A company’s reputation is the sum of experiences it has with all its different stakeholders. We might deliver a fantastic product – valued by our customers, but our employees might not like us as a workplace. Likewise, the shareholders might appreciate our financial performance, while our local community might disapprove of our lack of citizenship. And the list goes on including parameters like; Innovation, Governance and Leadership – the questions is which parameter has the biggest influence on your reputation and hence where to ‘invest’ your resources?
The complexity of a reputation is enormous and so is cement production. In the case of cement, the casual observer will easily be overwhelmed by dramatic headlines and miss the many initiatives being done worldwide to mitigate its environmental footprint. It is therefore essential that the industry does a conscious effort to complete the narrative and not risk being penalized.
In a recent interview with Discover Cement, several financial experts linked the cement industry’s access to capital to its efforts to reduce its environmental footprint, or citizenship as The RepTrak Company would call it. “The cost of capital will increase for less sustainable cement producers…” said Marco Kisic, Senior ESG analyst at Nordea Bank. ”Investing to become sustainable is therefore a business decision, and the only ticket to cheap capital,” is the conclusion of the article.
To get a better understanding of which of the reputational parameters to prioritize, we met up with Tobias Brun-Falkencrone from RepTrak – a company that helps businesses understand and shape their reputation with key stakeholders. The RepTrak Company owns the world’s largest reputation benchmarking database with ratings on more than 5000 companies worldwide.
In Reptrak’s database, the Cement Industry falls under the category; Raw Materials. A business-to-business category characterized by a high degree of commoditization; its reputation is therefore less influenced by the actual products and services it provides, compared to other industries.
Governance defines a company’s ethical behavior
“The Raw Materials category is very unique compared to other industries, we see Governance and Citizenship being almost equally important to its reputation as Product”, says Tobias. “It illustrates a great potential in investing in these areas to influence public opinion and gain goodwill from regulators and financial stakeholder”, he concludes.
“Governance defines a company’s ethical behavior while Citizenship covers its environmental responsibility and the positive impact it has on its local community,” Tobias adds.
But what is the upside to investing in initiatives and promoting good governance and citizenship in the same way that we market our products to our customers?! Again, Tobias refers to the database for the answer. “We know that companies that are able to move their reputation from ‘average’ to ‘strong’ increase the amount of people that are considering buying from them, from 28,6% to 46,7%.” But when we want to influence people’s ‘trust in us’ or ‘willingness to invest’ – these are the hardest to affect. Moving your reputation from ‘average’ to ‘strong’ increases the people’s’ trust’ from 20,1%to 33,8% and ‘willingness to invest’ from 20,3% to 32,4%. However, these are also the biggest differentiators in the Raw Materials category and therefore a massive opportunity in securing vital support from stakeholders on ‘license to operate’ and ‘access to capital,’ says Tobias.
Evidence that reputation matters can also be seen from analysing the top rated 100 companies in Reptrak’s database. In terms of financial performance, these companies have consistently beat the S&P 500 Index over the last 15 years.
‘Sustainability’ has clearly become the fastest growing type of initiative in Cement in recent years – this drives the factors of Governance and Citizenship which a lot of stakeholders are expecting from producers. To the industry, sustainability means using less fossil fuel, reducing the clinker factor and saving on the energy. The industry has pursued these measures for decades because it is common sense; they reduce OPEX and are good for business. Today, these same initiatives are branded and communicated as any other product promotion to capture more stakeholders. In a recent World Cement interview with Brad Kohl, CEO Western Canada at Lafarge, the organization calls out ‘licence to operate’ as one of its motivators for reducing its environmental footprint. Brad says in the interview; "We are the most ambitious company in our sector, in terms of emissions reductions targets. That’s why we’ve dedicated our time and money towards finding methods to continue our transition towards the low-carbon and circular economy.”
A recent survey among 150 key decision-makers in the cement industry confirms the opportunity and need to act towards more stakeholders and not only customers. When asked; ‘which major issues do you expect to impact your business in the next 12 months?’ ‘environmental regulation’ came in second, only surpassed by the ever-present worry about energy costs.
We are back where we started; a company’s reputation is the sum of experiences it has with ALL its different stakeholders. And therefore, our words need to be followed-up by actions, demonstrating to customers, our local community, regulators and investors that a sustainable cement industry is in everybody’s interest.
“Building reputation to a degree that impacts the bottom-line doesn’t happen overnight,” says Tobias. “But Raw Materials companies are often in it for the long haul and I expect them to be able to make the step-changes needed across its business operations”.