ERIC - Telefonaktiebolaget LM Ericsson (publ) (ERIC) Briefing Session Special Call Transcript
2023-09-28 12:45:09 ET
Telefonaktiebolaget LM Ericsson (publ) (ERIC)
Briefing Session Special Call
September 28, 2023, 09:00 AM ET
Company Participants
Peter Nyquist - Head of Investor Relations
Heather Johnsson - Head of Sustainability and Corporate Responsibility
Jan Sprafke - Acting Chief Compliance Officer
Conference Call Participants
Aleksander Peterc - Societe Generale
Presentation
Peter Nyquist
Hi, everyone, and welcome to today's briefing session for investors and financial analysts on sustainability and responsible business. My name is Peter Nyquist, and I'm Head of Investor Relations here at Ericsson. With me today, I have Heather Johnson, Head of Sustainability and Responsible Business and our acting Chief Compliance Officer, Jan Sprafke. You will hear from both of them as they give an update on the latest progress in their respective fields. After this presentation, there will be time for Q&A as usual. You'll find the dial-in information on our website and in the invitation you have received to today's briefing. And today's briefing is also being recorded.
Before handing over to Heather and Jan, I would like to say the following. During today's presentation, we will be making forward-looking statements. These statements are based on our current expectations and certain planning assumptions, which are subject to risks and uncertainties. We encourage you to read about these risks and uncertainties in our annual report.
With that said, I would like to hand over the word to Heather. Please, Heather.
Heather Johnsson
Thanks so much, Peter, and it's really a pleasure to be here today. If we can go to the next slide, please. To start things off, I'd like to just set some of the fundamentals of Ericsson's sustainability and corporate responsibility approach. This may be familiar to some of you, but just to really set the scene of how we work holistically.
Ericsson envisions a world where limitless connectivity improves lives, redefines business and pioneers a sustainable future. And our sustainability efforts really underpin the - this vision and also very closely support Ericsson's strategy to both lead in mobile networks and have a focused expansion in enterprise, really built on the potential of our technology deployed and used in the most responsible way.
We have three strategic focus areas, environmental sustainability, digital inclusion, which is focused on our socio-economic impacts, all underpinned by our foundation of corporate responsibility. And as you'll see in the circular model there, we also work across three perspectives. Of course, we start in the center at our own operations and really how we operate and where we have direct control, then building out our industry ecosystem where both from a supply chain and a customer perspective, we have in direct control. And finally, that societal impact, where really both industries as well as public partnerships where we contribute and enable.
And I also want to emphasize that the work that we do, just like really so much across Ericsson as a technology leader [ph] is really grounded in research and science. So the scope of my presentation today will be focusing on our net zero ambition, really the actions that we're taking to deliver high-performance and energy-efficient networks to continue to support that strategy to lead in mobile networks and support our customers' sustainability and business requirements. We also, of course, work to catalyze our supply chain and constantly keep a vision focus on our own operations. Next slide, please.
But before we deep dive into Ericsson, I think it's good to also set some ICT industry context. And you can see here on the slide that the ICT sector emits 1.4% of global greenhouse emissions and is responsible for also 4% of global electricity use. But this has remained constant despite the explosion in data traffic over the past years. So it's good to understand that, that is really a decoupling of the data traffic growth and energy use.
But what's quite an exciting thing to see is that our industry is really rallying around the net zero ambition. And according to the industry organization, GSMA in their latest report on the state of industry climate action, the mobile industry is tracking against its ambition to be net zero by 2050. And a large proportion of our customers who are the mobile operators have also committed to net zero targets by 2050 or earlier, accounting for 39% of mobile connections or as you see on the slide, 43% of global revenue. But - so that's really looking at, of course, that industry ecosystem perspective.
If we zoom out to that societal sphere then, Ericsson Research as part of the exponential road map initiative has shown the potential of a 15% emission reduction through the use of connectivity and digitalization. And this is a research that is really underpinning a lot of good work across the company as we take those steps into the enterprise space. And I might also mention I'm just back from New York and digitalization is playing a foundational role in really building a more sustainable future. It was evidenced through a lot of the meetings that I had and interactions during the UN and climate meetings last week. And so I think that something also to take away is that transformation far beyond the ICT sector itself is how connectivity and digitalization can enable other industries like transport, manufacturing and mining to decarbonize. And I think that's really an exciting thing to see. If we go to the next slide, please.
