conference Call and Live Webcast. I am Sandra, the Chorus Call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Toby Reeks, Senior Vice President of Investor Relations at SGS Auditorium in Geneva. Please go ahead.

Hi there. I hope you're all well. Thank you for the introduction. It is my pleasure to welcome you to the launch of our Sustainability Ambitions 2023 and 2030. The presentation today will cover our new corporate sustainability strategy. And you can expect more on our group strategy, including the sustainability solutions at our Investor Day at the end of this month. This is the first time that we have presented our corporate sustainability ambitions externally. And I think this really reflects a couple of things: The first is that there has been a significant increase in the level of interest in ESG and corporate sustainability from analysts and investors. That won't be any secret to you all who I'm sure are spending a lot more time focused on these matters. Secondly, sustainability is integral to our strategy and has become critical to all our stakeholders, and this is part of the effort to be transparent about that. So framed by our purpose of enabling a better, safer and more interconnected world, our SA 2030 ambitions are intended to deliver a measurable contribution towards United Nations sustainable development goals and create value for our stakeholders and society. Personally, it makes me proud as SVP of Sustainability to be part of the presentation today, and that shows you the work that the corporate sustainability team has been doing, working closely with our functions and our businesses to develop targets that are challenging and achievable. Before Paula, our Global Head of Sustainability, who runs the corporate sustainability team that developed the strategy and ambitions with the cooperation of the network, gets started with the presentation, I would like to invite Frankie, who has been a big driver of sustainability within SGS, helping make what it is today to give a few words of introduction, and I will then return for the Q&A. Frankie, please go ahead.

Thank you, Toby. Good afternoon to everyone on the phone. So I'm very pleased to make the introductions to our first sustainability event particularly to talk about our Sustainability Ambitions 2030. As you all know, the world is facing many sustainability challenges. And as a company, we may not be able to resolve any of them by ourselves, but we can certainly contribute to global solutions by taking sustainable steps toward a better future however small those steps are. You will see in our Sustainability Ambitions 2030, we have taken the approach to engage with our stakeholders to develop internal target to support our corporate sustainability. With our customers, we are developing new services that will support their journey to become more sustainable companies. With our supply chain partners, we're working on programs that help them to align with our sustainability visions and with the expected result of having a more sustainable supply chain. And more importantly, with our employees, we are engaging in increasing our contribution to local communities where we operate via community -- sorry, via company volunteering, educations and donations. SGS has been a producer and a leader in sustainability, and we aim to continuously raise our sensibility standard internally for our industry and beyond. Our Sustainability Ambitions 2030 are aligned with our strategy 2023, which will be presented in a couple of weeks, as mentioned by Toby earlier, and more so with our company purpose of enabling a better, safer and more interconnected world. So on that short introductions, I will hand over to Paula to go through the main presentation of today. Thank you.

