Leveraging Sustainability for Competitive Advantage

Torsten Lichtenau:

You can't fight gravity and we can see that the economics is starting to shift in some sectors. In the US, 90% of the increase in electricity capacity last year was from renewable. If you think about EVs, currently in some countries, it's becoming the majority of vehicles sold. The good example would be China with above 50% or Norway. You need to think about the economics and not fight gravity, but embrace gravity and accept where the economies are driving.

Michael Torrance:

Welcome to Sustainability Leaders. I'm Michael Torrance, Chief Sustainability Officer at BMO. On this show, we will talk with leading sustainability practitioners from the corporate, investor, academic, and NGO communities to explore how this rapidly evolving field of sustainability is impacting global investment, business practices, and our world.

Speaker 3:

The views expressed here are those of the participants and not those of Bank of Montreal, its affiliates, or subsidiaries.

James Burrow:

My name is James Burrow. I'm Director on BMO's Sustainable Finance team and I'm pleased to be your moderator for today. I help BMO's North American commercial clients address sustainability opportunities and challenges as part of their capital planning and business strategy processes. Our specific focus will be to highlight practical ways in which sustainability can support core business objectives, namely growing revenue, cutting costs, and enhancing brand value. According to a recent study conducted in February by our very own Climate Institute, which interviewed over 700 US and Canadian business leaders, 69% of respondents said they either already have a formal plan in place to address climate change or developing one.

This represented a rise from 2022, and while concerns about environmental impacts are a key driver, nearly half or 45% of business leaders in the US and Canada cited customer pressures as the likely cause their companies will increase actions on climate over the next year. What's most encouraging is perhaps that 88% of respondents said they're confident their actions are making a difference. We're joined today by a great panel with deep experience translating sustainability best practices into sources of competitive advantage for their own businesses. Starting with Aysu Katun, who is Vice President of Sustainability at Greif. Greif is a US-based global leader in industrial packaging products and services with over 250 locations globally.

Aysu leads the development and execution of Greif's sustainability programs with a particular focus on product environmental footprint reduction, sustainability driven innovation, fair and safe labor practices, responsible sourcing, governance and sustainability reporting. Aysu has spent almost 15 years in progressively senior roles with Greif. Prior to which she was focused on product development and sourcing at HP. Moving to Tim Faveri, Tim is Vice President of Global Sustainability at Nutrien Inc, one of the world's largest fertilizer crop inputs and services companies.

Tim leads Nutrien's environmental and sustainability strategy and performance. He's a seasoned business and sustainability professional with over 25 years of industry experience focusing on reporting and disclosures, carbon management, and value chain industry partnership development. Tim represents Nutrien on the board of directors of US Farmers and Ranchers in Action. Tim was previously at Maple Leaf Foods where he led the organization to become the world's first major food company to be carbon-neutral.

Lastly, we go to Torsten Lichtenau who leads the carbon transition practice globally at Bain & Company. Bain is the top tier management consulting firm with offices across 64 countries, and Torsten's clients include many Fortune 500 companies across different industries and geographies. Torsten supports these clients in embracing the value creation opportunity associated with decarbonization. He has a particular focus on decarbonization of operations, supply chain, and commercial excellence for low carbon products. Let's get started. Torsten, I'd like to start with you. Could you just start out by giving us a lay of the land as to what you're seeing across North America specifically, starting with what do we actually mean when we talk about sustainability? Why are companies pursuing sustainability initiatives and what are they doing exactly?

Torsten Lichtenau:

James, thank you very much and it's a pleasure to be with all of you today. It's a great question. I think the benefit probably of being based in the US but having worked also across the globe, especially in Europe and being able to compare and contrast, I think what we're clearly seeing is that the landscape of decarbonization has somewhat shifted in the last few months or few years. Clearly, the regulatory support is probably less strong in the US than it used to be, and at the moment, we can also see that topics like tariffs or fear around recession are crowding this agenda. So, one could think everything is being pushed out. I think that would be completely wrong.

I think that's not what's happening at all, and I think there are probably three key trends we are seeing in the market of North America that are extremely relevant for the audience. The first one is I think it's critical to the average sector and the speed at which they are moving on decarbonization. What we can see is that in select sector, the pull from regulation, the demand from customers and from consumer is still extremely strong. I think we see really this decoupling across different sectors in terms of speed happening. So, a good example would be plastic or packaging or automotive or machinery. These are sectors that they've really embraced the carbon transition.

We see a significant potential into these and are moving at pace. If I double click on one, for example, packaging, what we can see is that clearly consumer have strong preferences around packaging. Often they mentioned, for example, paper or glass being preferred, so there's a bit of a competition across substrates happening. We can also see that half of the US population currently is covered by some form of regulation that clearly does play a role and we can also see increasingly that there is a need to be able to combine cost reduction and decarbonization. So, that's a good example where packaging is moving really at pace.

So theme number one is really the different sectors are moving at different pace, but the ones that are deeply impacted continued to accelerate on the journey. The second point I would say is those who would succeed were really focused on value creation. I think we're beyond the time where we're just setting targets around carbon and decarbonization. People are now more thinking about, "How do I realize this target that they're still valid? How do I deliver, but also how do I monetize all my efforts?" I'm investing quite a bit of money to decarbonize my operations, my supply chain. How do I make sure that I also get the upside from the customer or otherwise?

So most company asking themselves, reduce cost and carbon in tandem, "Will I gain market share or greater price premium if I have low carbon product? Can I access new source of financing if I'm greener?" For example, green bonds would be a good example, or will my investors value my company at a higher multiple if they think that I'm more resilient? I can grow faster if I embrace decarbonization. So, a great example of this link to value creation is for example, plastic where we can see that all the plastic producers have really embraced the topic, have a very strong offering around recycling and low carbon, trying to push it. When you start to talk about hundreds of million of CapEx investment to get there, you need to have that link to value creation.

The last point I would mention that I think is happening is you can't fight gravity. What we can see is that the economics is starting to shift in some sectors. So, I will give you a couple of example. One would be a renewable energy. In the US, 90% of the increase in electricity capacity last year was from renewable. If you think about EVs, currently in some countries, it's becoming the majority of vehicles sold. The good example would be China with above 50% or Norway. It's also increasing rapidly in North America in the US. If you take EVs and hybrid, you probably have 20%. So, the good example here is you need to think about the economics and not fight gravity, but embrace gravity and accept what economics are driving.

So that are the three key trends we're seeing. Now, the point I would probably double click on is around commercial excellence. I think increasingly the discussion we are having with CEO and with clients is around, "How do I make sure that I'm able to get the commercial upside with my customers when I have low carbon product?" We did recently a survey of 500 buyers and sellers because we wanted really to compare and contrast between the two sides across key B2B sectors. What we found was really interesting and the data you can see is for North America. Sustainability of operations tend to be the number two key purchasing criteria and sustainability of offering is the number four when we ask people how they will make decision the next three years.

We also asked them, but if it's important to you, would you make different supply decision? Actually, 36% of them said already today, they incorporate sustainability in the decision and it'll be 57% within three years. We also ask them, but are you paying anything for that or is just slightly shifting the decision but not paying a premium? We can see that half of the respondents today pay some level of premium and that will move to two-thirds within three years. There's clearly always a say-do gap in terms of what people say they'd will be willing to pay, but there's clearly a willingness if the value proposition is there to actually select supply differently and pay your premium. That is very encouraging and I think that's a key element to look into.

The other thing we looked into is what do actually suppliers do to bring the local carbon product to markets? What we found here is that only a minority of them are actually targeting their customer based on their sustainability commitment or the progress they've made or the intro carbon price they use. So, most of the time they probably go to the market without a sharp enough picture of who cares about low-carbon product. A minority of the sales force is able to explain the sustainability attributes of the product. So, there's clearly a huge amount of work required on the training side to be able to get there. Most importantly, we ask at the end, do you think you have the right product to bring to customers?

85% of suppliers would say, "We absolutely have the right offering," while less than 50% of the customers feel that what is being brought to market or to them meets the need. So, there's a huge gap that can be closed. That's very encouraging. What it says is if you're a leader in low-carbon, if you have a good offering, if you're able to bring it to market, you can really get a commercial upside and that's get then the flywheel working because then you get the apps and you can reinvest in the topic and further accelerate.

