Terry Slavin interviews Gilbert Ghostine, CEO of the Swiss fragrance and flavours giant, about the company's inclusive capitalism business model, 1.5C science-based targets, and the new One Planet Business for Biodiversity coalition
When Gilbert Ghostine received a phone call from a headhunter six years ago asking whether he would be interested in being CEO of a company called Firmenich, he did what most people do when they hear the name: turned to Google for help.
The Swiss fragrance and flavours company is virtually unknown, despite the fact that its ingredients go into brands used by a mind-boggling 4 billion people every day. Partly, that is because the 124-year old company is privately held and, until Lebanese-born Ghostine joined, had been run exclusively by five generations of the Firmenich family.
The company, which has 8,000 employees and operates in 100 markets, is also strictly business-to-business rather than customer-facing, and does not advertise who its big-brand customers are.
By being business-to-business, we can impact directly in all the big companies and all the big brands in the world
But this almost invisible company has been totting up an unparalleled track record on sustainability under Ghostine’s stewardship. When CEO Today awarded Ghostine its Global CEO Award in 2019 for “inclusive growth leadership and innovation” it noted that Firmenich was one of only two, with L’Oréal, to be awarded CDP A-lister status in 2018 for climate, water and deforestation risk; ranked among the top 1% of 45,000 suppliers by EcoVadis for environmental and social impact; and is the seventh company worldwide to be certified by EDGE, as a global standard for gender equality. Firmenich also won the diversity and inclusion award at Ethical Corporation's Responsible Business Awards 2019.
Then there is the leadership Ghostine has shown on climate change, most recently in the run up to Climate Week New York last month, when Firmenich signed up to the Business Ambition for 1.5C: Our Only Future coalition of 87 companies that have set 1.5C science-based targets and pledge to be net-zero carbon by no later than 2050.
The company is also a founder-member of the One Planet Business for Biodiversity (OP2B) coalition, led by the World Business Council for Sustainable Development and Danone CEO Emmanuel Faber.
Of course, consumer goods giants Danone, Nestlé, Mars Inc and Unilever, which are also involved in both coalitions, can wield huge influence with consumers. The same can not be said about Firmenich.
In an interview with Ethical Corporation after giving a keynote address at Responsible Business Summit Europe in June, Ghostine was asked whether Firmenich was disadvantaged by being a business-to-business brand.
Rather the opposite, Ghostine said: “By being business-to-business, we can impact directly in all the big companies and all the big brands in the world. We touch 4 billion consumers every day, through the brands of our strategic customers.
I wrote personally a letter to the CEOs of all our customers, and of our suppliers, to share with them best practice on what we have learned
So our reach is far broader, and far deeper than if we were business-to-consumer.”
As an example, he says when Firmenich was awarded triple-A status by CDP earlier this year, “I wrote personally a letter to the CEOs of all our customers, and of our suppliers, to share with them this recognition, thank them for their support... and at the same time offer to share with them best practice on what we have learned, and how we have benefited” from 10 years of reporting to CDP. He said the response to the offer had been “overwhelmingly positive”.
Firmenich invests 10% of its revenues annually in research and development, and nearly $400m in the last calendar year alone.
One big area of innovation, and where it has engaged its customers, has been in its project with the Bill and Melinda Gates Foundation to help the 4.5 billion people in the world who don’t have access to sanitation, something that contributes to the deaths of 800,000 children each year from hygiene-related diseases.
Among them are 2.5 billion people who only have access to public toilets and one billion who lack access or decline to use any toilet at all. As a fragrance leader, Firmenich realised that it had a role to play because the biggest deterrent to people using public toilets is bad smell.
It invested $6.5m, a sum matched by the Gates Foundation, in sending its best scientists to the worst latrines in India and Africa to come up with breakthrough technologies to counter malodour.
“The good news is that Bill Gates was very excited about this, he visited our facilities back in June 2016. And he decided to promote our breakthrough technologies on his personal blog. And now, we feel very proud that these technologies are already available in products of our customers in Bangladesh and are being trialled in India.”
He said Firmenich convinced its customers to accept a lower margin on these products, and produce them in smaller formats, to make them affordable to low income consumers.
We create a very aspirational product that will help people move along the sanitation ladder, and transform their behaviour
Ghostine said this is not about philanthropy, but makes good business sense. “Neither we nor our customers had access to this part of the market in the past.”
Bérangère Magarinos-Ruchat, global head of sustainability at Firmenich, pointed out that the products being sold in Bangladesh are using the same technologies, branding and packaging as those on the shelf in the UK. “We create a very aspirational product that will help people move along the sanitation ladder, and transform their behaviour. We won’t be able to drive behaviour change if consumers are not going to be as inspired by the product, not just by the smell, but also because of the brand, the packaging, the distribution. It is a premium product for low-income consumers.”
This is leading to the growth of the sanitation economy, not only around the services of public toilets, but in waste-management, bioenergy, and using human waste for bioenergy and organic fertilisers for regenerative agriculture, she said.