Hi. Thank you. Thank you, Frankie, and thank you, everyone, for joining the call today. Let me move the slide. So SGS started its sustainability journey back in 2008. In 2014, the first sustainability strategy was launched. These were our sustainability ambitions 2020 that you are probably familiar with. With obvious accomplishment and under the strong leadership of our CEO, the corporate sustainability department together with the support of many people in the network, implemented a sustainability management system across the full group, launched several sustainability policies, programs and initiatives across the organization and in the countries that we operate. This has resulted in a successful implementation of these ambitions. We have achieved earlier in time, some of the targets that we have in there. And we have created a strong culture of sustainability in the organization. All these have positioned SGS as a sustainability leader, as Frankie was saying, for many years now, and we can be very proud of having raised the sustainability standards in our industry and within our company. As you can see in the slide, we have been industry leaders in the Dow Jones Sustainability Index for the last 7 years. We are CDP A List members, EcoVadis Platinum Level and many other great qualifications that we have in other ESG ratings. Following the success of the Sustainability Ambitions 2020, we really now look ahead to the future, and we are very pleased about presenting you the new corporate sustainability strategy for the next decade. So building the sustainability ambition, sorry, has been a long journey in the organization. To define it, we have explored the world megatrends, the sustainable development goals, we investigated many sustainability leading companies out there and best practices. We have used their ratings and feedback from investors on practices in sustainability. We have also considered our most material topics of the organization that are resulting from an extensive and thorough full exercise consultation to many stakeholders, and we also have into account our internal risk mapping. All this together, combined with the hard work, as I said before, the hard work and collaboration of all internal functions and divisions of the group, we believe that we have shaped across function, integral and holistic sustainability strategic framework. So not surprisingly, our Sustainability Ambitions 2030 are framed by our brand purpose, which is enabling a better, safer and more interconnected world. With value creation at the heart of our company, this new set of ambitions will strive to deliver even more positive value to society. Our Sustainability Ambitions 2030, as you can see, are integrated across our entire value chain. This means that you will find in their targets for our operations but also for our supply chain and our services, and they are built up in 3 pillars; better planet, better society and better governance. To achieve these ambitions, we have set specific short term targets, 2023, which are aligned with the business strategy and strategy for growth and long-term 2030 targets, that will serve as our North Star to guide our progress in the long term. In the slides to come, you will see some detailed examples of these targets. So in our first pillar, better planet, you will find targets that will seek to minimize the impact that SGS creates into the bio ecosystems. Although SGS is not a highly intensive company in terms of production, we want to focus on driving greenhouse gas emissions reductions and support sustainable infrastructures and mobility across our operations. As you can see, our main targets focus on reducing the CO2 footprint and meet our Science-based target. It was a pleasure and an honor for us for being one of the first 100 companies worldwide to have a Science-based target approved. This has triggered addition of targets, obviously, that affect our car fleet, and we will try to make it less carbon intensive. We will boost our energy efficiency building measures, and we will reduce unnecessary air travel. We will also continue to adopt the task force for climate-related financial disclosures, that is CFD to embed climate change risk into our normal evaluation processes and procedures. We also have targets that will promote a culture of efficiency across the organization. But most importantly, our sustainability solutions offered by our Industries and Environment and Natural Resources divisions will support the sustainability journey of our customers. This service will enable more sustainable infrastructures, industrial processes and transportations as well as the sustainable and efficient use of natural resources. Our better society targets will seek to contribute positively to our employees and broader society. With this purpose, we have defined targets to keep promoting a safe, fair and inclusive working environment in SGS with highly engaged and empowered employees and to make a positive and long-lasting impact on our local communities. For this reason, and as you can see in this slide, our main targets focus on accident rates, diversity and inclusion, investment in local communities through volunteering activities and pro bono services. You will also be able to find additional targets on human rights respect, nonfinancial risk management that our CFO will talk later about as well as our employee satisfaction targets. All this has triggered a lot of alignment in the organization internally. Finally, as in the other pillars, our sustainability solutions developed by connectivity and Products Business division, we support our customer sustainability journey by enabling safe and sustainable connectivity and products. In the same way, we aim to contribute to improve nutrition, health and wellness for society thanks to the sustainability solutions offered by our Health and Nutrition business division. On our better governance targets, you will see us to improving our sustainable business practices. With this proposed, we have defined targets to continue embedding integrity, data privacy and security as well as creating a strong culture of efficiency and customer focus, in order to provide best-in-class services. For this reason, in here, you see that we have set specific targets associated to our world-class program service, integrity of our employees, digitalization, information protection and privacy, customer satisfaction, but we will also continue collaborating with our suppliers to promote sustainability principles beyond our company borders. In this regard, we aim to keep deploying our code of conduct for suppliers across our supply chain, keep working on the integration of sustainability criteria in the homologation processes and actively contribute to the reduction of SGS CO2 footprint by sourcing energy efficiency solutions from our strategic suppliers. As in the rest of the pillars, we will also contribute to our customer sustainability journey by providing enriched knowledge, skill and technologies, thanks to our knowledge business division. And we will be delivering safe and fair access to digital environment through the Digital and Innovation business division. The Sustainability Ambitions 2030 will help us to measure our contribution to the sustainable development goals which are now, as you know, the basis of a common language for companies to evaluate their social and environmental impacts. For us, it's very important that we are able to translate all these actions that we are taking into a positive impact to the sustainable development goals. Important to mention as well that the sustainability solutions framework that SGS launched a couple of months ago, allowed us to have a more detailed view on the revenue we generate through our sustainability solutions. In this way, both frameworks, the corporate sustainability and the sustainability solutions work are embedded together. This will allow us to position us a step closer to our ultimate goal, which is quantifying in economic terms our value to society that we add and create. And we want to do it in a holistic way across our supply chain, operations and services and to help us on taking more and better integrated decisions. This quantification will be done through the value to society model that we have developed and that is based on the 6 capitals of the integrated reporting framework. If you are interested on knowing more about this, you will find more information in our annual and sustainability report. Hopefully, this new strategy will enable us to continue delivering meaningful and sustainable value to our customers, shareholders and investors and, of course, to the broader society. Now with very great pleasure, I give the floor to our CFO, Dominik de Daniel.