James Burrow:

That's fantastic. Thank you very, very much. I mean for me, the three key takeaways that I'm picking up on there is there's no one-size-fits-all approach. You stress the importance of context. Leaders across businesses need to understand what it means for them in their particular industrial segment, but also their geography. I think the second thing is I love that don't fight gravity. That's really, really important. The only way we're going to achieve this is by doing sustainability in a way that works with core business objectives. So, focus on that first and then the final thing is it's maybe easy to underestimate, but people care, buyers care about this.

Now the degree of the price premium, we can debate, but we certainly seem from your evidence that it's a differentiating factor when it comes to selling your product. Thank you very much for that, Torsten. Aysu, how does that resonate with you? You've been really the architect of Greif's sustainability journey since around 2010. What was the why for Greif then? What is the why for Greif now around sustainability and has that rationale changed? I wonder if you could just give us some thoughts on that topic.

Aysu Katun:

Absolutely. The reasons that Torsten mentioned about why companies do sustainability or why they should be doing sustainability really has applied to us throughout our journey and our journey has evolved over time as you can imagine. Our sustainability journey began about 18 years ago, so it's been a long time under the leadership of our former CEO Michael Gasser. At the time, his motivation was actually personal. He wanted to leave behind a positive legacy. So, our early efforts were grounded in doing the right thing for our various stakeholders. That values-based foundation still shapes our culture today, but as a public company, we also recognized early on that sustainability must make business sense.

There's no way around it basically for companies. As a global leader in industrial packaging, we operate in sectors like chemicals, like agriculture, like food, industries that face increasing scrutiny around the environmental or social impact. In a sense, we were both fortunate and challenged by several of our large chemical customers who were far ahead of the curve at the time. So, they really pushed us to improve not only to reduce sustainability and business risk in their supply chains, but to create shared value. So, we began actually collaborating with them to develop sustainable and circular packaging solutions. That was really a pivotal moment in our journey. It helped shift our mindset from compliance to competitiveness.

So today, sustainability is really integrated into our business strategy as a driver for performance. It enables us to reduce costs through greater, for example, energy efficiency or waste reduction, while also fueling revenue growth by offering responsible packaging solutions. This gives us a clear advantage with our customers who are making sustainability central to their procurement decisions. So, I would say at its core, our sustainability strategy is about two things. One, managing risks, which is really important. Two, unlocking opportunity. It helps us mitigate sustainability risks across the value chain while also aligning with expectations of customers, investors, regulators. Research shows that companies with strong sustainability performance tend to outperform S&P 500 over the long term, and that's largely because they are managing their risks better.

James Burrow:

Thank you very much, Aysu. The thing that I really picked up on here, and I don't want to just distill this down to a snappy sound bite, but that's what I'm about to do, is your journey is compliance to competitiveness. It first started with something that you thought you ought to do for moral reasons or regulatory reasons, but now it's really, really a source of competitiveness. I'd like to drill down on that point a little bit more. Could you give us a concrete example of one initiative that you're particularly proud of that really, really drove results that really moved needle for you?

Aysu Katun:

Absolutely. This will again go back to what Torsten was talking about, about value creation, about low carbon products. So, one of the things that I'm really proud of is how we have been embedding circularity in both our product innovation and also service model over the last, I would say, 15 years. So, if you go back as early as 2009, we recognize that most of our environmental impact comes from two things. It's either the raw materials that we use, specifically virgin raw materials, or what happens to our products at the end of their lives. So, end of life product waste. So, based on that recognition or those findings, we actually made two very strategic decisions going back to 2009, 2010. First, we focused on reducing our reliance on virgin raw materials. What does that mean?

Well, for us, that meant innovating products that use more recycled content and also down gauging, so using less material without compromising performance. Second, we built what we call our life cycle services network, which is a network of facilities in North America and Europe that collect used products and then recycles and reconditions them. So, the circular model helps us to close the loop for our customers, especially the ones that really care about decarbonization and circularity. The business impact of that has been huge.

We've mitigated exposure to raw material price volatility by using more of our own recovered materials. We've helped our customers meet decarbonization targets, our regulatory demands, including some of the EPR or Extended Producer Responsibility laws that are emerging in the US now. In 2024 alone, we actually generated nearly $1 billion in revenue from our sustainability driven products and services. So, this isn't just good for the environment. It's a competitive advantage that delivers real commercial value.

James Burrow:

Fantastic. I see. Thank you very much. I want to come back to you with just another quick question. It sounds to me like sustainability is something that you need to plan for over the long term and really excel in, but would it be fair to say that our audience on the call shouldn't be too concerned by doing everything at once? It's maybe a question of starting in a place where you can really add value and identify a niche where you can really build your brand around and then progressing from there. I'm just conscious that given the degree of the excellence that we're seeing on the call here, it may seem overwhelming for some of our audience.

Aysu Katun:

Absolutely, and we started, and I'm sure every other company has too. When we first started, we only focused on energy, our energy consumption, and with only one region, North America. So, making it as focused as possible, as manageable as possible, and it wasn't even looking at emissions, just energy use. What can we tackle? And we started with data actually. Well, let's look at what our energy uses in our facilities. Let's try to collect some data. Let's figure things out.

So definitely starting with one or two topics that are the most strategic for your company is what I would recommend. This is for me an overall recommendation. When you look at sustainability topics overall, there are 150 sustainability topics that a company can focus on. So, really narrowing that down to what's strategic for you is what's going to be successful. Otherwise, we're going to be too out there and trying to do everything at the same time.

James Burrow:

I think that makes a load of sense, and I'm actually linking that back to Torsten's point around don't fight gravity. Figure out what matters most to your clients. Figure out what's going to help you drive revenue, what's going to help you cut costs, and what's going to be most central to your business model going forward and then pursue it, but don't fight gravity. I love that. Tim, I'd like to move to you now. You've had a long career advancing corporate sustainability performance. Tim, I want to start with your perspective as a B2B buyer, not as a supplier, but a B2B buyer.

Thinking back over your career at Tim's, at Maple Leaf Foods, and at Nutrien, how do you look at your supplier's sustainability performance? What sort of things do you typically focus on and how common is that practice of looking at sustainability performance amongst large caps like the three companies that I just mentioned?

Tim Faveri:

Thank you, James. It's interesting because when you think about the issues that we're talking about, it's very different for every sector in the food system. It's quite a complex value chain, and I think depending on where your company sits in that value chain, you have a different perspective with respect to supplier engagement, supplier programs. Actually as you described, the companies I've worked for, I've swum upstream in the value chain, starting at a restaurant and consumer brand, massive consumer brand in Canada to not only a brand company at Maple Leaf Foods, but a food manufacturer of protein across Canada, now to a company that sits upstream of all the farmers that we serve that grow the inputs and the ingredients for food across the world.

It's a different perspective when you look downstream or upstream in your value chain. I would say that in general, I think North America is still lagging Europe with respect to sustainability standards, programs, initiatives, particularly in the packaging domain as EPR is just starting to get hold in the United States. But probably I would say around 2000, 2005 when we started to look at supplier engagement, those kinds of indicators that large caps or big corporates would look at were based on risk and the basis like price, quality, if we're in the food system, animal welfare, food safety, these kinds of things. A big, branded company will need to control those risks associated with their business through their supply chain.

That drives value not only from a pricing perspective, but from a risk mitigation and reputation management perspective. I think things started to pivot a little bit as well based upon what was happening globally. So, in probably 2013, 2015, things started to shift, child labor in the supply chain, worker conditions. You might remember the tragedy in Bangladesh, Ramaphosa with respect to the garment industry. Over 1,000 people died and many consumer brands were tied up in that. So, the whole industry and many industries start to pivot towards those kind of risk-related items within their supply chain and hold their suppliers to program standards that needed their conditions.

And then I think probably 2018, 2019, that's when KPIs related to greenhouse gases start to become very prevalent in supply chain programs, performance expectations of sharing data, even DEI. We saw a lot of requests from European, predominantly consumer goods companies saying, "Tell us more about your DEI programs, et cetera." So I think that it really depends on where you sit in the supply chain. For food, the largest impacts we find are in scope three, whether it's upstream or downstream. So, many, many organizations have built large supply chain questionnaires, programs, codes of conduct.

Some of the big ones like Nestle comes in a book where others are a one-pager, right? But as a company sitting somewhere along that value chain, you're going to have to know and respond to those requests accordingly.

