“The value creation concept used to be associated with monetary capital, raw materials, and the workforce, which together create a new product on the market. The impact of immaterial assets on the value creation has increased in recent years alongside the material assets,” explains Sirpa Juutinen, Sustainability & Climate Change Leader at PwC.
Companies with a sensible and well thought out approach also recognise the potential for value performance originating from other types of assets. “With regard responsibility, for example, companies today tend to pay more attention to their natural capital and associated risks, the intellectual assets of their personnel and their relationships with local communities and stakeholders. And these can be led actively by the companies; by skilfully combining different types of assets, they create new products and services that can contribute to changing the world.”
Responsibility is in the core of UPM’s Biofore strategy. Some of the company’s 34 responsibility goals are continuous and some extend up to 2030, and the focus of these goals is on economic, social, and environmental responsibility. The progress of these goals is measured by chosen key performance indicators.
“At UPM, corporate responsibility is handled in a very professional manner; all personnel, including the top management, is committed to achieving the goals. UPM has incorporated potential risks associated with sustainability into their strategic assessment early on, allowing them to structure their business operations with an eye to future development and circumstances,” analyses Juutinen.
Taking risks under control
In their annual reports, companies describe in much more detail how they generate added value and the factors that may have influence on it in five or ten years. Awareness of the limited availability of natural resources has increased, resulting in putting more weight on various aspects of sustainability.
“A risk factor may be, for example, a significant change in the availability of raw material or considerable changes in the quality or cost of a certain type of capital within three to five years or even in the longer term. In the forestry sector, new investments are usually substantial, meaning that companies need to have a long-term in sight in the direction they are heading in,” Juutinen continues.
Climate change, potential global emissions trading and the price of carbon dioxide emissions are issues the companies can influence through their activities, while the related constraints are regulated through political decision-making processes. Also the trends such as digitalisation, robotics and changes in the competencies of the personnel require more adaptability from companies. The impact of different types of capital varies through time and the development phase.
Future business development may likewise lead to various negative outcomes, such as environmental impacts or questions related to human rights or land ownership. Companies should also listen to these messages carefully.
“Companies that, for example, want to ensure they handle human rights issues scrupulously make informed decisions and create appropriate policies. Once the values and policies are set, the company must also act accordingly, as activities in conflict with the values may, in turn, put any profit from future assets at risk.”
“We will ultimately have to determine a level for the generation of added value that is both sustainable and feasible in the future – whether the situation is assessed globally or from a specific continent, country, or location point of view."
Stakeholder relations as indicator
Juutinen believes that well-functioning co-operation between companies and stakeholders can be a good indicator and opportunity to both parties.
“Stakeholders are often experts in narrow but very influential sectors. They make us aware of emerging factors that could grow and become major issues in the future. Companies should listen to all stakeholders carefully and aim for a comprehensive overview of the direction our world is potentially heading in, as well as the types of risk that are associated with this process and how to benefit from upcoming changes.
UPM is, for example, systematically analysing the expectations and views of their stakeholders and process them to better meet the future challenges.”
Investors are also keeping a closer eye on how the companies they invest in integrate corporate responsibility into their practices. This is how they aim to ensure the good performance of their investments in the future.”
“In fact, investors’ interest in companies that choose to conduct their business responsibly is the latest factor driving the change. They monitor the situation and ensure they know exactly where added value is generated and where profits are likely to be at risk in the future. They conduct an in-depth analysis of where cash flow originates, which, in turn, contributes to the acceleration of the change process. Investments will be made in more sustainable options rather than fossil fuels, for instance,” she affirms.
Digital communications and social media have permitted a greater degree of transparency, so that any flaws can be discovered more easily and addressed sooner. Consumers are also able to influence the companies through their choices and consumption patterns.
Forest industry at the forefront
Finnish forestry companies have used many means to indicate their commitment to responsibility, both at home and abroad. The sector has both the determination and ability to manage things well. “UPM’s strength is that the company has built a solid foundation during the past decades, which means that they now have the ability and resources to respond to unexpected issues. A high level of performance reliability is by no means obvious in all businesses.”
“I trust in market forces. When companies such as UPM listen to stakeholders, take their responsibilities seriously and have a long-term view of their business activities, they will create value also in the future.”