She added that the The Toilet Board Coalition, the business-led coalition Firmenich helped to set up in 2015, has begun to attract banks as members, an indication of the investment opportunities emerging in that space.
The One Planet Business for Biodiversity coalition, newly minted at Climate Week New York, has three areas of focus: scaling up regenerative agricultural practices to protect soil health; boosting cultivated biodiversity and diets through increasing the number of ingredients used and expanding provenance-based sourcing; and eliminating deforestation and enhancing high-value natural ecosystems.
Asked how Firmenich is advancing this agenda, Ghostine points to Firmenich’s Naturals Together programme to source ingredients exclusively from 16 of the world’s most sustainable producers, selected through an extensive due diligence process.
And it has partnered with Mars Inc, Danone and Veolia in the Livelihoods Funds for Family Farming, which has invested €120m to convert 200,000 farms to sustainable agricultural practices.
We have decided to pay 5% premium to the market price of vanilla, and this 5% premium we offer it to the local cooperatives to invest in community projects
Firmenich is the world’s second-biggest buyer of vanilla, which comes mainly from Madagascar, one of the poorest countries on Earth, and a big recipient of funding through the Livelihoods Funds.
“We have decided as a company to pay 5% premium to the market price of vanilla, and this 5% premium we offer to the local cooperatives to invest in projects that are relevant for their own communities.” The money has been used to build schools and medical dispensaries, and to dig 43 water wells.
He got a glimpse of the impact this approach is having on a visit to Madagascar two years ago, when he visited a water well, and asked one of the women farmers how it had affected her life. “She said: ‘I used to walk for four hours [to the river] to get water from my home every day. Now I walk 10 minutes. It has freed my time. And as you know, vanilla is the only flower that is pollinated by hand and not by bees. So [with the free time] I pollinate my vanilla flowers. And now I have a business. And through the business, I have sent my two daughters to school and to university.’
So, by investing this premium in their local communities... you give them the opportunity to transform their lives,” Ghostine says happily.
Unilever has a similar project in Madagascar, called Vanilla for Change, working with Save the Children, ME to WE, and one of Firmenich’s biggest competitors, Germany-headquartered Symrise, also a member of the OP2B coalition.
Ghostine says he welcomes the competition. “We want like-minded companies to do the same thing, everywhere around the world, to help improve the lives of these communities. So competition is good and responsible competition is even better. It pushes our creativity, it pushes our ideation. And at the same time, we will have an even bigger impact on our communities.”
I've been active organically, while at the same time doing the right thing, by our communities, by our planet, by all our stakeholders
Another area where Firmenich sees it can have a big impact within the OP2B coalition is in using its large R&D budget to help bring more plant-based proteins to the mainstream by improving their flavour, texture, and “mouthfeel”.
“This will help reduce the greenhouse gas emissions and water consumption, and at the same time, it’s healthier for people. So that’s another area where we are intimately involved.”
It can’t help but be healthy for Firmenich as well, given the current boom in the protein market.
In the last calendar year, Firmenich grew at 7.5%, double the rate of its industry, and has been gaining market share in each of the past 10 years, with 10 acquisitions over the past three years alone.
But surely, given the fact that Earth Overshoot Day, the day humanity uses its natural resource budget for the year, is now at the end of July, there must be limits to growth for even a company like Firmenich?
For Ghostine, the growth figures are vindication of Firmenich’s inclusive business model.
“I’ve been active organically and inorganically, while at the same time doing the right thing, by our communities, by our planet, by all our stakeholders,” he says.
In today’s world, there is no shareholder value creation without values
The company has decoupled its manufacturing output from its CO2 emissions, with output up 18% and emissions down by 30% since 2015.
Firmenich has also joined RE100. The company’s sites throughout Europe, North America and Brazil already operate with 100% renewable electricity and Ghostine says he is confident Firmenich will be running on 100% renewable energy globally by the end of 2020.
But he accepts that growth does pose some risks.
“In today’s world, there is no shareholder value creation without values. So you need to make sure that the values that you have as an organisation are not only words on the wall; you are taking action, and these actions are reflected with everything you do,” he says. And that means ensuring that new employees are singing from the same song sheet.
When he joined the company five years ago, Ghostine began writing an internal blog to communicate directly with employees around the world, something he says is even more important today. “The good thing with this blog is it’s not a monologue, it’s a dialogue, because every one of my colleagues could communicate with me directly on this blog, with clear visibility to all the other 8000 colleagues all over the world,” he says.
“So this is how we make our company smaller, and at the same time, make sure that our culture, our inclusive capitalism business model, is still relevant and embraced by every one of our colleagues around the world.”
This article is part of the in depth Inclusive Capitalism briefing. See also:Bill and Melinda Gates Foundation Danone RE100 CDP Toilet Board Coalition Livelihoods Fund for Family Farming