James Burrow:

What does it actually look like when a large corporate buyer starts implementing these sustainability initiatives? Is it just they drop a hammer on the supply chain and they say, "You need to comply with X by this date," or "We're going to look for other suppliers," or is it a much more gentle experience whereby this communication and these large corporates aim to assist their supply chain through that journey? Is there even merit in suppliers reaching out to their buyers and talking about the sort of sustainability initiatives that they might be considering and figuring out what's most material to their clients? I'd love for you to just reflect on your experiences with that.

Tim Faveri:

I think you basically summarized what happens very succinctly. I think it's all over the map. There are some big corporates who will say, "This is the way we do business, you must comply." There are others, and I was part of them where we would engage with our key suppliers to ensure they'd be able to meet new requirements that we might be considering to roll out. That is often done through an auditing system that they would implement.

I think that to many of the big globals are quite collaborative. Walmart, for example, has a massive organization that they've stood up called the Sustainability Consortium, where they get their suppliers together, their key suppliers together. They work on data on overcoming barriers and challenges for them to meet the requirements of being a Walmart supplier, et cetera, hand out rewards for the top performers in those categories.

James Burrow:

Thanks very much for that, Tim. I think that's really helpful. Torsten, I'd like to come back to you now. For those clients in the audience who are wondering where to start or even maturing their sustainability from some work that they've initially completed, what kind of practical advice can you give? I know you're a strategy consultant, so are there any no regrets moves that most or all companies should be taking right now? Are there common pitfalls that can be avoided or can be easily short-circuited? I'd love to just get your sense of practical advice that can apply to many companies of what they should be doing.

Torsten Lichtenau:

It's a great question. I think we always aspire to be a pragmatic strategy consultant, so I think there are probably four or five no regrets moves that I would suggest. The first one is probably building on the point that Tim was making is do the hard work to understand, "How does decarbonization link to value creation industry? Where does the industry stand on sustainability? Is decarbonization end topic or other topic related to sustainability more important? Why would you do that? Is it more a risk mitigation point? Is it more complying with regulation? Is it that your customers will be asking for it? Is it that you can probably reduce costs if you become lower carbon?"

I think it's a critical element to make, and I think that helps you pace yourself. It's not that decarbonization is moving to the maximum speed all the time. You need to understand, "Where is your industry? Are you moving at the pace that gets you slightly ahead of the pack but not so far ahead that actually you can't continue with the momentum?" That's point number one. The second one and no regret is, "Where can you reduce cost and carbon in tandem?" A good example would be energy efficiencies, probably where people are going. There are a lot of innovation happening in this space where you can actually drive energy efficiency to the next level.

The more you can actually combine the two, the easiest is to make progress at a fast pace and in a way that is absolutely palatable for the business. The third one is I think it's critical to engage customers on what they need. What do they expect today but also in the future? What you don't want to do is to be on the back foot and end up in a situation where you either lose market share or you get presented with a request that you can't fulfill. So, engaging proactively with customer is the third thing I would suggest to do. The fourth one is probably around regulation. Regulation will vary by clearly country, but also by state when you think about the US.

I understand regulation where potentially it pushes you in one direction, but also any subsidies available and making sure that you leverage that to the maximum extent would be the fourth one. The very last one I would suggest is engage business leadership. What you want to make sure is that you deepen the understanding of sustainability and why it's a business drive within leadership, get the buy-in because then you can move faster. So, this will be probably the four or five no regrets move in terms of potentially pitfalls that we see.

James Burrow:

I'm conscious that all of us on this call sit in multinational companies who have the resources to create sustainability teams, but I'm conscious that our audience, that may well not be the same circumstance for them. They may have the capacity to hire one person to cover sustainability topics or they may not have that capacity.

Now, sustainability is obviously competing with many, many other topics on the CEO's agenda. If you're mid-market, medium-sized enterprises across North America, can you offer some practical thoughts on how they would implement this in an environment where they're competing with other topics for CEO's time, for resources, and for when staffing and FTE are constrained? What have you seen from some of your mid-size clients as they look to implement these agendas?

Torsten Lichtenau:

We do that a lot, for example, a lot with product equity. When you have portfolio company, you're probably of smaller size. You need to do it. You clearly need probably one or two people really focusing on the topic with a deep expertise. That you do need, but you can be selective in this investment. I think then to manage to get some leverage is engaging the business and make it relevant for them. Because I think where you can get a force multiplier if you get some key function within the line being procurement or sales or strategy, starting to co-own the topic and embed it to the agenda. Instead of being something that comes on top, it's something that actually help them accelerate the agenda.

When we think about selecting suppliers, that's one of the criteria. When we think about strategy, it's one of the key growth driver. When we think about selling, that's part of a value proposition. The more you can embed into the business, the easier it is not to ask for more FTEs, but to get it to work. I think to capture the CEO, I think I've seen this year agenda, I think two things working well is linking explicit to the strategy, not probably coming up with a systematic strategy, but to say as part of our strategy is where it fits.

I think the voice of the customer is the other one. I think CEOs do care about one thing, which is the customer and fulfilling the customer needs. The more you can bring to life why it's important to them, the more you'll get the attention. That's how pragmatically I would try to do it.

James Burrow:

Thorsten, that's good to hear because just being candid, that's what I try and do at BMO. You've got to find the champions in the business. You've got to find the people in the business that really understand how it integrates with their day to day, how it can add value for their clients, how it can improve their brand and their standing with those clients. Because all of us are in big corporations, but no big corporation has an enormous sustainability team.

So you really, really need to engage the whole of the business in IT and integrate it into their day-to-day operations. Aysu and Tim, I provided a very short reflection. I wonder if I could press on you both to just reflect on what Torsten had said there with regards to how this operates in your business. Aysu, maybe I'll start with you first if that's okay.

Aysu Katun:

Absolutely, and maybe I'll continue on what Torsten was saying. When we started sustainability, I was the only person working on sustainability for about seven years. So, it can be done. I mean, we're I think repeating the same things, but it's all about finding those elements where you can create value for the business. So, for us, that started with our customers, really understanding what was driving them and how do we help our customers meet whether it's decarbonization targets, circularity targets, waste targets, or maybe they have regulatory reasons. So, really understanding what they care about and then taking that internally to the organization and communicating that to the organization and how do we make that happen.

James Burrow:

Thank you very much, Aysu. Tim, maybe we'll go to you next.

Tim Faveri:

Sure. All great points. I don't know if I can add much else, maybe a little bit of color commentary. Over my career, I've always liked to try and frame sustainability into the language that's best understood at the C-suite. What's that? It's what's material to the company? What are the risks and what are the opportunities? So we present a sustainability strategy or a roadmap or action plan. We're addressing those three things.

What are the risks? How are we going to mitigate that or lessen those? Where are the opportunities and what we're focusing on is actually material to the organization? It's so easy in sustainability to chase a shiny lure of a topical trend or something with respect to a stakeholder or sustainability, but you have to be pragmatic. You have to be focused, right? You have to speak the language of your C-suite. And I think that those are sage pieces of advice that I've been able to utilize across my career.

James Burrow:

This is fantastic. I mean, what I'm taking away is that the world is changing and sustainability is a theme that is not going away. You see it across customer sentiment and how you sell your products. You see it across regulation, you see it in politics. It is changing. I'm almost seeing an image of the sustainability leader within an organization. Being the person that looks out across the horizon, see those changes coming, and then partners with the businesses on how it impacts that business, how to mitigate the risks that are coming down the pipe and maximize the opportunities.

But again, key theme, core theme that I'm seeing across all of this commentary is it has to come back to business fundamentals. It cannot be at odds with business fundamentals, which for me, for us at BMO at least, and I think for everybody else on the call is very important. Yeah, I'd like to come back to you both again, Aysu and Tim, and really press you on one or two practical pieces of advice that you can leave our audience with today. But we've got a combined 40 years of experience and sustainability across both of you. I would love for you to impart some lessons and wisdom to the audience today. Tim, maybe we'll go to you first.

Tim Faveri:

I think particularly in today's economy in North America, probably more globally, a lot of colleagues that I've worked with across different sectors as part of sustainability, round tables of my peers, we have a collective feeling that sustainability has moved into recessionary times as well. So, that way, I think the bit of advice that I would provide is stay focused, stay pragmatic, like we've said over and over, stay focused on what is of value to the organization and creates value. So, the other thing is think long term. So, we have to report on a performance on a quarterly basis.

