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Renewable energy and the circular economy are driving growth for Neste


Peter Vanacker is well-acquainted with disruption and conflict. As the president and CEO of Neste Corporation, he leads a company with a market capitalization of about US$40 billion that stands with a foot in two contrasting camps. Based in Espoo, Finland, Neste has a heritage in oil refining. But Neste’s future on the world stage is being shaped by strong growth in renewables and the company’s role in driving the circular economy. Vanacker, 55, holds Belgian and German citizenship; he was appointed president and CEO in 2018, after years as an executive in the chemicals and polymers industry. He is open about the challenges he faces maintaining the refinery side of the business while aggressively building the renewables operation.

The COVID-19 pandemic only added to these complexities. For Neste’s business interests in oil, the pandemic created significant obstacles. Major consumers of oil, such as the aviation industry, have been hit hard, driving down demand, sales, and prices. But the pandemic has also focused the minds of consumers, business leaders, and governments around the world on the need to rethink their priorities and take greater care of themselves, society, and the planet. Thus, renewable energy and the importance of the circular economy have become central themes within plans for a greener, more sustainable recovery.

At the heart of Vanacker’s approach to navigating these challenges and opportunities, he explained to strategy+business in a recent video interview, is his strong belief in the importance of organizational agility. He’s a leader who clearly believes in setting a strategy, but accepts that the bulk of the work to be done is in the implementation; he believes that strategy should provide a clear direction of travel, but not limit the organization’s ability to flex its plans as times change. The same can be said of Vanacker’s personal philosophy, as he describes the need to keep fine-tuning his response and thinking, while holding true to an overarching commitment to his people and business.

S+B: You said in September 2020 that Neste was experiencing a K-shaped recovery from the pandemic, as different parts of your business headed in divergent directions. Since then, we’ve seen significant progress with vaccines. Has your view on recovery changed?

VANACKER:
I have still been referring to a K-shaped recovery, because we’ve seen very fast recovery with our renewable products. That’s the upwards arm of the K. But then on the downwards arm are industries such as oil refining, which is proving slow to rebound. We have not yet reached a point where that part of the K is becoming a V-shaped recovery.

S+B: As CEO of a global business, how complicated is it for you to assess recovery time frames when the pandemic is playing out so differently around the world?

VANACKER:
You can no longer work as you did in the past, where you would have one plan and one budget and there might be a few sensitivities to work around. We need to think now about many different scenarios, about far more volatile issues and greater flexibility and a more dynamic approach to changing the implementation of our strategy. Lots of companies focus 80 percent on strategy and 20 percent on implementation, which limits their ability to adapt.

At Neste, we agree on our strategy fairly quickly and then focus our efforts on how we implement and how those plans may need to adapt. Agility is the key word here, and the companies that have shown the greatest level of agility in response to the pandemic have done well.

S+B: How have you ensured you have the necessary agility in place to deal with low-probability, high-impact events such as the pandemic?

VANACKER:
Agility and fast communication have always been part of the culture of this company. Achieving those requires fewer levels of hierarchy. I personally believe the more levels of hierarchy in your company, the more you have a “filtration issue” — where there are so many levels that eventually the message doesn’t reach the top, or it reaches the top but without the intensity needed to make things happen.

When it came to the pandemic, we needed that agility to ensure we could immediately put a plan in place to protect our people, our stakeholders, and our customers. But it’s also necessary to have the right tools and the right teams in place. We already had the technology to conduct virtual meetings, like the Google product we’re using for this conversation, and we had the teams we needed, in the places we needed them.

If I go back to the first wave of the pandemic, we had teams in China and Singapore who gave us a very early indication of what was coming, and we activated our crisis management team in January 2020. If you start developing your processes only at the point when you identify a crisis, you’re too late. You already need to know how the crisis management team will respond, how it works, what governance is in place, who team members report to, and how they work within the culture of the organization.

S+B: How do you maintain nimbleness once revenues start getting up into the billions? And how do you keep motivation and innovation going consistently across the organization and not let anybody settle for what you’ve already achieved?