So now to Ericsson. And looking at the end of 2022, our carbon footprint, as you can see here, again, based on decades of life cycle assessments, you can see that we've looked sort of across the value chain here. And the - our own activities, of course, less than 1%. Our supply chain activities around 9% and the bulk of our activities is in the portfolio in use. And so this is really about the networks that we are delivering to our customers. And so with this fact base that we have, of course, that helps us to really understand impacts and where we need to take actions. Next slide, please.
So in 2021, I worked with the executive team to help set Ericsson's ambition to be net zero. And I want to emphasize that this was an extremely discussed and really wanted to be understood topic because, of course, there was a feeling that to set an ambition so far ahead could be easy, but we wanted to make sure that this was really grounded in concrete steps and actions and that we'd be able to really follow that trajectory transparently.
So we're really driving action on this pathway to net zero across the value chain. So supply chain portfolio in use as well as our own activities. And we are really aligned to this 1.5 degree ambition set out by the Paris Agreement and have been for many years.
And here, I think it's important to note that, that 2040 ambition is really supported by a first major milestone in 2030, which is to help our value chain, you could say, the supply chain and products and use emissions as well as be net zero in our own activities. And we think that this is quite an important step to be clear about and to also communicate so that we can demonstrate the progress that we are taking. Next slide, please.
And I think it's - we're not, of course, with that net zero ambition. We are certainly not starting from zero. And as I said, I mean, we have been working with environmental sustainability for many years and have a very strong connection to our research and science base.
But here, you can see the achievements so far. And in our own activities, we set a target a 5-year emission reduction target and delivered on that at the end of last year and achieved a 60% reduction. And good to note here that, that was an SBTI or science-based target initiative verified target similar to the achievement of our 35% energy savings in our Ericsson Radio Systems compared to legacy portfolio. Again, setting a 5-year target, working towards it and making progress. And there, we achieved, in fact, a 39% savings. That, again, was SBTI verified.
But because of that focus and because of that portfolio and use impact, we also put effort on our 5G portfolio, and we're able to achieve a 10 times \more energy efficient 5G portfolio compared to 4G and again, with a baseline of 2017.
We still have a target to deliver on in the supply chain, and that is progressing well. That is where we want to not only do work with our own operations and what we are delivering. But of course, that's got a dependency on our supply chain. And so we have been working with 350 high-emitting and strategic suppliers so that they set their own 1.5-degree aligned emission reduction targets. And as of the end of last year, 225 suppliers had those accepted targets. And I think that, that is an important role for a company like Ericsson as an industry leader to play to really be a catalyst, not only to help to support our customers and help drive that net zero across the industry, but also set those expectations and requirements on our suppliers as well. Next slide, please.
So if we look at the net zero pathway perhaps with a different perspective here, we can see, if we want to look at it from not the value chain perspective, but the Scopes 1, 2 and 3. And here, where Scope 1 and 2 are really in that center of our own operations where there are just some examples of how we are working with these reductions.
For example, reducing or transitioning to our fleet to low carbon and as well a 100% renewable energy at facilities by 2030. And these are steps that are within our control and on track. And if we look at Scope 3, which I think is really the challenge for every company to tackle, here we highlight a couple of the steps that we're taking. I mentioned the supplier engagement target and maybe also to emphasize a couple of more things there. Not only did we set requirements. But again, Ericsson was part of a supply chain leaders where we - we're really giving the tools for 1.5-degree targets and programs and practices. And that was really cross sector. So there, Ericsson was one of a number of leading companies that was driving that work. And we think that's equally important, not only setting the expectation, but also giving support to help make that happen.
But other levers you could say, for the supply chain are also design and material choices to reduce the product embodied carbon emissions. And here, we really look at a number of things like the carbon hotspots, aluminium, die cast and printed circuit boards or integrated circuits. And our approach to design and sourcing of raw material, the energy mix in our hour [ph] and also our suppliers' production and material substitution, use of recycled materials, all of these can really impact that embodied carbon footprint.
And then if we look at the Scope 3 from the portfolio in use and the products, of course, as I said, we are a technology leader. And so an investment in R&D to continuously improve our portfolio energy performance is absolutely key. And so that is something that continues to be an area of investment, but also, again, how we can help our customers to plan and operate their networks, both to ensure high-performing networks but also lower energy use and additionally, looking at ways that new technologies can, like AI and machine learning can help to facilitate this. Next slide, please.