Often value is not generated from sustainability initiative or program for many quarters, sometimes many years. So, you have to have that data and narrative in place. I think what is going to serve companies well into the future is taking a long-term viewpoint of sustainability and understanding that it is a lot longer than let's say the next four years, where the pendulum has kind of swung out of favor.

Aysu Katun:

Yeah, I'll build on that. One of the points that we've already actually touched on, and for us, this has been a big learning, which is going back to trying to focus on everything all at once. It doesn't work. I think there was an HBR article where they talked about how sustainability strategy fails because companies treat everything as material. And we've actually done recently a double materiality assessment where they have identified 80% of the topics as material. Obviously, you can't concentrate on 80% of topics.

James Burrow:

Do you mind if I just interrupt you there? Could we just unpack that term, double materiality assessment? I just want to help the audience understand for those that haven't come across that before, what we're talking about there?

Aysu Katun:

Absolutely. So, in the past, it used to be just materiality assessment where basically you are trying to identify the most important issues, most important sustainability issues for your company, the most strategic ones. You go back doing that by doing research, online research. You interview various stakeholders, customers, investors, the communities where you operate. So, basically gathering all that information to identify what's really important for organization and doing the same with your internal stakeholders as well. Now we have double materiality assessments, so it's broader in scope. It's also looking at financial impact of your material risks.

So it's much broader in scope, and it's actually part of a regulation that's coming out of Europe. So, companies that have a certain size of an operation in Europe or they may be global companies, but they still operate in Europe, actually have to go through this assessment process. But ultimately, you again, identify the most important issues for your company that you should be focusing on. So, in theory, you should be narrowing down those topics. But what happens is as you work through with third party agencies, or you're doing it internally, you realize, "Oh, about 90% of these topics according to the guidelines are material." Well, that's still a lot of topics.

So you again, really need to narrow down your scope and really choose the four or five topics that you can really make a difference in, and that's valuable for you. That's valuable for your stakeholders. I hope that makes it a little bit more clear. And then the second thing that I always talk about is data. Invest in data early, because if you don't have data, you don't know where you stand, you can't make progress, and it'll really go a long way again in meeting regulatory environments. I know that in the US, the pressure is off a little bit, but there are still regulations in the US too.

James Burrow:

Thank you very much, Aysu and Tim and Torsten, for your contributions. Really great discussion.

Michael Torrance:

Thanks for listening to Sustainability Leaders. This podcast is presented by BMO. You can find our show on Apple Podcasts, Spotify, or your favorite podcast player. Press the follow button if you want to get notified when new episodes are published. We value your input, so please leave a rating review and any feedback that you might have or visit us at bmo.com/sustainability leaders. Our show and resources are produced with support from BMO's Marketing team and Puddle Creative. Until next time, thanks for listening and have a great week. For BMO disclosures, please visit bomcm.com/podcast/disclaimer.

Video Leveraging Sustainability for Competitive Advantage

May 6, 2025

10:00 a.m. ET

James Burrow: Welcome everyone to today's virtual event, “Leveraging Sustainability for Competitive Advantage.” My name is James Burrow. I'm director on BMO's sustainable finance team and I'm pleased to be your moderator for today. I help BMO’s North American commercial clients address sustainability opportunities and challenges as part of their capital planning and business strategy processes. Thank you to our panelists, our colleagues, and our clients today for joining us from across Canada and the United States. Whether you're just beginning your sustainability journey or already mature on that level, today's session is designed to offer insights that may help move that strategy forward.

Our specific focus will be to highlight practical ways in which sustainability can support core business objectives, namely, growing revenue, cutting costs, and enhancing brand value. According to a recent study conducted in February by our very own Climate Institute, which interviewed over 700 U.S. and Canadian business leaders, 69% of respondents said they either already have a formal plan in place to address climate change or a developing one. This represented a rise from 2022. And while concerns about environmental impacts are a key driver, nearly half, or 45% of business leaders in the US and Canada cited customer pressures as the likely cause their companies will increase actions on climate over the next year. What's most encouraging is perhaps the 88% of respondents said they are confident their actions are making a difference.

We're joined today by a great panel with deep experience translating sustainability best practices into sources of competitive advantage for their own businesses. Starting with Aysu Katum, who is Vice President of Sustainability at Greif. Greif is a US-based global leader in industrial packaging products and services, with over 250 locations globally. Aysu leads the development and execution of Greif sustainability programs with a particular focus on product environmental footprint reduction, sustainability-driven innovation, fair and safe labor practices, responsible sourcing, governance and sustainability reporting. That's quite a handful, Aysu, and I'm looking forward to finding out more about that momentarily. Aysu has spent almost 15 years in progressively senior roles with Greif, prior to which she was focused on product developments and sourcing at HP.

Moving to Tim Faveri. Tim is vice president global sustainability at Nutrien, Inc., one of the world's largest fertilizer crop inputs and services companies. Tim leads Nutrien’s environmental and sustainability strategy and performance. He is a seasoned business and sustainability professional with over 25 years of industry experience focusing on reporting and disclosures, carbon management, and value chain industry partnership development. Tim represents Nutrien on the board of directors of US Farmers and Ranchers in Action. Tim was previously at Maple Leaf Foods where he led the organization to become the world's first major food company to be carbon neutral.

Lastly, we go to Torsten Lichtenau, who leads the carbon transition practice globally at Bain & Company. Bain is a top-tier management consulting firm with offices across 64 countries, and Torsten's clients include many Fortune 500 companies across different industries and geographies. Torsten supports these clients in embracing the value creation opportunity. Associated with de-carbonization. He has a particular focus on de- carbonization of operations, supply chain, and commercial excellence for low carbon products.

I hope that I got that all right for your introductions, but now I'm looking forward to engaging you all with some questions on the topics. And just a note, towards the end we had some questions that came in ahead of the webinar from the audience. I'll aim to get to those at the end if we have time. Let's get started. Torsten, I'd like to start with you. Could you just start out by giving us a lay of the land, as to what you're seeing across North America specifically. Starting with what do we actually mean when we talk about sustainability? Why are companies pursuing sustainability initiatives and what are they doing exactly?

Torsten Lichtenau: James, thank you very much. It's a pleasure to be with all of you today. It is a great question. I think at the benefit probably of being based in the U.S. but having worked also across the globe, especially in Europe, and being able to compare and contrast, I think what we are clearly seeing is that the landscape of decarbonization has somewhat shifted in the last few months, or few years. Clearly, the regulatory support is probably less strong in the U.S. than it used to be. And at the moment, we can also see that topics like tariffs or fear on recession are crowding the CEO agenda. And so one could think everything is being pushed out. I think that would be completely wrong. I think it's not what's happening at all. And I think there are probably three key trends we are seeing in the market of North America that are extremely relevant for the audience.

The first one is, I think, it's critical to the average sector and the speed at which they are moving on decarbonization. What we can see is that in select sectors, the pull from regulation, the demand from customers and from consumer is still extremely strong and I think we see really this decoupling across different sectors in terms of speed happening. So a good example would be plastic or packaging or automotive or machinery. These are sectors that have really embraced the carbon transition, see a significant potential into these and are moving at pace. And if I double-click on one, for example, packaging, What we can see is that clearly consumers have strong preferences around packaging. Often they mention, for example, paper or glass being preferred. So there's a bit of a competition across substrates happening. We can also see that half of the U.S. population currently is covered by some form of regulation that clearly does play a role. And we can also see increasingly that there is a need to be able to combine cost reduction and decarbonization. And so that's a good example where packaging is moving really at pace. So theme number one is really the different sectors are moving at a different pace, but the ones that are deeply impacted continue to accelerate on the journey.

The second point I would say is those who would succeed will really focus on value creation. I think we are beyond the time where we're just setting targets around carbon and decarbonization. People are now more thinking about how do I realize this target, that they are still valid. How do I deliver? But also how do I monetize all my efforts? I'm investing quite a bit of money to decarbonize my operations, my supply chain. How do I make sure that I also get the upside from the customer or otherwise? And so most companies are asking themselves, can I reduce cost and carbon in tandem? Will I gain market share or greater price premium if I have a low carbon product? Can I access new sources of financing if I'm greener? For example, green bonds would be a good example, or will my investors value my company at a higher multiple, if they think that I'm more resilient, I can grow faster, if I embrace decarbonization. And so a great example of this link to value creation is, for example, plastic, where we can see that all the plastic producers have really embraced the topic, have a very strong offering around recycling and low carbon and trying to push it. When you start to talk about hundreds of millions of CapEx investment to get there, you need to have connecting to value creation.

