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A Case Study on sustainability-information management practices

Heidelberg Cement’s activities are related to both social and environmental impacts. Thus the company has a long tradition in managing such aspects as to contribute to the long-term success of the company. The business of the company allows accounting for the (physical) effects of these corporate activities. Although such accounting has taken place for over a century now, the sustainability discussion has caused HC to rethink their sustainability performance and targets. The introductory chapter presents HC and its sustainability challenges. Chapter 2 presents the organisation of sustainability-related information and the functions involved in it. Chapter 3 delivers an overview of the Sustainability Dashboard, a management system developed just recently to better accommodate the process of sustainability management on the group level. A concluding chapter summarises the main advantages of such an information management system to the business and suggest how other businesses could develop such a system on their own.

1. Heidelberg Cement and its (contribution to solving) sustainability challenges

Heidelberg Cement is a German cement and building materials company. It is currently (as of 2007) the world's fourth largest cement producer with an yearly production of around 80 million tonnes of cement per year. It is also the largest aggregates producer worldwide. The company employs some 61,000 people at 2,600 locations in about 50 countries with an annual turnover of approximately EUR 15 billion.

Cement manufacture causes environmental impacts at all stages of the process. These include emissions of airborne pollution in the form of dust, gases, noise and vibration when operating machinery and during blasting in quarries, and damage to countryside from quarrying. Equipment to reduce dust emissions during quarrying and manufacture of cement is widely used, and equipment to trap and separate exhaust gases are coming into increased use. Environmental protection also includes the re-integration of quarries into the countryside after they have been closed down by returning them to nature or re-cultivating them.

Carbon dioxide. Cement manufacture contributes greenhouse gases both directly through the production of carbon dioxide when calcium carbonate is heated, producing lime and carbon dioxide,[14] and also indirectly through the use of energy, particularly if the energy is sourced from fossil fuels. The cement industry produces about 5% of global man-made CO2 emissions, of which 50% is from the chemical process, and 40% from burning fuel. The amount of CO2 emitted by the cement industry is nearly 900 kg of CO2 for every 1000 kg of cement produced.

Energy consumption. A cement plant consumes 3 to 6 GJ of fuel per tonne of clinker produced, depending on the raw materials and the process used. Most cement kilns today use coal and petroleum coke as primary fuels, and to a lesser extent natural gas and fuel oil. Selected waste and by-products with recoverable calorific value can be used as fuels in a cement kiln, replacing a portion of conventional fossil fuels, like coal, if they meet strict specifications. Selected waste and by-products containing useful minerals such as calcium, silica, alumina, and iron can be used as raw materials in the kiln, replacing raw materials such as clay, shale, and limestone. Because some materials have both useful mineral content and recoverable calorific value, the distinction between alternative fuels and raw materials is not always clear. For example, sewage sludge has a low but significant calorific value, and burns to give ash containing minerals useful in the clinker matrix.

Local impacts. Producing cement has significant positive and negative impacts at a local level. On the positive side, the cement industry may create employment and business opportunities for local people, particularly in remote locations in developing countries where there are few other opportunities for economic development. Negative impacts include disturbance to the landscape, dust and noise, and disruption to local biodiversity from quarrying limestone (the raw material for cement).

As a company that makes intensive use of raw materials, Heidelberg Cement regards climate protection and the securing of resources as the foundation of future corporate development. With efficient production processes and the increasing use of alternative fuels and raw materials, an important contribution to protecting the climate is made. Group-wide standards for environmental protection and occupational health and safety help to ensure that goals are implemented worldwide. The quarries and the sand and aggregates pits from which raw materials are extracted are returned to a natural state or put to agricultural use.

Heidelberg Cement is committed to sustainability and builds on the three pillars: ecology, economy and social responsibility. The sustainable corporate governance places the primary focus on customers, employees, shareholders and local partners at all locations.

Heidelberg Cement publishes a sustainability report for the third time, transparently highlighting in detail the Group activities relevant to sustainability. The Sustainability Report 2009 provides information on the crucial progress Heidelberg Cement has made in central fields of the Group sustainability strategy in the years 2007 and 2008: Both with respect to climate protection and preservation of resources, the targeted goals were achieved. For instance, the Group commitment to reducing direct net specific CO2 emissions by 15% by 2010 (base year 1990) was achieved in 2008, with a reduction of 18%. With a proportion of 17.5%, Heidelberg Cement is industry front-runner in the use of alternative fuels (Source: Heidelberg Cement), whereby biomass accounts for around one third of the total alternative fuel rate.