Thank you, Paula. Good afternoon, ladies and gentlemen. The financial ecosystem and the nonfinancial ecosystem share similar drivers. However, the nonfinancial system also takes into account the inputs and outputs related to the social and natural capital. Both together shape the business model and are necessary for risk management, decision-making and capital allocation. The 2030 Sustainability Ambitions represent a great step towards integrating financial and nonfinancial aspects into our organization, and we have taken already steps in this direction. An example of this would be that we have produced an integrated annual report for the past year, which demonstrates our ability to maximize our value to all stakeholders. It has also encouraged us as a company to think in an integrated way and have a clearer articulation of our strategy and business model. To achieve this, 1 initial step was to integrate the collection of financial and nonfinancial data through a common tool and the direct involvement of the finance team in monitoring, also nonfinancial targets and KPIs. This includes the monitoring of the development as well as the goals for 2030. This integrated system allows us to have a high level of confidence in the information we receive from our affiliates and to make decisions accordingly. Additionally, this process allows us to be more transparent with the information we share with our stakeholders. Another important milestone of 2020 is that a new committee at Board level was created to take responsibility for sustainability matters. The Corporate Governance and Sustainability Committee assists the Board in defining the group policies and strategies related to sustainability, including methods relevant to the group reputation and nonfinancial risks. This proves the high level of commitment of SGS with sustainability matters will better address our stakeholders' concerns. Lastly, to further demonstrate our commitment, at the beginning of this year, we revised the annual incentive plan to incorporate ESG metrics that are aligned with the company's 2030 sustainability commitments, combining climate, health and safety, and diversity related targets. With this, back to you, Paula.

Thank you, Dominik. Thank you so much. Finally, I wanted to finish the presentation to invite you to have a look and to find out more about this strategy. For time to process, obviously, we could not showcase every target that we have set. But you will find it there in our new website that has been launched today. You will find also some interesting videos about our approach to sustainability and this new strategy. And you will also find a brochure with the framework and detailed targets for this next decade. Thank you so much for all joining. Then, Toby, I give you the work for the Q&A.

Thank you very much, Paula. Thank you, Dominik, and thank you, Frankie.

So please do ask questions. You can ask them through the webcast or by pressing star one, and we will get around to those. So we haven't got any at the moment. So what I'll do is I'll start off by asking a couple of questions, and then we can see if they stack up. And if not, we can draw the call to an early close. So Paula, can I start with you? What is different in these new Sustainability Ambitions 2030 compared to the last set of sustainability ambitions in 2020?

Yes. Sure, Toby. So it's a very good question. The ambitions 2030 are evolution of the ambitions 2020. But the difference is that we have included targets that are touching, as I was mentioning before, the entire value chain. So the former ambitions were only focusing on the way that we operate. But now we have taken this step further of integration, and we are including targets for our supply chain, providers and also the divisions, the services are included in this strategy.

Thank you very much. And Frankie, if I could ask you one. How -- of course, we will be elaborating on our 2023 group strategy at the end of the month. And -- but what I'm going to ask is more I guess, maybe a more philosophical question. How important are the sustainability ambitions to the group strategy, please?