The last point I would mention that I think is happening is you can't fight gravity and what we can see that the economics has started to shift in some sectors, so I will give you a couple of examples. One would be renewable energy. In the US, 90% of the increase in electricity capacity last year was from renewable. If you think about EVs, currently in some countries it's becoming the majority of vehicles sold. A good example would be China with above 50% or Norway. It's also increasing rapidly in North America. In the U.S., if you take EVs and hybrid, you're probably at 20 percent. So the good example here is you need to think about the economics and not fight gravity, but embrace gravity and accept what the economics are driving.

So that's the three key trends we're seeing. Now the point I would probably double click on is around commercial excellence. I think increasingly the discussion we're having with CEOs and with clients is around how do I make sure that I'm able to get the commercial upside with my customers when I have low carbon product. And we did recently a survey of 500 buyers and sellers, because we wanted really to compare and contrast between the two sides across key B2B sectors. And what we found was really interesting. And the data you can see here is for North America. Sustainability of operations tend to be the number two key purchasing criteria and sustainability of offering the number four when we ask people how they would make decisions in the next three years. We also ask them but if it's important to you, would you make a different supply decisions and actually 36% of them said already today they incorporate sustainability in the decision and it will be 57% within three years. And we also asked them, but are you paying anything for that, or just slightly shifting the decision, but you're not paying a premium? And we can see that half of the response today pays some level of premium, and that will move to two-thirds within three years. There's clearly always a say-do gap in terms of what people say they will be willing to pay, but there's clearly a willingness, if the value proposition is there, to actually select supply differently and pay a premium. That is very encouraging and I think that's a key element to look into.

The other thing we looked into is what do actually suppliers do to bring their local carbon product to markets and what we found here is that only a minority of them are actually targeting their customer based on their system commitment or the progress they've made or the carbon price they use. So most of the time they probably go to the market without a sharp enough picture of who cares about low carbon product. A minority of the sales force is able to explain the sustainability attributes of the product, and so there is clearly a huge amount of work required on training side to be able to get there. And most importantly, we ask at the end, do you think you have the right product to bring to customers? 85% of suppliers would say, we absolutely have the right offering, while less than 50% of the customers feel that what is being brought to market or to them meets the need. And so there's a huge gap that can be closed. That's very encouraging. What it says is, if you're a leader in low carbon, if you have a good offering, if you are able to bring it to market, you can really get a commercial upside, and that gets them the flywheel working because then you get the upside and you can reinvest in the topic and further accelerate. So these are some of the key trends we are seeing, but the theme you hear across all of these is the link between decarbonization and value creation is very present and critical to be able to win.

James Burrows: Torsten, that's fantastic, thank you very, very much. I mean, for me, the three key takeaways that I'm picking up on there is there's no one-size-fits-all approach. You stress the importance of context. Leaders across businesses need to understand what it means for them in their particular industrial segment, but also their geography. I think the second thing is I love that “don't fight gravity.” That's really, really important. The only way we're going to achieve this is by doing sustainability in a way that works with core business objectives. So focus on that first. And then the final thing is it's maybe easy to underestimate, but people care, buyers care about this. Now, the degree of the price premium we can debate, but we’ve certainly seen from your evidence that it's a differentiating factor when it comes to selling your product. But I think the key thing that I picked up on there was that your sales force, the people that engage with your buyers on a day-to-day basis need to be empowered to clearly articulate the sustainability benefits of the product, alongside the other benefits. So enablement of sales force is key there. So yeah, thank you very much for that, Torsten.

Aysu, how does that resonate with you? You've been really the architect of Greif's sustainability journey since around 2010. What was the why for Greif then? What is the why for Greif now around sustainability? And has that rationale changed? I wonder if you could just give us some thoughts on that topic?

Aysu Katum: Absolutely. And the reasons that Torsten mentioned about why companies do sustainability or why they should be doing sustainability really has applied to us throughout our journey. And our journey has evolved over time, as you can imagine. Our sustainability journey began about 18 years ago, so it's been a long time under the leadership of our former CEO, Michael Gasser. And at the time, his motivation was actually personal. He wanted to leave behind a positive legacy. So our early efforts were grounded in doing the right thing for our various stakeholders. And that values-based foundation still shapes our culture today, but as a public company, we also recognized early on that sustainability must make business sense. And there's no way around it, basically, for companies. So as a global leader in industrial packaging, we operate in sectors like chemicals, like agriculture, like food, industries that face increasing scrutiny around the environmental or social impact. And in a sense, we were both fortunate and challenged by several of our large chemical customers who were far ahead of the curve at the time, and so they really pushed us to improve, not only to reduce sustainability and business risk in their supply chains, but to create shared value. So we began actually collaborating with them to develop sustainable and circular packaging solutions. And that was really a pivotal moment in our journey. It helped shift our mindset from compliance to competitiveness. So today, sustainability is really integrated into our business strategy as a driver for performance. It enables us to reduce costs, you know, through greater, for example, energy efficiency or waste reduction, while also fueling revenue growth by offering responsible packaging solutions. And this gives us a clear advantage with our customers who are making sustainability central to their procurement decisions. So I would say at its core, our sustainability strategy is about two things.

One, managing risk, which is really important. Two, unlocking opportunity. You know, it helps us mitigate sustainability risks across the value chain, while also aligning with expectations of customers, investors, regulators. And these really aren't abstract pressures. They have a direct impact on revenue, as many of our major customers now we have strong sustainability performance really as a prerequisite for doing business. And I also strongly believe that sustainability strengthens overall resilience. If we look at the research from the past couple of decades, research shows that companies with strong sustainability performance tend to outperform S&P 500 over the long term. And that's largely because they are managing their risks better. If you look at the World Economic Forum and the risks that they publish every year, and they've been tracking this for the last, I don't know, like 20 years, they consistently rank sustainability-related threats like climate change, like water scarcity, like supply chain disruptions, among the most pressing global risks. And so by acting early, we reduce our exposure and become a more trusted lower risk partner to our customers, investors, and you know, in today's market, that trust is a real source of competitive advantage. So if we look at our overall journey, we're pursuing sustainability at this point, not just because it's the right thing to do, but because it is the smart thing to. It's a strategic necessity, I would say. And in our case, it started with legacy, but it continues with leadership.

James Burrows: Thank you very much, Aysu. And the thing that I really picked up on here, and I don't want to just distill this down to a snappy soundbite, but that's kind of what I'm about to do, is your journey is compliance to competitiveness. It first started with something that you thought you ought to do for kind of moral reasons or regulatory reasons, but now it's really, really a source of competitiveness, and I love how you articulated that journey and articulated how it does give you that competitive advantage today. I'd like to kind of drill down on that point a little bit more. Could you give us a kind of a concrete example of one initiative that you're particularly proud of that really, really drove results that really moved the needle for you?

Aysu Katum: Absolutely, and this will again kind of go back to Torsten, what Torsten was talking about, about, you know, value creation, about low carbon products. So one of the things that I'm really proud of is how we have been embedding circularity in both our product innovation and also service model over the last, I would say, 15 years. So if you go back as early as 2009, we recognize that most of our environmental impact comes from two things. It's either the raw materials that we use, specifically virgin raw materials, or what happens to our products at the end of their lives, so end-of-life product waste. So based on that recognition or those findings, we actually made two very strategic decisions going back to 2009, 2010. First, we focused on reducing our reliance on virgin raw materials. What does that mean? Well, For us, that meant innovating products that use more recycled content, and also down gauging. So using less material without compromising performance. Second, we built what we call our life cycle services network, which is a network of facilities in North America and Europe that collect used products and then recycles and reconditions them. So this circular model helps us to close the loop for our customers, especially the ones that really care about decarbonization and circularity. The business impact of that has been huge. We've mitigated exposure to raw material price volatility by using more of our own recovered materials. We've helped our customers meet decarbonization targets, our regulatory demands, including some of the EPR or extended producer responsibility laws that are emerging in the U.S. now. And in 2024 alone, we actually generated nearly $1 billion in revenue from our sustainability driven products and services. So this isn't just good for the environment, it's a competitive advantage that delivers real commercial value.

