Preparing Future-Ready Professionals

Case Study: The Role of the Sustainability Finance Team in Driving Impact at Olam Agri

Bikash Prasad, President & Group CFO Olam Agri; Nikita Asthana, Head of Sustainability Finance, Olam Agri; Qinyue Huang, Deputy Manager, Sustainability Finance, Olam Agri | May 26, 2022

Key Points
  • Understanding sustainability involves measuring and valuing impacts to identify value created or destroyed for other non-financial capitals.
  • This sustainable finance team leads on ESG reporting to meet the requirements of investors, regulators and ratings agencies.
  • Olam uses multi-capital accounting to identify more sustainable strategies for its highest-impact issues related to human, natural and societal capital. Multi-capital accounting informs business decisions to drive sustainable practices and financial outcomes.
  • Olam's dedicated Sustainability Finance team supports the development of its multi-capital methodologies and is the center of excellence for capitals accounting within the organization.
  • The team comprises finance and accounting professionals and brings finance and accountants' mindset and skillset to measuring, quantifying, and reporting on sustainability topics and climate change.
  • A common data platform has been created to drive internal decisions and external reporting.
Olam Key Facts

Olam International is a leading food and agri-business supplying differentiated food, ingredients, feed and fibre to 17,300 customers worldwide. Its value chain spans over 70 countries and includes farming, a direct and indirect sourcing network of an estimated five million farmers, processing, distribution, and trading operations. It is organized by two operating groups – Olam Food Ingredients and Olam Agri both held by the parent Olam International Limited.

pic-olam-overview

Consolidated Highlights 

  • 40+ Products
  • $47Bn revenue (66.5% from Olam Agri)
  • 45 million metric tonnes sales volume
  • 100,000 employees

Olam Agri

  • 2.58 million farmers in direct and indirect supply chain
  • 2.3 mHa under management
  • 50+ processing facilities
  • 6,300 customers
  • 5,000 employees

Sustainability, Food Systems, and Agriculture

  • Driving sustainability and social impact are at the heart of Olam​. Food systems form an inextricable link between people's health and planet health. Food production and supply chains need to be re-configured and well-managed to meet peoples' needs while also protecting the environment. Agricultural businesses have a responsibility to provide healthy diets to the world population (estimated at 10 billion by 2050) without causing irreversible harm to the environment. This poses a significant shift away from providing cheap food at any cost to the planet and farmers.
  • As one of the food industry's largest companies, Olam Agri is focused on enabling the Sustainable Development Goals and has established a clear purpose to enable sustainable development.

Its purpose is: “To transform food, feed, and fibre for a more sustainable future together.”

Its promise is: To deliver sustainable food, feed, and fibre through partnership-led solutions that unlock value for our suppliers and customers, connecting local origins and global destinations.”

  • Achieving its purpose, promise and strategy involves a comprehensive understanding of the business and its environment, and how key market drivers match Olam's unique and differentiated business model and capabilities. For example, growth in global population and the middle class in emerging markets drives increasing demand for food, feed and fibre, a shift towards protein-based diets in Africa and Asia, and a focus on food security. These drivers align with Olam’s unique expertise in emerging markets, in niche commodities (nuts, cocoa, spices and cotton), and building smallholder capacity while eliminating unacceptable land-use practices.
  • Its focus on sustainability enables it to deliver its governing objective of maximizing the long-term intrinsic value of its continuing shareholders.

Sustainability Finance

Olam is focused on delivering its vision of long-term value preservation and creation by embedding sustainability into business strategy and key decision-making processes. Its dedicated Sustainability Finance team provides the information and decision-making tools to support Olam’s vision and strategy.

"Quantifying our externalities and dependencies allows us to embed these into our business decision making and effectively manage long-term impacts and dependencies on natural, social and human capitals."

Bikash Prasad, President & Group CFO of Olam Agri 

The Sustainability Finance team enables Olam in five key areas:

pic-olam-sustainability-finance

  • The team consists of finance, accountancy, and business qualified employees, and recognizing that sustainable outcomes cannot be achieved by working in siloes, it collaborates extensively with other functions in Olam including the sustainability and business teams.
  • The team has brought finance and accountants' culture, mindset, and skillset to measuring, quantifying, and reporting intangible value that is not captured in financial reporting.
  • Team members also need to understand the business and industry, and the underlying challenges customers and suppliers face, to identify solutions for addressing these challenges and turning them into opportunities.
Multi-capital Valuation and Accounting

The Sustainability Finance team develops Olam's multi-capital accounting methodologies and acts as a center of excellence in embedding capitals accounting across the organization to support integrated thinking. Olam’s multi-capital accounting focuses on human, social and natural capital and allows externalities related to these capitals to be integrated into the economics of the business, along with information relating to four other capitals (financial, manufactured, intellectual and intangible). Reporting on these capitals is a core part of Olam’s Annual Report.

Multi-capital accounting involves quantifying the impact of positive interventions, externalities, and value dependencies. This provides business units the information on long-term dependencies, and return on different ESG-related investments to improve practices.

