An interview with Prof. André Nijhof
Nyenrode Business University is the top university for accountants and controllers in the Netherlands. The institution is also known for its commitment to sustainability and for its faculty’s role in advancing the conversation around sustainable business in the country. We had the pleasure of speaking with André Nijhof, a professor and thought leader in the field. We were curious to hear his thoughts on the state of non-financial reporting in the Netherlands and some of the promising frameworks that are helping companies make progress in this area. Read the full conversation with Visma Connect’s Sicco Brakema below.
Prof. Nijhof, can you tell us a bit about yourself and your current role?
My role within Nyenrode is to understand how companies can embed sustainability within their core activities and their strategy. In order to do so, it’s important to choose what the most material topics are in your supply chain. Challenging executives on these topics is part of my role, and so is providing models and sharing knowledge in this field.
What is a sustainable business, in your opinion?
You could say there are two meanings out there. The first has to do with the survival of the company - whether it will exist in 20 or 30 years’ time. That’s not my definition of a sustainable company. For me, a sustainable business is a business that takes responsibility for its impact on society, both the positive and negative impact. If you do so, I’m convinced that you will survive in the long term, but it’s important to put it in that order. If you focus on the impact you have on society, then you can also bring value in 20 to 30 years.
Can you provide examples of sustainable businesses?
There are many nowadays. Interface is one of them. This international flooring company launched their sustainability strategy in 1994. They were one of the first companies worldwide to have an ambitious sustainability strategy. Then there’s more familiar names, like Ben & Jerry’s and Tony’s Chocolonely in the Netherlands. These are just a few examples. I often challenge my students with an exercise and ask them to name a sustainable company in five different sectors - from airlines to ICT or automotive. Nowadays, luckily, we can name at least one company in any sector which has sustainability embedded in its mission, or at least good practices. This doesn’t mean there are companies that are fully sustainable. I don’t believe there is a company that can fulfill this definition. But for me, a sustainable company is committed to change their impact balance from negative to positive. If that’s what you’re working on, then you deserve the title of a sustainable company.
What does Nyenrode Business University do when it comes to sustainable business and stewardship?
Well, like many organisations we are trying to do a lot in this space, but my critical nature always tempts me to say we don’t do enough. Nyenrode’s core activities are education and research. So, first of all, if we ask ourselves what the university is doing, we should talk about this. When it comes to education, we have 12 degree programs. So far, 8 out of 12 programs have sustainability as a compulsory part of their curriculum. My ambition is for sustainability to become a part of every program, because it shouldn't matter whether you become a manager or an accountant, you should know about the importance of sustainability. Embedding sustainability in our programs is very important, and we still have 4 programs to go before all graduates leave our institution with an understanding of sustainability.
We also carry out research in the field of sustainability. For example, my colleagues in the Human Resources field have studied the role sustainability plays in attracting the right people and the psychological contract with employees. My colleagues in Supply Chain seek to understand how supply chains can collectively develop strategies for sustainability. We are approaching sustainability from a multi-disciplinary point of view.
Can you tell us about these secondary processes at Nyenrode and how sustainable they are?
I know a couple of years ago we decided to get the Green Key label. We source our electricity only from renewable sources. We also source 40% of our catering ingredients from sustainable sources, and we nudge students and faculty to eat vegetarian. Transport to Nyenrode is another area we work on, by promoting carpooling and public transport.
Sounds like you’re setting the right example. Why is it so important for businesses to become sustainable?
First of all, because businesses are a major cause of the current sustainability problems that we are facing. The loss of biodiversity is caused only by human activities and many of those are linked to how businesses operate and how our economy is organised. This means we have a big responsibility to make our businesses more sustainable. The good news is that if we want to, the solutions are there. For me, it’s a matter of organising ourselves and our businesses differently.
Do you think it’s better to compel organisations to improve from within rather than forcing their hand?
Yes, I think if you take on sustainability because you are committed to it, employees become more connected to the organisation. They perceive that their work is more meaningful. Doing it voluntarily, through stewardship, results in sustainability in the long-term. I think companies should become stewards first, and then we can institutionalise changes with taxation, permits, and legislation. The market transformation should come first, and institutionalisation should follow.
What about a carbon tax? Many economists think a carbon credit system would lessen carbon emissions.
Carbon taxation should definitely be there. But first, we need alternatives. If we don’t want to depend on carbon for our mobility, for example, what are our options? Should we start promoting public transport or cycling?
