Corporate Sustainability with Arnulfo Salazar Monterrey, Nuevo León, Mexico

Arnulfo

Because I think there is where everything starts. You have to have the commitment of all the top management, the CEOs, the investors to push for those type of policies and requirements and way of doing business.

Paul

Hello and welcome to Rethink What Matters, The podcast dedicated to aligning the economy with the economy and everyone. For improved business performance, stronger families, and a greener, cooler planet. And today I'm joined by Arnulfo Salazar, who was until May, the corporate sustainability director at AGP Group in Monterrey, Mexico. And we're going to be discussing corporate sustainability.

This is great to speak with you today. And also because, you know, as the corporate sustainability director at AGP group and it would have been a big job of keen to learn more about AGP group or what they do and what your role was there.

Arnulfo

Sure. They are a tier one supplier for the OEM and in the automotive industry they build skylights, windshields and side lights, mostly for electric vehicles.

Paul

Okay. And who would be their customers?

Arnulfo

We have, for instance, Tesla Lucid, Rivian Polestar, Volvo, those backing BMW. Practically all all the car manufacturers are part of of the customer base of the company.

Paul

Now that's an impressive customer base, it has to be said. Yep. So, so what was driving then in your role as corporate sustainability director? I noticed you had a drive there towards renewable energy sources. What was the driver for that? If we could just start there?

Arnulfo

For instance, as you know, this whole transition to decarbonize all the industries, of course, mainly the automotive industry, it's playing a huge role here. So part of the goals of the OEM is to become carbon neutral by 2030. So for that, in order to do that, the entire supplier base needs also to become neutral. So in that regard, we needed to start looking for how to source green energy for our operations that product gets.

It's quite a huge demand on our energy because of the type of process to develop the product. So an important and important thing to do in order to decarbonize the company's operation was to go directly to green, green energy sources, which we kind of accomplished at the moment in one of the facilities, which is the Lima plant.

Paul

Right. Okay. Okay. And so what was the green source? Was it solar energy? Was it wind or.

Arnulfo

In this case, for Lima, Peru, the there's a mix of hydro and solar energy. I can remember right now the percentage precisely. But yeah, we we partner there with Aneel Peru in order to source entirely our consumption for the plant from from green energy.

Paul

Okay. Okay. And if you could tell us a little bit more than about what does it mean to be a corporate sustainability director at a company like AGP? What did that. Well.

Arnulfo

It's a huge, huge responsibility. And in part of of of my role was to develop the strategy and the processes and the tools in order to go in that sustainability journey is starting from the decarbonization part, as you know. I mean, sustainability is not only about environmental issues. We also have the social wants and the corporate governance. So I was putting together the whole strategy in order to tackle those requirements, not only from the regulation side for whatever we were operating, but also from the requirements of the OEM, which but most of the time they're are higher right now than the once in the regulations.

So like again, for instance, to go 100% green energy by 2030. So we are at six years far from that and it's a huge transition. And now not all, not in all countries is is enough supply of green energy. Everybody wants to do that transition or mostly all the heavy industries, and there's not enough source of green energy which that translate in higher prices in some of the countries.

So that is the main barrier right now. The costs that sometimes we need to transfer that to the customer and the customer will transfer that to the end user. So I think that is that is that one of the main challenges that the entire world faces right now, how to make more accessible in terms of the cost, the green energy.

Paul

Right. Absolutely. And how many staff are there, AGP group that you had to include in this?

Arnulfo

should be something around 4000 employees worldwide. 

Paul

4000. Okay. And did you have to bring them along with you on your corporate sustainability journey?

Arnulfo

Sure. I mean, you have to align the entire workforce. It's not only about one or two people effort. It's everybody needs to be on board. It has to be clear in the entire company what are the goals and how are we going to to fulfill them in order to have a better a better result.

Paul

Right. Sure. Absolutely. And did you find any resistance? I mean, that's always the biggest challenge with these studies.

Arnulfo

Think it's I think, written in in the change management theories. Resistance is by default. You will always find resistance. So you have to manage it. And yeah, for sure, in every kind of new project, new initiative in this case, in my in my area of expertise, there's not there's not enough a knowledge or understanding of what sustainability means.

So you need to start from there to build up the proper awareness in the people to understand and let them have a clear idea of what are the challenges that we as humans and also as companies are facing so they can understand how they can contribute to to build up and fulfill those objectives?

Paul

Right. Okay. Okay. And I'm just curious, did you get involved in how green the product was itself in terms of its manufacture?

Arnulfo

Yeah, actually every year there's there's exercise that every OEM runs which is the lifecycle assessment of their product. So as as a supplier of of, of those products that I just mentioned, we needed to run our own lifecycle assessment to understand what, what were the carbon footprint of, of those products that we develop. So every, every single product needs to go through a specific analysis to understand the different processes, steps, how much energy do we consume to produce those parts?