VANACKER:
The first thing I must say is that our people are smart and creative, and innovation has always been part of the DNA at Neste. If you’re a nimble company in a nimble country, you’re always able to ensure that wherever there is a need, there is innovation. It’s not that some smart CEO came along and said, “We need to innovate now.” It comes down to the kind of attitude you have, and we have an entrepreneurial attitude and approach that keeps us nimble.

If we have a steering committee, it cannot be a collection of all the functions and every senior person who has something to say. I don’t want to see more than three people sitting in a steering committee. Otherwise what happens as the company is growing is that you get more senior management and they all want to be involved in all the decisions because it somehow touches their area of responsibility.

In terms of making this work globally, communication and engagement are vital. Every quarter, before our results are published, we survey all employees and ask 10 questions. We get about 80 percent engagement, and it provides a barometer, telling us what’s good, what we can do better, if employees have good work–life balance, if they feel we’re successful and are going to be successful in the future, and if we are living our values. Going back to 2019, that barometer told us we were overdoing it, so we pulled back. We looked at the portfolio and determined what was strategic and what wasn’t.

CEOs must ask, ‘What is really driving us?’ Your financial results are the outcome of how you reach for your purpose every day, every week, every month.”

Driven by our strategy, our portfolio needs to be continuously reviewed. In 2020, we sold our shares in Nynas, a Swedish manufacturer and marketer of naphthenic specialty oils and bitumen products. In the past two years, we also successfully divested our fuel retail business in Russia and sold the nonstrategic offices of Neste Engineering Solutions. These examples show that we’re focusing on the things that are really moving the needle for us as a company with a clear strategy on renewable and circular solutions.

About 2,000 people from the 5,000 we had at the start of that process have left the company, but we have added about 2,000 people through many acquisitions in the field of renewable and circular solutions, as well as hiring people to build up our presence internationally and in new business areas as well as in innovation. For example, last year we acquired Mahoney Environmental, a collector and recycler of used cooking oil in the United States, and Bunge’s refinery plant in Rotterdam to increase raw material pretreatment capacity for the production of renewable products. What is more, we have opened new offices and business hubs in countries like the Netherlands, Germany, China, and Australia.

S+B: You’re a Finnish success story as an organization with a history in oil refining, and you’re increasingly a global success story with a focus on renewables. How do you reconcile those two things?

VANACKER:
As you rightly recognize, there is a clash inside the company, because we have an oil products business that is in consolidation mode and consuming crude oil, and then we have the highly profitable, fast-growing renewable and circular solutions business. We take a strategic view on the various elements within the portfolio, instead of a “one size fits all” view that may have been the right thing two years ago but not today.

If you look at the oil products business, it’s not a bold, aggressive posture. It’s more a “maintain” approach, and it’s very clear to the people who are working in that business unit that what success looks like is business cash flow, safety targets, productivity, and reliability. On the other side, renewables continue to be an area in which we plan to build aggressively. The new areas that we’re going into, like polymers and chemicals, are probably still focused on approval and viability. We’re in the phase when regulation needs to take place and all the alignment needs to be built up: value chain, supply chain, and technology development.

S+B: You mentioned regulation. What more do governments need to be doing to help drive greater change?

VANACKER:
Authorities and regulators play a very important role. All these new ideas on renewables and circular solutions require money to develop the technologies, so you need to have the right incentives and regulations. Governments also need to make sure regulations are technology-neutral. It’s not up to the regulator to select the technology. That should be done by the businesses, by the people that are working on various technologies. For example, if a company is developing five different technologies, they need to find out which one will be best. Good companies develop all five, and then in the end they will adapt the most feasible and economically scalable solution.

There’s a lot that regulators can do: Keep it simple, think about the big picture, and ask the industry, because we know what we’re talking about. Also, be consistent. Don’t create a situation where there is a new regulation every two or three years that is being put in place because there are new people and a new administration. In our industries, organizations need three to five years for investments to deliver the product. So that means we need regulators to be reliable and not to keep changing things.

S+B: One of the areas where you’ve made investments in recent years has been in sustainable aviation fuel. The aviation industry was hit particularly hard by the pandemic. Has that changed your outlook on that opportunity?