Multi-capital accounting provides five key benefits:

  • Improve Performance - better understanding of its impacts and translating these into monetary terms to evaluate projects, investments, processes, products and technologies.
  • Improve reputation and branding - allows greater transparency and builds trust with stakeholders.
  • Inform business decisions - understanding the value and significance of its impacts and dependencies on the capitals reinforces the business case for investing in the health of the capitals and enables Olam to include their value in decision making and increase value creation in relation to these three capitals.
  • Raise capital - helps meet the information needs of financial institutions, investors and donors in their efforts to understand sustainability risks and opportunities in relation to their investments and financing.
  • Strengthen relationships - fosters dialogue with key stakeholders and enables long-term collaboration to overcome environmental and social challenges.
pic-olam-natural-capital

Olam’s methodologies are based on applying the Natural Capital Protocol and the methodological approach from the Value Balancing Alliance. Three multi-capital accounting case studies include:

  • Rice India: Impacts of alternate wetting and drying techniques
    • Scope - Reduce natural capital costs of water withdrawal and GHG emissions (CH4) as a result of this new technique is valued using the shadow price of water (to reflect the true cost of water) and social cost of carbon.
    • Result - Natural capital costs of water withdrawal and CH4 decreased by US$1,464 (18%) and US$41 (48%) per tonne of rice respectively. In 217 farms implementing the technique, water withdrawal and CH4 decreased by about 300,000 m3 (US$770,000) and about 335 tCO2e (US$30,000) respectively, an estimated social value of about US$800,000 in total.
  • Rice Thailand: Impact of fertilizer application training - The reduction in natural capital costs of water pollution and GHG emissions (N2O & CO2) due to fertilizer use reduction is valued using environmental prices of nitrogen and phosphorus and SCC respectively.
  • Cotton Ivory Coast: Impacts of various initiatives on the ground to improve lives & livelihoods of farmer communities - Good Agricultural Practices (GAP) training was provided to 10,304 farmers which led to a 59% increase in cotton yield and farmer income by about US$18.8mil.

Olam applies the Natural Capital Protocol as a basis of its capitals accounting which involves four key stages:

    • Frame the business applications which in the case of Rice India is to assess the effectiveness of sustainable farming interventions and practices, communicate impacts internally and externally, and support funding of projects
    • Identify the scope of the project, value-chain boundary (e.g. direct-farming operations), material impacts assessed and the value perspective (e.g., impacts on society)
    • Measure and value key impact drivers (volume of water used and GHG emissions), and apply monetary value approach (shadow price of water - which is higher in areas of high water stress - and social cost of carbon to put a price on emissions)
    • Apply the results - test key assumptions and verify results, engage stakeholders, publish results (including in the annual report), inform decisions and secure funds.
The Capitals Coalition provides a training course.

Olam also applies multi-capitals accounting to human capital to evaluate human resources (HR) practices and how they generate impact. The human capital accounting methodology has been tested at Olam Vietnam to measure and value human capital in two key dimensions

  • Value of inspired and engaged employees: this accounts for value created by engaged employees and the potential forgone value by those non-engaged
  • Value of health and economic impact of wages and benefits: this accounts for the wider health and economic impact of wages and benefits provided to the workforce.

The approach has provided an evidence base for the increase in employee engagement scores as a result of establishing a new talent management approach. [For more information see Olam's 2020 Annual Report(page 129)].

Sustainability Finance – Other Key Activities

Climate change ready

  • Enable Olam to measure, monitor and mitigate climate risks
  • Incorporate climate information into external reporting and meet the requirements of the TCFD Recommendations which are becoming mandatory in various jurisdictions (including Singapore from 2023), and are a key element for the International Sustainability Standards Board’s two exposure drafts on Climate-related Disclosures and General Requirements for Sustainability-Related Disclosures. This will involve developing a range of transition and physical risk scenarios, and assess implications at an income statement and balance sheet level.

Incorporating sustainability into operations (Manufacturing and Technical Services)

  • Incorporate relevant sustainability metrics into decision making and change culture from "what is the cost" to "at what cost"
  • Drive net zero initiatives across operations to achieve climate targets.

Lead overall ESG reporting

  • Meeting the requirements from investors, regulators and ratings agencies for ESG-related financial disclosure
  • Data integrity on information related to key impacts to support confidence in Olam's external reporting.

Co-drive impact with Corporate Responsibility and Sustainability (CR&S)

  • Translate Group targets (e.g., reducing GHG emissions by 50% by 2030) into business unit and country initiatives - agree on the right KPIs to measure the impact of sustainability initiatives and performance, and leverage technology to track progress.
  • Undertake quarterly reviews with business units to understand and report on progress, and implement corrective actions.

Ongoing initiatives to embed sustainability within Olam include

  • Linking senior business leadership incentives to sustainability impact goals
  • Incorporating impact information into investment appraisals including working with the M&A team
  • Allocating carbon budgets and using internal carbon prices to influence decisions
  • Optimizing and automating processes and data collection to enhance data integrity
  • Scaling initiatives through its AtSource sustainability insights digital platform that tracks key sustainability metrics and traceability on a farm-by-farm basis. These insights inform new strategies to support farmers such as through crop diversification and nutrition education, and areas where the livelihoods of farmers could be improved.

Olam has also been working with Enterprise Singapore to create a standardized approach for small and medium-sized enterprises to report on their environmental performance. The AtSource digital platform helps small and medium-sized farms and other suppliers to report their environmental metrics which Olam, as well as other large companies, require to assess their upstream environmental footprint including scope 3 emissions. Improving the reliability of environmental footprinting across value chains is becoming important both for decision making and meeting new reporting requirements.

Olam’s 2021 Annual Report, Transforming to Serve a Changing World, provides additional information about Olam Group, its governance and strategy and its approach to reporting on non-financial capitals.

Olam’s approach to human capital accounting has been captured by Accounting for Sustainability.

This was a presentation to the IFAC Professional Accountants in Business Advisory Group during their March 2022 meeting. Access the full report, Global Priorities for Professional Accountants in Business and the Public Sector.

 

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