Furthermore, Heidelberg Cement strives to establish a leadership role in promoting biodiversity in quarrying sites – through the implementation of Group-wide standards and guidelines, among other things. Sustainability also plays an increasingly important role in product development: With innovative products, the Group makes tangible contributions towards sustainable building.

The company is also committed to meeting the Sustainability Ambitions 2020: fields of action for sustainability. The ambitions are defined by the core business:

Giving highest priority to occupational health and safety: Heidelberg Cement strives for zero accidents, injuries and occupational illnesses;

Protecting the climate: Heidelberg Cement works continuously to minimise its greenhouse gas emissions and delivers solutions for adaptation to climate change.

Delivering a prominent positive contribution to biodiversity: Heidelberg Cement aims to establish a leadership position in the development of biodiversity at its mining and quarrying sites.

Working for sustainable construction: Heidelberg Cement works towards delivering sustainable building materials, which positively contribute to the welfare of our society and to our environment – during and after their lifetime.

Using waste as a resource: By viewing waste and by-products as a resource, Heidelberg Cement reduces the use of natural resources and offers solutions for sustainable waste management.

Further reducing other environmental impacts: Heidelberg Cement aims to be best in class in managing and minimising its environmental impacts.

Information organisation and responsibilities

Heidelberg cement has a long tradition in managing environmental and social aspects of business. This management has measurably contributed to the long-term success of Heidelberg Cement. Various information on both social and environmental aspects of business activities has been collected for much longer than the sustainability (or environmental) department has existed. Of initial concern were social issues, mainly employees, later on environmental issues started gathering importance and publicity. Nowadays, non-financial information is used for decision-making, performance control and reporting. Due to the fact that extra-financial aspects have been used for making informed decisions for a long time now, it is difficult to estimate how corporate strategy and daily activities have been influenced by paying attention to and tackling sustainability challenges.

The importance of such non-financial information can be visualised by the fact that its monetarisation, i.e. being expressed in monetary terms, has been considered unsuitable, or insufficient at best, for decision making. Clearly, extra-financial information is important to visualise the financial impacts of social and environmental activities.

The information management in regard to extra-financial information is rather diversified. Despite the centralised (due to the hierarchic structure of the company) information management, the information behind a number aspects is dealt with within the respective department. In this sense, the sustainability department has an overarching function solely as far as external (partially internal) reporting functions are concerned. For example, environmentally related information is managed by the environmental department, social issues are tackled within the HR (internal) and sustainability for externally relevant aspects. Climate change information is also managed separately and then passed on to the environmental departments as well as to other departments that require it, e.g. for emission trading.

The accounting function is involved in the process of managing extra-financial information, insofar as the majority of the information, collecting on a regular basis is passed on to the accounting department for verification and centralised management. The information system has been expanding to accommodate non-financial aspects that have gained importance in the run of time. This has happened gradually and without a fundamental change in the information management system. For example as the topic of carbon emissions grew beyond the threshold to be ignored and related information collection mechanisms were established to collect data and process it. The aim of these mechanisms was to replace older mechanisms, which served to convert e.g. coal consumption or mileage to carbon equivalents. Yet, such conversion methods were used to retrospectively calculate (and estimate where sufficient detail was lacking) emissions prior to measuring them. Thus, the base year was established – 1990 – to which increase performance is to be measured.

The information flows do present a challenge to the company, due to its particularly complex structure and the fact that it operates in over 50 countries. Yet, the management is more concerned with the scope of the information management and its value to decision making and performance evaluation, thus this aspect is given priority. This fact is also reflected in this case study.

3. Information management practices

3.1. Description of the Sustainability Dashboard

The environmental department has developed a system for monitoring and managing environmental performance, called the Sustainability Dashboard (SD). The SD presents a series of indicators that express various environmental aspects that are managed by numbers. The fully updated SD was implemented and taken into operation as this report was prepared. Yet, the SD comprises a set of indicators, which are constantly adjusted so that they are of good informational value. The Dashboard produces quarterly reports, which are handed over to senior management.

3.2. Advantages of the Sustainability Dashboard over previous systems

Setting up such a Sustainability Dashboard appears to combine a number of advantages of previously used alternatives, while avoiding the downsides of each of these alternatives.

A. Avoiding confusion: by developing group-wide indicators, the various divisions and departments are aware of what (environmental) performance is measured and thus what their (environmental) efforts have to be concentrated on. Although these indicators are developed top-down, each division and unit provides their opinion on proposed measures, based on which it is decided whether a certain indicator is accepted or not.