VANACKER:
This comes back to strategy. When we looked ahead 10, 15, 20 years and did the analysis on what the must-win battles are for our industry, before the pandemic, we came to the conclusion that decarbonization of the aviation industry would be a big topic in the future. I said, “Let’s go full throttle if we believe in it, and let’s not now be distracted by short-term events. Let’s keep on working.” It always comes back to whether you believe in the long-term strategy. We are not complacent about the challenge faced by the aviation industry right now, but we believe it is still the right strategy.

S+B: In March 2020, you announced a net-zero target for 2035.

VANACKER:
Before we announced anything, we needed to substantiate it, so we embarked on the journey from the bottom up. We did the back-of-the-envelope calculation to determine, are we on track? How much do we still need to offset to get to net zero? Do we know what it will cost? We have approximately 80 ongoing projects to help us get there, to reach carbon-neutral production by 2035. One of the low-hanging fruits is green electricity. For example, we have set a target to start using 100 percent renewable electricity at our production sites. We have already achieved a 50 percent share in Rotterdam and made three power purchase agreements for wind energy for the refinery in Porvoo.

S+B: We’ve talked a lot about sustainability, but you also run a business that is accountable to its numbers. How do you ensure your commitments to ESG and sustainability are linked directly to financial performance and creating value for Neste?

VANACKER:
It comes back to belief. In our company, we have a true belief, and I personally have a true belief, that our purpose must come first. CEOs must ask, “What is really driving us?” Because if you do it in the right way, you will be successful in terms of your financials.

Your financial results are the outcome of how you reach for your purpose every day, every week, every month. I’m not one of those CEOs who say the financials come first and then, by the way, if we can, let’s optimize the finances and think about doing good for the planet or our focus on ESG.

S+B: Do you think some business leaders will think, “Let’s focus on the numbers for now, let’s steady the ship, and perhaps we will return to those ESG commitments at a later date”?

VANACKER:
ESG is an extremely important topic for the public right now, as well as other stakeholders, and more and more companies are reflecting that from the very top of the organization. They are focusing on defining their purpose and what they want to be 20 years from now. That is driving a lot of decisions, and it is making companies take this seriously. This will be true for the majority, but you will still have some companies that look at the next few months and want to focus only on the financials.

S+B: The last year has seen a lot of change and challenges. What have been the biggest challenges you faced as a CEO?

VANACKER:
Personally, it’s been about ensuring I take time to reflect and to relax. No CEO has had the experience of leading through a pandemic. It is completely new, and you have to adapt. You have to question yourself. You have to ask your colleagues and other CEOs in your network: What are they thinking? What are they hearing? What questions are they asking? You have to exchange opinions, and keep fine-tuning your own thinking, again and again.

Finding the time to do that is very important and can be challenging, because the workload is enormous, and everybody is looking at the CEO in these times. We don’t travel anymore. We don’t get those moments of downtime, when you’re walking to the plane, sitting in the departure lounge, taking time to just relax and free up your brain to think about things. Instead, every day is back-to-back from early morning to late in the evening, and you need to create sufficient time to communicate authentically with your people, in groups but also individually. And you need to keep your energy levels and your passion high.

S+B: How have you managed that?

VANACKER:
My assistant knows when scheduling meetings that “half an hour” means 20 minutes and “one hour” means 45 minutes. Of course, sometimes 45 minutes turns out to be 55 minutes, but at least I get these little slots for things like going outside and taking a break. I also try not to be either on the laptop or on the phone for the entire weekend, unless there is something urgent.

S+B: Finally, how do you see the role of the CEO changing, based on the evolving demands upon business leaders?

VANACKER:
A CEO can easily fill his or her time managing the business. But coaching is becoming an increasingly substantial part of the role, and I believe that will continue. The management part will be reduced; as long as CEOs have a strong team around them, they will be focused more on leadership counseling.

Author Profiles:

  • Markku Katajisto is a partner with PwC Finland, based in Helsinki.
  • Will Sturgeon is head of content and thought leadership for PwC UK, based in London.

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