We need to go back to our own supplier base to request the same. So whenever we build up the entire product, we have a better understanding of the total carbon footprint of that of that single piece that we produce. And that's that's a quite a challenge because you have to go every step of the process, understanding how much energy do we consume, how many parts do we produce so we can translate that into the energy per piece.

And then the CO2 equivalent for that piece again, when when you we have the opportunity to have 100% green energy in your process, in your product, that makes things very easy because the carbon footprint practically, practically goes to zero. I mean, you have to add the other components and take those in consideration. But next thing, when your main product is being produced in a green energy based facility, it all makes it easier to determine that the carbon footprint of that piece.

Paul

So reporting is, reporting and transparency is a large part of it, isn't it?

Arnulfo

Yeah. And actually that was another of my milestones to develop a sustainability report where we're based on the Global Reporting Initiative in order to make more transparent and to start having of course that door open for our customers and also our suppliers that we are in that path in terms of being sustainable is not only just to say it, you have to show results on that.

So the different indicators and metrics that are related to to those reports, we were starting to build up that to deliver for next year our first sustainability report in terms of, well, based on GRI criteria.

Paul

I mean, if you got anything you can share with us about the challenges, you know, in an undertaking.

Arnulfo

Yeah. Well, there are different things from from one point of view is the spread of of of these challenge, you know, you need to take care not only of a single country requirements you got to go to U.S., China, Europe, South America. So that's the main the main challenge how to to make sure you have the proper understanding of the different requirements in every in every country.

And from there then having understand the gap that you have starting to prioritize, you can closed or you cannot. You cannot tackle everything at once. Sometimes you require some investments, so you need to plan that into the budget. And if you are a long way from that to happen in terms of the of the year, then you have to minimize the, the, the the race to to come up with mitigation plans.

So at the end of the day, it comes to the priority to make sure you are tackling the proper the proper gap with the proper action until you close them all. And sometimes also yeah, you need to bring some specialties to support you if you didn't have the full subject matter expert let me let me go it like that.

In your team. You need to bring outside support to make sure you have a proper understanding of the gap. What are the implications, what the risk appetite of the company to to not tackle one specific issue and go for another one In the meantime, you have the full capacity of of closed them all so.

Paul

Did you have any stories to tell about, you know, things that frustrated you at all in the process or in the journey of reaching your HSE compliance?

Arnulfo

I think sometimes it's the willingness of other departments to support, you know, for us, I mean, it's in natural you, you have a clear professional. You have to you have to solve those type of issues. But that is not the same priority for production, for instance, or engineering or quality. So in order to make sure everybody is on board, you have to do a lot of loving with with those areas and again, build up the proper awareness because they they will I mean, your first priority will won't be theirs.

So you need to make sure how to put them on board. And sometimes you, you don't, you don't. I mean, there are other forces stronger than yours, like production or deliveries, and you have to fight that. And sometimes that is very frustrating because you don't you don't feel you don't see the same importance level in all the in all the departments.

Paul

Okay. Okay. And some of the the sustainability development goals, you know, the United Nations Sustainable Development Goals is something which, you know, we like to talk about at a Awardaroo and I think you were quite closely aligned with SDG nine industry innovation and infrastructure.

Arnulfo

Exactly, exactly. Yeah. But at the end of the day is part of what we, we influence a lot. We use as the years as part of our framework to to see how can we contribute to the fulfillment of those of those development goals. And as SDG nine it's one of the ones that we influence the most because of, of the industry we work.

Paul

So with ESG, there's environmental, social and governance. And quite often we can talk a lot about the environmental side of things. But what about the social side of there in Mexico and your role? There is talk of sustainability director leadership AGP Group.

Arnulfo

That's a very important factor because in the social part you need to make sure you have to you have to take care of the people, the workers, the employees. You have to provide the proper work environment, safe, secure. And sometimes we don't we don't take that in a matter of consideration. So it's important and was part of of of also my goal is to develop standalone human rights policy for the company in order to take care of those topics.

Also developing the grievance mechanism to have a transparent and anonymous way to report whatever misconduct you can have in the work environment, which is a right now an important thing for many companies because there are many situations that in the day to day work you cannot take care of everything. And when something comes up, you need to you need to have a way to be aware of those situation.

If you don't have a proper channel to communicate with your workforce or they don't have a proper channel to escalate, any situation, then becomes part of of a about environment of of the company. So it's very important, I encourage I encourage every company to to have those type of mechanisms in place to let people report whatever misconduct may happen in your work environment.

Paul

Did, were you involved in the social side of things as well in Peru and Brazil and China?

Arnulfo

Sure. Yes. And then that multicultural environment, you have to you have to be cautious because what sometimes something that is a good practice in one country may not be that good in another one. Yeah. So, yeah, you have to have always a proper understanding of how things works in every country. So you be fair if you establish a policy or a rule, you make sure you establish something that applies all across the countries you operate in.