So just to touch on that, and there's one thing that I think is just to link to that last thing I said was that as you see here, our portfolio targets, you can see the trajectory of the targets that we delivered on last year. And the - what I think is quite an interesting thing to note is that we - especially in - if you look at that middle, the Ericsson Radio System, we set a target of a 35% energy savings. We achieved a 39%. But where we were using the software, the micro suite [ph] function and when that was included, it actually could achieve a 44% energy saving. And I think that, again, is really giving us good insights and good things for us to help advise our customers in how they are really operating their networks. I think we'll go to the next slide, please.
So to meet customer expectations and as I said, to really help the whole industry reach net zero and meet our sustainability goals, we have been working on these innovative solutions that enable operators to use as little energy as possible while managing expected growth in data traffic and meeting the needs of both current and future 5G networks. And we're calling this breaking the energy curve.
And so I think no one really denied the importance of the energy issue. There was really quite a big focus on that last year. But even before the sort of energy crisis, we were seeing the energy bill for our customers and newly costing $25 billion. So understanding that by delivering energy-efficient portfolio and helping our customers to really break this energy curve, we are definitely delivering both on a societal value, but also very much delivering a business benefit.
And we do this through our really sustainable network evolution, applying really a process that prioritizes a holistic view of all perspectives, including an evaluation of the network realities and balancing the business targets and sustainability ambitions and lowest energy consumption possible to create a network evolution plan that sets a strong foundation.
Also, it's about expanding and modernizing. So the key is to changing the energy consumption trajectory in mobile networks and really latest generations of our portfolio can help service providers to cut energy consumption and greatly improve their energy costs and total cost of ownership going forward. And finally, that they can operate their networks intelligently, and this can be achieved, as I said, through artificial intelligence and machine learning, as well as automation solutions, which can help reduce the complexity. Next slide, please.
So that's - that has been our working theory and our premise. And here are just a couple of highlights of examples where Ericsson and our customers are really delivering on these ambitions. If we start to the left, the case with British Telecom, our latest radios are more energy efficient and then have been providing more capacity with the reduced carbon footprint and the operator EE, which is a part of the BT Group has been deploying our Massive MIMO radios to deliver improved 5G energy efficiency and network performance across the U.K. and field measurements in active deployment have shown a reduction of up to 40% in energy use. So its a great proof point there.
And in the Deutsche Telekom case, we are enabling the smart use of different energy sources and use of renewables with our smart site solutions. So Deutsche Telekom in partnership with Ericsson became the world's first service provider to power a mobile broadband site with renewable energy combining solar, wind, power and energy storage, which also provided a blueprint for how sustainable connectivity could look in the future.
And then finally, thinking again about our own operations and the move to renewable electricity. We have a 100% renewable electricity sourced in our Brazil, China, Estonia and U.S. factories. So we are making strong progress on our ambitions there. And I think next slide, please.
And finally, to conclude, I thought I would just share some of the ESG ratings that highlight our strength in environmental sustainability programs and performance. And earlier this year, ABI Research ranked more than 80 telecom vendors and suppliers based on two key areas of implementation and impact. The assessment provided a matrix view of the ecosystem of companies that can best support service providers in their drive toward improved sustainability.
Ericsson led the assessment overall for implementation, ranking highest for sustainable networks and business and number one in the main RAN or radio access network categories, including Massive MIMO, 5G RAN, AI-driven software and antenna solutions. And this is available in ABI's sustainability assessment report that they published earlier this year. And in terms of impact, Ericsson also topped the list among vendors for its net zero emission targets. And they highlighted our determination to health, the value chain emissions by 2030 and reach net zero by 2040.
So I think with that, I will conclude my part of the presentation today, and I will hand it over to you, Jan. Thank you.
Jan Sprafke
Yes. Thank you, Heather, and a warm welcome from my side. Really appreciate the opportunity to come back to this forum here. Today, I want to share a few updates on what we have been focused on since the last call. And I would say, let's jump in straight away and go to the next slide.
I want to start by sharing the work we have done on the ethics and compliance strategy today. We have developed a strategy in 2021, and we have revised to focus on the sustainability of the program and all the efforts we have put into the compliance program over the last work. This is still work in progress because you always need to break down and concrete actions a high-level strategy. And this will be done by end of this year. So we start executing with very concrete measures from 2024 onwards.