I think if you look into the future and the long-term evolution of the company, the ambitions 2030, which is the next decade, and after that, will be another plan for the decade after that, is an integral part of what we're going to become and we try to become. The world is becoming more tense in terms of scarcity of resources and in terms of understanding sustainability and governance. We need to set the framework that allow us ourselves as a company to start evolving the -- in an evolving framework. These set of visions set the tone for us to focus on particular aspect of our companies where I believe we can make a difference. And more importantly, as I mentioned earlier, our ambition 2030 engages all the stakeholders. If I take 1 key example is our colleagues. We have 90,000 colleagues in the field. The way we try to engage with them defines the way we'll become as a company. The engagement of appointment of those 90,000 colleagues for them to take more steps toward a better future, small steps, great sustainability actions will help us to redefine the culture of the company. At the end of the day, it's not just about the financial, the steps, the contribution, it's also about the culture of the company and more so the culture of those 90,000 colleagues that we have that will help to redefine the company for the future. So those 90,000 colleagues will start to have ideas about how to be more sustainable internally and in terms of services as well as around their own community and their own families, how they educate the broader aspect of their communities about being more sustainable. So these are really aspects of what we are looking at as a company to become more -- better, safer and certainly more interconnected with our local communities as well.

And Dominik, if I could ask you one. Just sort of a quantification and then a further sort of more technical question, I guess. So how much time is spent on sustainability, both the reporting and externally? I mean I obviously am involved in a lot of analyst and investor meetings. So clearly, that has increased quite a lot. But how much time is sort of spent on the reporting side as well? And then secondly, how is the Corporate Governance and Sustainability Committee interacting with senior management?

So I think, obviously, in terms of discussion, especially with investors, it's materially more time. If you think about investor meetings or investor calls, sustainability is a very prominent part of the discussion. Now not only ESG related, which is, of course, a clear priority, but also related to potential services, we, as a tech industry and we as the leader in the industry can offer to our clients. I think there's a lot of potential. Obviously, there's a lot of questions in this demand, which also triggers again a lot of ideas and workload internally. I think in -- if you think about at the time when it comes about reporting, I would not say it's now a huge amount of time because it's pretty integrated. And as Paula outlined, SGS historically focused a lot and had since years integrated annual report. So it's a pretty well-defined process. But I think with having now this target very prominently, it gives an additional push. It gives an additional focus. And I think also within the organization, a stronger alignment across businesses and functions, which will definitely accelerate the process. But I would not say it's now a huge amount of time it takes away because I think it's part of our strategy in part and has important purpose. Corporate Governance, obviously, the Corporate Governance Sustainability Committee, they -- and we have the Board meetings, and we have a dedicated committee. We obviously have intensive discussion with management about progress. So it's like we have other committees, which is -- which are equally important. But I think it's very good to do this really from the top -- from the Board in order that sustainability has a high priority in that respect. So from this point of view, it's also -- yes, it's only renamed last year, but I think it gives additional focus for sure.

Thank you very much. So we have no questions. So what I will do is I will say thank you to everyone who's joined. I hope you found it useful to the day. We look forward to speaking to you -- to some of you at least, I hope over the virtual Investor Day on 27th. And then I'll hand it back to Frankie for a couple of closing comments, and then we will end the call. Thank you very much.

Thank you, Toby. Maybe just a couple of quick remarks. I think it was useful for us to show and demonstrate that as a company, our sustainability credentials ambitions are there. We started, as Paula said, in 2008, our first plan, and we have finalized our 2020 plans just a couple of months ago. And we're certainly looking forward to the 2030 plan. And certainly, when we started the sustainability road map 15 years ago, it was more on aspirations than anything else. We believe in it. So we went after it. But we can see that in this decade, these topics that were a little bit on the back burner 10 years ago are becoming front end topics that we need to resolve. And I think these Sustainability Ambitions 2030 become more relevant than ever. And as a company we're striving to achieve those ambitions and to exceed those ambitions, and we have to support our stakeholders and modify the benefit of our stakeholders, our customers, our supply chain and our employees. This is one of the key objectives for what we're trying to achieve and change the culture of our company as well. On that, thank you very much for attending. And Toby, I guess we can close.

Absolutely. Thank you very much, everyone. Goodbye.

Thank you.

Thank you. Goodbye.

Thank you. Goodbye.

Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.