B. Avoiding double work. By distributing responsibilities it is made sure that information is produced and reported with maximum efficiency. In contrast, previous information systems were organised in a way that required the owner of certain metrics to report them several departments in different form. This causes additional resource load on the provider of the metrics but it also requires that users of the information request it from various departments. This is avoided thanks to the centralisation provided by the Dashboard.

C. Clear procedures. By providing a clear definition of how each indicator or metric is calculated, confusion is minimised. Whereas previous systems left it up to individual departments and units to define their metrics and the processes leading to their production, the Dashboard defines these on company level, thus avoiding such variances.

D. Reliability / assurance

Last but not least, the Dashboard enables an assurance process that has previously not been possible. By submitting the raw data to a central department, the verification takes place outside the department / unit where the data was produced. This external assurance increases transparency and secures data intregrity.

Figure X: A screenshot of the interface of Microsoft product “environmental sustainability dashboard”. This is not the one used by HC, the graphic only serve as one possible visualisation of output. (Source: Microsoft 2009)

3.3. Examples of indicators

A large number of indicators (100+) have been developed (and are still being developed) to equip the Dashboard with useful and relevant indication of HC’s environmental and financial (regarding environmental matters) performance. The majority of these metrics and indicators are rather straightforward to formulate, measure and report. Examples of such indicators are total energy consumed over a time period, the amount of energy used per tonne produced cement, the efficiency of the process per employee or the amount of energy saved per Euro invested. Defining indicators clearly is essential for the process, so that the quality of the information obtained is higher and trends cannot be disguised due to poor accuracy or a different approach to measuring.

Yet, a number of indicators are based on qualitative information and need to be translated into quantitative units, so that they can be subjected to sustainability accounting. Such indicators present a major challenge to the environmental management, since the higher the number of aspects monitored - the more transparent the system and the more effective the management, since performance measurement and decision making are now based on hard facts.

Example of:

Examples of such indicators include managing regions. Since it is appropriate (very expensive, especially against foreign competition) to manage all the areas where limestone is mined, areas have been given priority. Until recently, assigning priorities was based on qualitative indicators, such as: condition of the area before mining activities took place (bad, neutral, good), effect of the mining activities on flora and fauna (negligible, moderate, serious), importance of the region for other activities (low, medium, high), etc. While these indicators are a good starting point, their qualitative components appear to have an adverse effect on decision making. As a result, the environmental team has developed a set of quantitative indicators to replace qualitative ones and thus provide a transparent and comprehensible basis for making decisions and measuring performance. The quantitative metrics used to describe a region of mining activity have been developed so that they reflect the most important (both in the mid and long-term) measurable aspects. Thus, current indicators include distance from Natura 2000 borders, amount of flora and fauna species present, etc.

3.4 Application of the Dashboard

Clearly, a management accounting system’s main purpose is facilitating decision making. By a) providing a detailed set of metrics and indicators and b) making sure they are reliable and uniform group-wide, the Sustainability Dashboard support the decision making process.

The second advantage of the Dashboard is its (internal and external) benchmarking function. By comprising uniformly calculated indicators and metrics, the Dashboard enables users to compare performance between divisions or process performance within the same division (e.g. all the impacts of producing a tonne of cement at different plants/facilities). This allows division managers to share thoughts on improving performance. The other advantage (specific to the cement industry) is the availability of industry standards, which other companies publish. This allows to benchmark HC’s performance against that of competitors and potentially discover improvement potentials.

The third main advantage of the SD is the increase in transparency that is achieved by having quantitative information. This allows a) to produce a comprehensible for stakeholders account of how decisions are made and b) support statements by providing hard facts.

4. Conclusion

Both environmentally-related impacts on the company and company-related impacts on the environmental are considered of highest importance which is reflected in the (type of) information collected and used.

Despite being decoupled from financial information, extra-financial information has been partially integrated into the accounting system of the company. This has happened quickly, as soon as certain factors appeared important for the performance of the company. Yet, a majority of aspects are dealt with in a parallel accounting system, the Sustainability Dashboard, described above. Although the Dashboards is merely a data collection and processing system, it requires that the data collection practices of data owners are established on a corporate level in order to provide useful results. Both the Dashboard and the information flows can be set up in accordance with the needs of the specific companies, and the above case study serves to provide a guidance of what difficulties

5. Further links

http://www.heidelbergcement.com/global/en/company/press_media/press_releases_2009/2009-08-19.htm

Sustainability report 2009

http://www.heidelbergcement.com/NR/rdonlyres/21CFC7D0-FE8A-4EBC-A184-7B12569B7498/0/Sustainabilityreport2009_HC_en.pdf

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