James Burrows: Fantastic, Aysu, thank you very much. And I want to come back to you with just another quick question. It sounds to me like sustainability is something that you need to plan for over the long term and really excel in. But would it be fair to say that, you know, our audience on the call shouldn't be too concerned by doing everything at once. It's maybe a question of starting in a place where you can really add value and identify a niche where you could really kind of build your brand around and then progressing from there? You know, I'm just conscious that, you know, given the degree of the excellence that we're seeing on the call here, it may seem overwhelming for some of our audience.

Aysu Katum: Absolutely, and we started, and I'm sure every other company has too, when we first started, we only focused on energy, our energy consumption, and with only one region, North America. So making it as focused as possible, as manageable as possible. And it wasn't even looking at emissions, just energy use. What can we tackle? And we started with data, actually. Well, let's look at what our energy use is in our facilities. Let's try to collect some data. Let's figure things out. So definitely starting with one or two topics that are the most strategic for your company is what I would recommend. And this is for me an overall recommendation when you look at sustainability topics overall. There are like 150 sustainability topics that a company can focus on. So, you know, really narrowing that down to what's strategic for you is what's going to be successful. Otherwise we're going to- kind of too out there and trying to do everything at the same time.

James Burrows: I think that makes a load of sense and I'm actually kind of linking that back to Torsten's point around, don't fight gravity. Figure out what matters most to your clients. Figure out what's going to help you drive revenue, what's going to help you cut costs, and what's going to be most central to your business model going forward, and then pursue it. But don't fight gravity. I love that.

Tim, I'd like to move to you now. You've had a long career advancing corporate sustainability performance. You started at Tim Hortons and I just want to make an aside. For our American friends on the call, Tim Horton is a really big deal in Canada. You may not be familiar with the brand in the U.S. I think there's some outposts in possibly Michigan or maybe upstate New York, close to the border. But probably the first thing you see after you get past security at a Canadian airport is Tim Hortons. So, you know, if you ever visit, look out for that and know that Tim played a very central role in helping Tim's advance its sustainability agenda. But that's not the only company that Tim's been at. He's also been at Maple Leaf Foods. And as I mentioned, both of these are super, super recognizable brands in Canada. He's now at Nutrien, which is one of, if not the world's largest agricultural suppliers and is listed on the New York Stock Exchange. Tim, I want to start with your perspective as a B2B buyer, not as a supplier, but a B2B buyer. Thinking back over your career at Tim's, at Maple Leaf Foods, and at Nutrien, how do you look at your supplier's sustainability performance? What sort of things do you typically focus on? And how common is that practice of looking at supplier's sustainability performance amongst large caps, like the three companies that I just mentioned?

Tim Faveri: Sure, thank you, James. Yeah, that introduction kind of dates me a little bit in sustainability, and it's interesting because when you think about the issues that we're talking about, it's very different for every sector. In the food system, it's quite a complex value chain, and I think, depending on what- where your company sits in that value chain, you have a different perspective with respect to supplier engagement, supplier programs. I actually, as you described the companies I've worked for, I've kind of swum upstream in the value chain, starting at a restaurant and consumer brand, massive consumer brand in Canada, to not only a brand company at Maple Leaf Foods, but a food manufacturer of protein across Canada, now to a company that sits upstream of all the farmers that we serve, that grow the inputs and the ingredients for food across the world. And it's a different perspective when you look downstream or upstream in your value chain. I would say that In general, I think North America is still lagging Europe with respect to sustainability standards, programs, initiatives, particularly in the packaging domain, as EPR is just starting to get hold in the United States. But probably, I would say around 2000, 2005, when we started to look at supplier engagement, those kinds of indicators that large caps or big corporates would look at were based on risk and the basics like price, quality, if we're in the food system, animal welfare, food safety, these kinds of things, a big branded company will need to control those risks associated with their business through their supply chain. And that drives value, not only from a pricing perspective, but from a risk mitigation and reputation management perspective. I think things started to pivot a little bit as well based upon what was happening globally. So in probably 2013, 2015, things started to shift. Child labor in the supply chain. Worker conditions, you know, you might remember the tragedy in Bangladesh, Rana Plaza, with respect to the garment industry, you now, over 1,000 people died and many consumer brands were tied up in that. And so the whole industry and many industries started to pivot towards those kind of risk-related items within their supply chain and hold their suppliers. To program standards that meet their conditions. And then I think probably 2018, 2019, that's when KPIs related to greenhouse gasses start to become very prevalent in supply chain programs, performance expectations of sharing data, even DEI, we saw a lot of requests from European, predominantly, consumer goods companies saying tell us more about your DEI programs, etc. So I think that for- it really depends on where you sit in the supply chain. For food, the largest impacts we find are in scope three, whether it's upstream or downstream. And so many, many organizations have built large supply chain questionnaires, programs, codes of conduct. Some of the big ones, like Nestle, comes in a book where others are a one pager, right? But as a company sitting somewhere along that value chain, you're going to have to know and respond to those requests accordingly.

James Burrows: So Tim, I'd love you to kind of dig into a little bit more what it's going to look like from a seller's perspective, because looking at the audience attending this webinar before the call today, I know that we've got a lot of our clients on this call who are selling to these large caps, who are to these corporates. Now, what does it actually look like when a large corporate buyer starts implementing these sustainability initiatives? Is it just, they drop a hammer on the supply chain and they say, “you need to comply with X by this date or we're going to for other suppliers?” Or is it a much more kind of gentle experience whereby there's, you know, communication and these large corporates aim to assist their supply chain through that journey? Is there even merit in suppliers reaching out to their buyers and talking about the sort of sustainability initiatives that they might be considering and figuring out what's most material to their clients? I'd love for you to just reflect on your experiences with that.

Tim Faveri: I think you basically summarized what happens very, very succinctly. I think it's all over the map. There are some big corporates will say, “This is the way we do business, you must comply.” There are others, and I was part of them, where we would engage with our key suppliers to ensure they'd be able to meet new requirements that we might be considering to roll out. And that is often done through an auditing system that they would implement. So, you say you're doing this on quality, well, we're coming right into your operation and auditing that. And you must make yourself amenable to that. So it is all over the map. I think that many of the big globals are quite collaborative. Walmart, for example, has a massive organization that they've stood up called the Sustainability Consortium, where they get their suppliers together, their key suppliers together. They work on data, on overcoming barriers and challenges for them to meet the requirements of being a Walmart supplier, etc. Hand out rewards for the top performers in those categories. So, I think it's a little bit all over the map, but for sellers in this complex space of the food value chain, linking up with your buyer's sustainability department and understanding what their key risks and opportunities are would be would be great advice so that you can present your position to them to meet their needs.

James Burrows: Thanks very much for that, Tim. I think that's really helpful. Torsten, I'd like to come back to you now. For those clients in the audience who are wondering where to start or even maturing their sustainability from some work that they've initially completed, what kind of practical advice can you give? I know you're a strategy consultant, so are there any like “no regrets” moves that most or all companies should be taking right now? And are there common pitfalls that can be avoided or can be easily short-circuited? I'd love to just get your sense of practical advice that can apply to many companies of what they should be doing.

Torsten Lichtenau: It's a great question. I think we always aspire to be a pragmatic strategy consultant, so I think there are probably four or five “no regret” moves that would suggest. The first one is probably building on the point that Tim was making is, do the hard work to understand how does decarbonization link to value creation in industry? Where does your industry stand on sustainability? Is decarburization a topic or other topic related to sustainability more important? And, why would you do that? Is it more a risk mitigation point? Is it more complying with regulation? Is it that your customers will be asking for it? Is it that you can probably reduce costs if you become lower carbon? I think it's a critical element to make and I think that helps you pace yourself. It's not that decarbonization is moving to the maximum speed all the time. You need to understand where is your industry, are you moving at a pace that gets you slightly ahead of the pack, but not so far ahead that actually you can't continue with the momentum. That's point number one.

The second one is, “no regret,” is where can you reduce cost and carbon in tandem? A good example would be energy efficiency is probably where people are going. There are a lot of innovations happening in this space where you can actually drive energy efficiency to the next level. The more you can actually combine the two, the easier it is to make progress at a fast pace and in a way that is absolutely palatable for the business.