But today, it really makes sense to walk you through the themes and elements of our sustainability strategy. Because for us to succeed with the ambition of being leaders with the highest ethical standards, it's vital that ethics and compliance is embedded in everything we do. And most importantly, it has to be completely integrated into the business.
In the strategy revision process, we have identified these six strategic priorities you can see here. And I would like to jump into a fit-for-purpose first. What does this mean for us? So fit-for-purpose means to continuously adapt to changing business models and environments, regulatory environments and the risk landscape, of course, that is continuously changing. An example, a very concrete example here at Ericsson would be to adopt the compliance program and the needs that arise from our enterprise business, as you know, when we have acquired Cradlepoint and Vonage over the last years with different contract sizes, business models, go-to-market models, different ecosystems with suppliers and customers and faster-moving markets.
Regardless, we must have always a solid ethics and compliance foundation that meets both our internal standards as well as the external requirements on us as a company. Employees at all levels are required to take concrete steps to manage risk and integrate ethics and compliance and their decision-making. And here, it comes to accountability. I think the last time I've shared a lot of you about how we ensure accountability in the organization and is, of course, to actively promote it - is actively promoted by our leaders and has been enabled throughout the organization, which includes appropriate consequence management. Basically, at Ericsson, the line manager organization must own all aspects of a decision.
And the next theme here is trusted advisers. The compliance office employees, in particular, in all assurance functions. So the second line to challenge the business, the first line and take care of adherence must be recognized by their internal stakeholders and trusted advisers and partners and need, of course, to have the business acumen to be able to support the organization to manage risks appropriately. And all of this is built on the foundation of collaboration between business and the compliance office, which is important for a sustainable future.
Lastly, to enable all of this, we need to continue the simplification and digitalization journey. We are all like, I think many, many other companies, we do benchmark with compliance offices with customers and industry market leaders from the compliance point of view, we are all looking forward to solutions where we can make use of AI in a responsible fashion also for our compliance efforts. Just this morning, I had a call with one of our major customers, and we did best practice sharing around this topic that is driving us compliance professionals globally apparently.
The foundation for the success - on the future success, in particular of the ethics and compliance program is, of course, promoting business embeddedness [ph] So Ericsson is focused on the continued cultural transformation journey and to further strengthen the leadership engagement and the business ownership.
We have already, since 2022, worked on the so-called compliance pivot, which emphasis the importance of the business being responsible and owning decisions and decision-making and risk management with a compliance office acting as trusted advisers, subject matter expert and a partner to the business. And here, of course, the culture we want to see and have at Ericsson is essential pillar of our overall compliance efforts.
There have been a culture in the mindset shift for the entire organization where we are today. Our senior leaders are fully aware of their responsibility to lead by example, to work to promote strong ethics and compliance culture throughout the company. And of course, we have a high ambition internally. And we set respective goals and targets, and we test what our leaders doing on this front. So we get a very good picture, an accurate picture, and we have confidence in our culture here.
So I think in some - nowadays, we have a much greater authentic walking the talk ownership of the ethics and compliance program by our leaders, which is the foundation of every effective compliance program. And here, the cultural transformation is driven by both global but also local engagements because we have local cultures everywhere and initiatives. So we need to have more bespoke and local compliance programs and initiatives to cater for specific local particularities.
To mention a few, for instance, we have local compliance champions from the business being local employees, acting as an extended arm between the compliance organization and the local business, ongoing sessions like we call integrity moments, local compliance cafes [ph] are some of the ways that we have created opportunities for leaders and employees to engage on the topics of ethics and compliance.
Globally, we have our annual mandatory training. Just now we have launched a very successful training at Ericsson. If you do this training, it's more or less watching like a Netflix movie for 20 minutes, but it's Ericsson specific case study basically, dilemma situation is mandatory for all employees. And at the end, you need to answer a couple of questions and a quiz. It's very successful, the most successful training so far, Ericsson have been told, if you take a look how fast people complete this training and how the feedback looks like.
So - and I think the last time I've mentioned to you that - so in regards to our performance review is behaving with integrity as a goal is mandatory for all employees and managers to engage an integrity conversation, which focuses on reflections, key learnings, completion of these trainings, formal signing of our code of business ethics and of course, conflict of interest certifications.
So this is something the compliance obviously is not involved. As I mentioned before, it's the line organization, the line managers who take care that in their respective areas, their employees have a forum to speak up to them, speak about compliance, integrity, but also at the same time, voice clear expectations on that front.