In our latest book, Changing the Game, co-written with Lucas Simons, we discuss this transformational process towards sustainability and we break it down in four phases. It often starts with a crisis, where companies realise that ignoring sustainability is no longer enough. This triggers Phase 1, which is focused on developing alternatives through pilots and projects. At some point, companies want to turn these pilots into a competitive advantage. Then, we enter Phase 2, where it becomes a strategic issue and you learn to compete on sustainability. If one company is using Label X, and they become successful, then others will follow suit. This is where we learn which sustainability initiatives scale within the market. Phase 3 is all about turning sustainability into the new normal. Here, you start seeing industry roundtables and collaboration between governments, companies and often NGOs. The goal being to develop a strategy for the whole sector. Sustainability is approached here as a pre-competitive issue. But at the end of Phase 3, you always have the “lobby for” and the “lobby against.” The lobby that wins will determine whether sustainability becomes institutionalised. This determines whether you move forwards or backwards. Will the coalition investing in sustainability win, or will their opponents feel threatened and demand more research and pilots? Who will get government support? If the coalition for wins, sustainability can become the new normal. Then, we enter Phase 4, where sustainability is institutionalised.
Does sustainability harm profitability and performance? Is that why the “lobby against” often wins?
This is a mindset, but sustainability does not always increase costs. The truth is, there is no automatic link. Most of the time, in business as usual, companies don’t ask questions about sustainability. In the supply chain sector, for instance, companies are used to looking at prices, delivery times and perhaps their code of conduct, but they don’t explicitly look at how they can make their supply chain more sustainable. In the short term, some sustainable approaches might be more expensive but there are often alternatives. They need to start including sustainability in their conversations with clients, with governments and even with competitors.
Unilever, for example, is known for its sustainability efforts. They launched their sustainable living plan in 2010. During this time, they tripled their stock value. This proves that you can be sustainable while increasing your returns.
Are there branches that are doing better than others in sustainability?
Yeah, I can answer this in absolute and relative terms. The airline industry is an interesting example. In absolute terms, they are polluting. They were not included in the Paris Agreement because it was too sensitive, and basically we have no alternatives to power airplanes. From this perspective, you can say they are not sustainable. But now, due to the corona crisis, there’s a whole different debate about the airline industry. For many decades, the debate centered on making flying “less bad.” Now, people are asking why we should fly between Amsterdam and Brussels instead of taking the train, for example. Shouldn’t we change the rules of the game? This is driving transformation in the airline industry on a fundamental level.
The key is to talk about fundamental change in your sector. These conversations are going on nowadays in agriculture, where we have conversations about the future of our food supply. The same is happening in the textile industry, where companies are discussing whether they should source from low-cost countries or promote better labor conditions and use recycled materials. In construction, we see this as well - there is a new focus on circularity.
You mentioned the corona crisis. Currently, we are living in turbulent and uncertain times. Do you think that there is still room for sustainability considering these conditions?
Yes and no. For many companies, the first priority is just survival. This makes it difficult to focus on sustainability. But the good news is that due to the pandemic, many people have been forced to change their behavior. The wheels are in motion and you can use this momentum to promote long-term changes that we need in relation to sustainability. Remote work is just one example of this. Prior to the pandemic, we would have considered having this interview in person. Now, we are meeting online.
Non-financial reporting is one of the most important factors in becoming a sustainable business. Can you say something about the current level of non-financial reporting in The Netherlands?
I think it’s important to talk about True Price, which I see as a next step to integrated reporting. With integrated reporting, we measure the non-financial performance of a company, which is quite the job. It can take months to collect the required data and present it as actionable information. True Price helps us turn all of this data into useful information, because the framework can be applied on a product level. An example we often use in classes is a rose being sold in a market in Amsterdam. The price is typically 73 cents. What is the true price of this rose if you would also pay for all the externalities? Meaning, you would compensate carbon dioxide emissions for the transport of the rose (because it’s produced in Kenya in this case) and pay a fair wage to employees? When you monetize the externalities, you get the true price of a product. In the case of this rose, the true price is 91 cents. If you frame KPIs in this way, it changes the debate between stakeholders. Then, they should ask: Would we be able to sell this rose at its true price? Secondly, how can we guarantee that the price paid is fairly distributed?
That’s a good point. Sometimes we see products that use LED lighting, for example, which is more environmentally friendly. But this results in products having lighting when they don’t need to. Like a car that has lights near your feet, or a coffee machine with lighting. This takes the environmental benefits away in a sense. You also have cases where companies claim to be sustainable and they increase the price of their products, promising to do something with the profit, but in the end it goes to the shareholders. Integrated reporting should help tackle that, as I see it, by making the distribution more transparent.
You’re right. Luckily, due to developments in the last 15 years, more and more companies (especially bigger ones) have an integrated report. Here, they typically show their carbon dioxide emissions or whether women represent a good percentage of their board. This is interesting as data, but how do you turn that into information? You might need to look at trends, or compare it with your objectives. With True Price, you should show whether the increase in price actually resulted in a fair wage for employees.
For me, this is a very important next step that is made possible by becoming more professional in measuring non-financial data. We need to learn how to use it and implement it in sector strategies. True Price is one of the methodologies that is quite promising to learn how to do this. Puma implemented this in their profit and loss statement, using Trucost. They had their normal profit and loss statement, and calculated an environmental profit and loss statement. If I remember correctly, in this case it turned a positive result into a negative result; 85% of their environmental impact was outside of their direct control or influence. The outcome is there. In a world where water, for instance, is becoming more scarce, you will have to pay more for it eventually. This is where carbon taxation becomes relevant. So, in short, reporting on this non-financial data helps businesses take action and foresee the impact of measures like carbon taxes as well.