The third one is I think it's critical to engage customers on what they need. What do they expect today but also in the future? What you don't want to do is to be on the back foot and end up in a situation where either you lose market share or you get presented with a request that you can't fulfill. And so engaging proactively with customers is the third thing I would suggest to do.

The fourth one is probably around regulation. Clear regulation will vary by country, but also by state when you think about the U.S. Understand regulation where it potentially pushes you in one direction but also any subsidies available and making sure that you leverage that to the maximum extent would be the fourth one.

And the very last one I would suggest is engage business leadership. What you want to make sure is that you deepen the understanding of sustainability and why it's a business drive within leadership. Get the buy-in because then you can move faster. So this would be probably the four or five “no regrets” move.

In terms of potentially pitfalls that we see if I just highlight a few is I think I see you made a great point which is moving from compliance to value creation. I think that's one of the key things; if you can't make that move I think you quickly get stuck, and so that's why pitfalls sometimes we see it's just about reporting instead of doing something. The second one is overly focusing just what should be the target. The target is important but you need to deliver it and so make sure that you pivot at the right time between having a target and going somewhere. And the last one I would say is under investing in engaging the leadership. If the topic stays within the [system] function and doesn't permeate across the business, it would be very hard to get the buy-in, to get investment to accelerate and to make it relevant for customer. The last pitfall, we see sometimes, that it's important to avoid. So some of the key themes, which I think are quite pragmatic, and I think the sentence we tend to use is, be a “visionary pragmatist.” You need to know where you're going, but in the end, if you can't make it work day in, day out, you won't make the progress you need to make.

James Burrows: Torsten, if that's okay, I want to follow up with an unscripted question and just put you on the spot here. So let's see how this goes. I'm conscious that all of us on this call sit in multinational companies who have the resources to create sustainability teams. But I'm conscious that our audience, you know, that may well not be the same circumstance for them. They may have the capacity to hire one person to cover sustainability topics, or they may not have that capacity. Now sustainability is obviously competing with many, many other topics on the CEO's agenda. If you're sort of mid-market, medium-sized enterprises across North America, can you offer some practical thoughts on how they would implement this in an environment where they're competing with other topics for a CEO's time, for resources, and for when staffing and FTE are constrained? What have you seen from some of your kind of midsize clients as they look to implement these agendas?

Torsten Lichtenau: We do that a lot. We work, for example, a lot with private equity. When you have a portfolio company, you're probably of smaller size and need to do it. You clearly need probably one or two people really focusing on the topic with a deep expertise. That you do need, but you can be selective in this investment. I think then to manage to get some leverage is engaging the business and make it relevant for them because I think where you can get a force multiplier, if you get some key folks within the line being procurement or sales or strategy, starting to co-own the topic, and embed it to the agenda. Instead of being something that comes on top, it's something that actually helps them accelerate their agenda. When we think about selecting suppliers, that's one of the criteria. When you think about strategy, it is one of key growth drivers. When we talk about selling, that’s part of a value proposition. The more you can embed into the business, the easier it is not to ask for more FTEs, but to get it to work. And I think to capture the CEO, I think I've seen the CEO agenda, I've seen two things working well is linking explicitly to the strategy, not probably coming up with a systematic strategy, but to say as part of our strategy, this is where it fits. And I think the voice of the customer is the other one. I think CEOs do care about one thing, which is the customer and fulfilling the customer needs. The more you can bring to life why it's important to them, the more you'll get the attention. That's how pragmatically I would try to do it.

James Burrows: And that's good to hear because just being candid, that's what I try and do at BMO. You've got to find the champions in the business. You've gotta find the people in the business that really understand how it integrates with their day-to-day, how it can add value for their clients, how it can improve their brand and their standing with those clients. Because all of us are in big corporations, but no big corporation has an enormous sustainability team. So you really, really need to engage the whole of the business in it and integrate it into their day-to-day operations. Aysu and Tim, I provided a very short reflection. I wonder if I could kind of press on you both to just reflect on what Torsten had said there with regards to how this operates in your business. And Aysu, maybe I'll start with you first, if that's okay.

Aysu Katum: Absolutely. And maybe I'll continue on what Torsten was saying. When we started sustainability, I was the only person working on sustainability for about seven years. So it can be done. It's really all about going, I mean, we're I think repeating the same things, but it's all about finding those elements where you can create value for the business. So for us, that started with our customers. Really understanding what was driving them and how do we help our customers meet their- whether it's decarbonization targets, circularity targets, waste targets, or maybe they have regulatory reasons. So really understanding what they care about and then taking that internally to the organization and communicating that to the organization and how we make that happen. So it's really identifying those opportunities everywhere in the organization, where you can create value. So if we talk about energy efficiency, there's a direct impact there, obviously to the bottom line. If we're talking about, for example, energy demand programs, we have about 17 facilities that have enrolled in energy demand programs in North America. If every facility participates, that's about $4.5 million that we are going to earn just from participating in this program. And there's really nothing much that you need to do. So it's really identifying these opportunities, where you can show real value, quick wins, that you can deliver to the executive leadership team to different parts of the business. So it really resonates with me, but it's possible, even with one person, it's to make progress. And then as you show the value that you're creating for different parts of your organization, then the team starts growing, and the types of things that you can do also start growing.

James Burrows: Thank you very much, Aysu, and Tim, maybe we'll go to you next.

Tim Faveri: Sure, all great points. I don't know if I can add much else, maybe a little bit of color commentary. Over my career, I've always liked to try and frame sustainability into the language that's best understood at the C-suite. And what's that? It's what's material to the company, what are the risks, and what are the opportunities, right? So. We present a sustainability strategy or a roadmap or action plan, we're addressing those three things. What are the risks? How are we going to mitigate that, or lessen those? Where are the opportunities? And what we're focusing on is actually material to the organization. I got- when I was at Tim Hortons and we presented the first sustainability strategy, this would have been back in 2008, 2009, the feedback that we got from the board I'll carry with me for my career. And they said, we love this strategy because you didn't try and boil the ocean. It's so easy in sustainability to chase a shiny lure of a topical trend or something with respect to, you know, a stakeholder sustainability. But you have to be pragmatic, you have to be focused, right? You have to speak the language of your C-suite and I think that those are those are sage pieces of advice that I've, you know, I’ve been able to utilize across my career.

James Burrows: This is fantastic. I mean, what I'm taking away is that the world is changing. You know, sustainability is a theme that is not going away. You see it across customer sentiment and how you sell your products. You see across regulation, you see it in politics. It is changing. I'm almost seeing an image of the sustainability kind of leader within an organization, being the person that looks out across the horizon, see those changes coming, and then partners with the businesses on how it impacts that business. How to mitigate the risks that are coming down the pipe, and maximize the opportunities. But again, key theme, core theme that I'm seeing across all of this commentary is it has to come back to business fundamentals. It cannot be at odds with business fundamentals, which for me, for us at BMO at least, and I think for everybody else on the call, is very important.

Yeah, I'd like to come back to you both again, Aysu and Tim, and really press you on one or two practical pieces of advice that you can leave our audience with today. My hope when setting up this webinar was that it could be as practical as possible, and I think we're achieving this, but we've got a combined 40 years of experience in sustainability across both of you. I would love for you to impart some lessons and wisdom to the audience today. And Tim, maybe we'll go to you first.

Tim Faveri: Sure. I mean, I think particularly in today's economy in North America, probably more globally, a lot of colleagues that I've worked with across different sectors as part of sustainability round tables of my peers, we have a collective feeling that sustainability has kind of moved into recessionary times as well, right? So that way, I think that of advice that I would provide is stay focused, stay pragmatic. Like we've said over and over, stay focused on what is of value to the organization, right, and creates value. The other thing is think long-term. So, you know, we have to report on a performance, on a quarterly basis, and often value is not generated from sustainability initiative or program for many quarters, sometimes many years. So you have to have that data and narrative in place. I think what is going to serve companies well into the future is taking a long-term viewpoint of sustainability and understanding that it is a lot longer than, let's say, the next four years where we've the pendulum has kind of swung out of favor.

James Burrows: Thank you, Tim. Aysu, maybe-

Aysu Katum: Yeah, I'll build on that. One of the points that we've already actually touched on and this is for us this has been a big learning which is going back to trying to focus on everything all at once; doesn't work. I think there was an HBR article where they talked about how sustainability strategy fails because companies treat everything as material and we've actually done recently a double materiality assessment where they have identified 80 percent of the topics as material. Obviously, you can’t concentrate on 80, you know, 80% of topics.