You are not out of whatever specific law or requirement in that country that they are not the proper, the proper solution.

Paul

Right. I mean, did you find it challenging, you know, the compromises you must have to make when you're trying to implement the requirements of the OEMs Maybe the governments where you're operating versus, you know, your own interests as well. Was that a challenge?

Arnulfo

Yeah, a big one, because sometimes there's a coming a requirement like this one in terms of green energy and you don't find I didn't find enough echo within the company.

Paul

And so did that mean that you'd have to work alongside operations and productivity and efficiency to to ensure that, you know, the the that the margins and the revenues are being generated?

Arnulfo

Actually, I'm glad you asked, because that's one of the first two steps before you want to go green. In this case, you you have to be efficient enough because it is it won't work. Just if you start putting panels at home, but you're still consuming the same amount of energy coming from a not a very efficient equipment. The first step and the first a smart step is to reduce your consumption by having more efficient equipment or more efficient maintenance of them.

More efficient usage. Whenever you're not using something, you turn it off and you save money. Then you go the second step to become green in that regard. So yeah, that's that's a very important point. And sure, I was participating in the initiative of cost reduction related to energy consumption. There was a big a big project to engineer a furnace that was having not the proper levels of efficiency.

There was also an issue in terms of regulation that we have to cover. So we started to re-engineer that piece of equipment to make it more efficient before we go to renewable energy topics.

Paul

It's interesting how the corporate sustainability directive that does need to get involved in the efficiency, the productivity of the company as well.

Arnulfo

Yeah, I think the thing is sustainability touches every single area of of, of the company, not only horizontally speaking but also vertically because again, you have to align the whole force the whole workforce because someone in the shop floor is going home at the end of the shift and is not turning off the equipment. It is affecting the whole company.

So that way you have to build up that proper awareness in all levels of the organization due to really get get to the objectives you are setting.

Paul

To the efficiencies that you're looking for. AS Yeah, as I come into the last year, I find this with ESG, we do it backwards, don't we get environmental, social and governance first, really? But in terms of governance, saying, you know, these are your bosses, I guess, you know, these are the people that pay your salary. So yeah, yeah.

And I think it does that get to be a little bit tricky?

Arnulfo

It is. And it's I think from my point of view, my humble and personal opinion, the one that is being taken care, the less because I think there is where everything starts, you have to have the commitment of all the top management, the CEOs, the investors to push for those type of policies and requirements and way of doing business, studying for developing the proper policies and procedures, having having proper follow up of of like, for instance, developing a code of conduct or ethics.

You have that that covers the whole purpose of sustainability. We have to be an ethical company to be ethic with the people, to be ethical, with the society and with the with the environment. If we don't have that in our mindset, if we don't take care in the first steps and we have a say here in Mexico, the ladder or the stair, I mean, the stair has to be swept top down.

So you need to start from the top. And sometimes we see the CEO at the top. That may not be the case because on top of the CEO, you have the investors, you have the stockholders. So everything has to be aligned and the government has to be aligned. So you have a clear path of where you want to go.

Everybody needs to be in the same channel. And I think that's what you are trying to aim with this podcast that you recently started to build up that awareness and start aligning things too up to that goal

Paul

Absolutely. Just that, you know, we need to get everybody aligned, you know, top to bottom left and right

And. Well, you know, this panel, this might not be the case at AGP group, but I can imagine in some instances corporate sustainability directors being employed for greenwashing maybe, or, you know, a PR exercise rather, that how do we actually improve our operations to become greener?

I mean, I don't know if you you know, if you've got a view on that.

Arnulfo

Sure. That's that's a very important thing to mention, because I've been part of of greenwashing situations in the past, not only, well, I mean in several companies or with with other suppliers that claim to be green and they are not. But I want to say that sometimes it's lack of awareness, not not intentional. They are not doing greenwashing or blue washing for the social part on intention is just because they they really don't understand the concept.

And that's what I think most worry about.

Part of my personal goal is to develop the proper knowledge and a skill in the company I work with to really understand what what ESG or sustainability means and not saying go green just by saying we are green because we want to comply with what the customer is required.

To understand that's the proper way to do things. That's to become the to make that the purpose of the company, because at the end of the day, it will be resulting in good business if we do it. The right way. Sometimes steels people things that because in order to be sustainable you have to spend a lot of money.

Again, I don't like to see these as a as an expense. I like to see these as an investment.

Paul

Absolutely. Definitely. Yes. That's been fascinating. Really fascinating. I appreciate your time so much on this podcast, Arnulfo. And sharing with us your knowledge of as a as corporate sustainability director of AGP Group and what are involved. I we've really learned a lot about what that means.

Thank you very much.

Arnulfo

Thank you.

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