Would you say there are sectors that are performing better than others when it comes to non-financial reporting in the Netherlands?
You have different groups of front-runners. We see companies that are leading the way in non-financial reporting, and experimenting with different frameworks. We also see a middle group, which is in the process of professionalising their reports. Sadly, we still see companies that are not interested in integrated reporting at all. This could be because they don’t care about sustainability, or because they don’t care about reporting. Family-owned enterprises, for instance, are often leaders in sustainability, but not reporting. For them, it’s quite logical to think long-term, but they don’t report that much about it.
It’s important to consider that the unit of analysis in non-financial reporting is the company. That’s because non-financial reporting emerged from financial reporting. However, this often results in a mismatch between collective issues and the company’s sphere of influence. For instance, if a particular company has an equal amount of men and women on the board, will this automatically result in more gender equality in society? This, in my view, is still an unanswered question.
Yes, this is a very important question. At the same time, we see that companies have acquired more power over governments, so they do have a large sphere of influence. I think more and more, we are reflecting on how we want to organise our societies and what kind of role companies should play. This brings me to the state of corporate governance in Europe. Can you tell us more about this?
There is a shift. In the past, corporate governance was mostly about shareholder profit. Now, more companies are trying to balance that with their impact on society. There are several interesting developments in this area in the EU. One of them is led by The International Integrated Reporting Council (IIRC), an international organisation that is trying to balance the different standards for non-financial reporting. It’s quite an impactful organisation. They propose what they call “the six capital framework,” which looks at financial, manufacturing, intellectual, social, human and environmental capital. With this model, you should look at outcomes and not just output. It helps you understand the connections in a supply chain, and the indirect consequences of your activities. I see more companies adopting this methodology.
The other development that is worth mentioning is The European Commission’s Green Taxonomy. This is basically a long list of definitions of what we mean when we talk about sustainability. It lays out what companies need to do to be labelled sustainable when doing business in the European Union, and it does so for different products and categories. Before the taxonomy, companies could develop their own criteria of what’s sustainable. Now, thanks to this taxonomy, there is a common norm about what you need to do. This is still in development, but it’s a very important one.
Speaking of taxonomies, the two most important standards used for non-financial reporting so far, are GRI and SASB. Can you tell us a bit more about these standards?
That’s right, these are the two standards that are used most. What companies should avoid is reporting for both. GRI is dominant in the EU and many other parts of the world. SASB is used mostly in the U.S. Recently, they announced that they are working together to align their approach. I think this is a very good development. SASB is strong when it comes to naming the material factors in a sector. GRI is strong when it comes to including stakeholder dialogues in your processes. It’s great to build on the strong points of both.
Prof. Robert Eccles and his colleagues, Michael P. Krzus and Carlos Solano, published a comparative analysis on the state of integrated reporting around the world in 2019. They found that Germany, South Africa and the Netherlands were at the top in terms of non-financial reporting. Why is it that it hasn’t taken off in other countries?
Well, it depends a bit on how you label “taken off.” I do see that many more countries are developing policies about what they require from stock-listed companies. In France, integrated reporting is compulsory. We are not that far in the Netherlands. Where I agree with Prof. Eccles’s assessment is that companies should be clear about their purpose. They should walk the talk and live up to their commitment. If we look at how many companies are doing this, then we could certainly say that non-financial reporting is still not far along. The reason it has not taken off is that many boards are modest in what they promise. They look at non-financial reporting from the standpoint of risks instead of responsibility.
We are facing enormous challenges today: climate change, the loss of biodiversity and mass extinctions, and now, a global pandemic. We’ve seen that both companies and governments have acted very quickly to address the COVID-19 crisis, but not climate change. Why do you think that is and what role can integrated reporting play in putting this challenge at the top of the agenda?
Well, when we talk about facing these challenges, people often think about the cost. Yes, we need to invest in a different way of doing things for a sustainable future. If we make those investments in the right way, they can be very economically viable. But sustainability is much more than that. It’s an investment in the future we want to create together. It’s about paying attention to the value of equality. It’s not just about cost. In the end, non-financial reporting is just a means to an end. The end goals are ending poverty, tackling climate change, etc. Having more transparency is a means to achieve this.
I would like to conclude by asking: Why is this topic important to you?
Knowing about these topics comes with a responsibility. If you don’t know about it, you can still ignore it, but now that we know companies are a strong cause of sustainability issues, it’s important to think about how they can be part of the solution. I take this as a moral responsibility that is extremely important. Developing knowledge and sharing it through education is also a very rewarding activity. For me, my work is a calling and not just a profession.