James Burrows: Aysu do you mind if I just interrupt you there? Could we just unpack that term, “double materiality assessment?” Just want to help the audience understand for those that haven't come across that before what we're talking about there.

Aysu Katum: Absolutely. So in the past, it used to be just materiality assessment, where basically you are trying to identify the most important issues, most important sustainability issues for your company, the most strategic ones. And you go about doing that by doing research, online research, you interview various stakeholders, customers, investors, the communities where you operate. So basically gathering all that information to identify what's really important for your organization and doing the same with your internal stakeholders as well. Now we have double materiality assessments. So it's looking- it's broader in scope. It's also looking at financial impact of your material risks. So it's much broader in the scope and it's actually part of a regulation that's coming out of Europe. So companies that have a certain size of an operation in Europe or they may be global companies but they still operate in Europe actually have to go through this assessment process but ultimately you, again, identify the most important issues for your company that you should be focusing on. So in theory, you should narrow down those topics but what happens is as you work through with third party agencies or you're doing it internally, you realize, oh, about 90% of these topics according to the guidelines are material. Well, that's still a lot of topics. So you again, really need to narrow down your scope and really choose the four or five topics that you can really make a difference in, and that's valuable for you. That's valuable for your stakeholders. I hope that makes it a little bit more clear.

And then the second thing that I always, you know, talk about is data, invest in data early, because if you don't have data, you don t know where you stand, you can't make progress. And it will really go a long way, again, in meeting regulatory environments. And I know that in the US, the pressure is off a little bit, but there are still regulations in the U.S., too, coming out of California, you have EPRs at the state level. So investing in data is going to be really important.

Maybe I can give a very quick example. When we looked at our facilities, we have a zero waste target for all of our facilities. And when we looked at our, you know, sites in the U.S., how much money are they spending on waste disposal? We identified two facilities producing the exact same product in the same region. One facility is paying five times for waste disposal per unit of product versus the other facility. Without data, we would not have recovered this gap and these opportunities. And, you know, by recovering the gap, we were able to basically transfer best practices from one facility to the other. So that would be my second piece of advice.

James Burrows: I love that example, Aysu. I think that's a great place to finish on. So that does wrap up the panel discussion. Thank you very much, Aysu and Tim and Torsten for your contributions. Really great discussion, I thought, so thank you.

We do have time for a little bit of Q&A at the end. I picked out a couple of questions that had been submitted ahead of time. The first question was a great one from Michelle at the [Wasmer] company. And it's a longer question, but I think it's really worth reading out in full because Michelle really hits a lot of the issues on the head here. So I will quote. “We see many manufacturers and industrial companies are interested in sustainability projects, whether those be energy efficiency upgrades, emissions reduction strategies, or operational improvements. However, many of these projects often deliver an ROI over a longer term, 12 months-plus, while leadership teams are under pressure to meet short-term budget goals or avoid large upfront investments, how do you recommend companies balance the need for short-terms financial performance with long-term value of sustainability investments?” I think we see this all the time. I expect our panelists will be familiar with that challenge. So I think it's a great, great question to highlight.

I'll start with a few perspectives in terms of what we see from BMO with our clients. And then maybe, if panelists want to jump in and add anything themselves, we can do that. So I think the first one is secure short-term wins. You're not going to jump from zero to funding that $20 million CapEx project that's going to cut your emissions by 80%. I think to build up the trust of your board or executives in the company, it is important actually to start by focusing on those projects that generate payback within a 12-month span or within a three-month span. And I think my experience is in real estate, so you see a lot of energy efficiency projects that can achieve those sorts of paybacks while realizing meaningful decarbonization goals. I think once you've set that groundwork of establishing short-term wins, and that will be backed by data-led approaches that Aysu has been mentioning, you can build the consensus and you can lay the groundwork to address those larger projects and figure out how you're going to fund them over the long-term and how you are going to support them through the business.

I guess the final thing that I would say is that financing can play a really important role here. There are financing mechanisms that can support longer term payback projects. Sometimes that would be project finance, where there is limited recourse back to the company. Sometimes it might actually be as simple as rolling the costs of this longer-term payback initiative that you're doing into a commercial mortgage, for example, that amortizes over 25 or 30 years so that the financing is matched with the payback. Or you have equipment finance, again, where you're buying a particular piece of equipment and the financing can be structured to match the amortization period of that piece of equipment or the payback of the initiative. What I would say is, you know, whatever bank you're working with, of course, we hope it’s BMO as much as possible, but whatever bank you’re working with, put your relationship manager on the spot and say, this is the initiative that I'm hoping to work with. This is why it's challenging. How can you help me structure financing that will match that initiative? And Torsten, maybe I can just come back to you very momentarily, to maybe see if there's any thoughts that you have on how to create buy-in for those longer term, longer term payback initiatives. I think you're on mute, Torsten, sorry.

Torsten Lichtenau: Apologies, I was on mute. So I think you covered some of the key points, maybe a few builds. One is a point that Aysu made. Often what we can see is the same lever being pulled across different facility operations, sometimes at very different costs. And I think increasing the learning across the organization is a very good and pragmatic way, as a first step, to get more projects over the line. That's number one. The second point you made around financing is key. I think we see more and more business models evolving where we can see people using OpEx saving to finance the CapEx and I think there are many more business model we've seen appear in the past year or two that I think are very attractive and clearly banks play a critical role in doing that.

The third one, which is interesting, we see AI actually playing a huge role. If you take, for example, your utility bills and start to apply AI and compare and contrast across facilities, I think we see now an ability to discover efficiencies that people have not seen before and justify larger projects that in the past felt out of reach.

The very last one is I think you need to understand fits of value to your customers. And so many more companies are starting to use an intro carbon price. So what is it worth to us to reduce a ton of carbon? If you think there is value to your customer, you should put that in the business case. That's absolutely critical. So these are probably the three or four things that we've seen people doing in addition to the great points you've just made.

James Burrows: Perfect, thank you very much, Torsten. Second and final question, it's a bit of a topical one. It's one that obviously can be quite hard to avoid today. It's from Donald at Energy Futures. How is changing political sentiment around sustainability impacting the companies that you work with? And again, I'll start off with my experiences, with BMO's experiences with our clients, and maybe if we have time, come to our panelists.

So for me, again, three points. What we're seeing, and this is backed by BMO's Climate Institute survey, which we undertook in February 2025, again, 700 business leaders across the U.S. and Canada, so a really, really broad survey, a survey we put quite a bit of effort into. Most companies are just not changing course based on political sentiment. I think they change course based, you know, on regulations, perhaps regulations that have actually been enacted, laws that are actually on the statutes, of course, you to comply with those. We're not really seeing companies change course based on newspaper headlines right now. Where they have identified and coming back to the points that we've heard throughout this call, where those sustainability initiatives are founded on strong business rationales, whatever those might be, they're sticking with those sustainability initiatives. So we're really not seeing companies changing course an enormous amount right now.

I did mention as regulations change companies will have to adapt. But both in Canada and in the United States, regulations kind of have three levels. I mean, I'm probably simplifying it a little bit, but we have federal regulations, we have state or provincial regulations, and then you have municipal regulations. And the federal regulations of course get the headlines, but actually a lot of the heavy lifting on the energy transition, on decarbonization around climate, is being done by state or Provincial or even right down to city level regulations, which don't necessarily change in tune with the federal regulations.

And the final point that I'd make is it's a relatively simple one. Most companies are focusing on the long term. You know, politics is important, we can't deny this, but companies are looking out as they do these initiatives over a horizon of, you know, five to 10 years and simply can't change your initiatives every time, you know, the political winds change. So we're seeing our companies focus on the term there.

I do think that brings us to the end of our webinar. So look, I'd just like to say thank you again to our wonderful panelists. Thank you for joining us. Thank you to everybody in the audience who joined us today. I've really enjoyed the discussion. We hope to bring more similar to discussions to you in the future. We definitely appreciate the questions you submitted, which helped shape our discussion, even if we didn't get to your particular question. And if you do have any kind of additional questions, particularly around how financing can help your journey, please don't hesitate to reach out to your BMO Relationship Manager. They'll be more than happy to talk to you about your topic. So again, thank you again for joining. Have a great rest of your day. Goodbye.