As part of the pivot, as we describe it internally, the compliance office needs to continue being present and leadership teams as compliance advisers and go to people. We have seen a fantastic significant progress in 2022 and even before of that in achieving a more empowered compliance organization and more importantly, in having line managers step up to take ownership and make decisions without having to ask compliance for advice on minor things like, for instance, hospitality, gift entertainment, hospitality, a risk-based approach to make line mangers accountable and have them act as multipliers for compliance efforts is much more important than having only a compliance office handling everything. The multipliers, the entire organization needs to own compliance.
And we are measuring that, for instance, if we see how often people seek advice from compliance if they want to invite over a third party for a dinner. This is kind of the basic foundation in every company, and we have trained heavily, have good policies and procedures and tools in place, and we see it as a higher level of maturity, the less inquiries we get for advice that we have comprehensive instructions and guidance internally, and they take their own decision. If this is appropriate or not, they don't need to reach out to the compliance office for upfront advice. At the same time, of course, we are following up with the monitoring and testing of data points to see if that reflects reality.
And here, lastly, also good news. I think that the OECD has offered Ericsson to join the business at OECD following via our Swedish Employer Association SN and to get at the seat at the prestigious anticorruption committee that sets global ABC standards like, for instance, the OECD conventional fighting corruption that has heavily influenced the anticorruption jurisdictions and law regime, particularly in Europe and Western companies. So we are really proud of that initiative and contribute as a company to OECD efforts.
If we can come probably to the next slide here to also give you an update where we stand with our monitorship, I think that's, of course, of interest for you, too. So this is a reminder of the time line of the monitorship, we are currently in the fourth review period that will end on November 15. At the moment, as I told you the last time, we are testing globally everywhere in every market area and business area if the compliance program that we have designed and implemented really works in practice to prevent risk, detect risk, if needed, and of course, respond accordingly and appropriately if we have detected any risk. And this is ongoing in all of our market areas and countries and will be concluded by end of the year for the time being. At the same time, on December 15, we will receive the next report from our external monitor. And then we are planning for the last phase of the monitorship, and we are confident as of today, a forward-looking statement, as Peter has mentioned at the beginning, I'm very confident that we will conclude the monitorship as planned on June 2, 2024.
That's it from my side.
Question-and-Answer Session
A - Peter Nyquist
Thank you, Jan, for the presentation, and thank you, Heather, for your presentation as well. So we will now move to the Q&A session. [Operator Instructions] So let's look here if we have any questions from the audience. I think we have the first question from Aleksander Peterc at Societe Generale. Hi there, Alexander.
Aleksander Peterc
Yes. Hi, everyone and thank you for this presentation, its very interesting update. I would like to go back to slide number nine on your targets. So I was just wondering if any of the targets that you have achieved in '22, if you have - if you plan to have an update on these targets, usually where the target is reached, you then set a new goal to continue on your progress to net zero and all the rest of it. So maybe if you could update on that a little bit? Or is it too early to talk about that? Thank you.
Heather Johnsson
Thanks so much for the question. And absolutely, I think what we have published and what we - as you rightly note, as we concluded some targets in 2022, we really launched this net zero target. And so there are, of course, a number of sub targets that - and actions and ambitions that are underpinning that. And so those will be communicated and clear in our 2023 sustainability report.
Aleksander Peterc
Okay. Okay. So we're looking forward to [indiscernible] this by, what is it, which time are you seeing in 2023?
Heather Johnsson
So we will...
Aleksander Peterc
Is your annual report...
Heather Johnsson
We published in March 2023 - 2024.
Jan Sprafke
In 2024.
Aleksander Peterc
In '24, '24 Yes. Yes, of course. Great. And then just a quick follow-up. You have an 8% reduction in your net zero across the value chain. So in 2 years, is that in 2 years 8% versus your baseline 2020? So you're slightly behind schedule, if I draw a linear line to the 20%, 30%, 50% reduction. Is that a correct reading? Or do you need to amend that statement anyway.
Heather Johnsson
I don't think that we have to - I would say that we are - the trajectory may go up and down over time, but we feel confident that we're on track for the 2030 milestone.
Aleksander Peterc
Okay. And just out of interest, when we get the new generation when say - when 6G comes along, do you expect that to be much more energy efficient and then drive your return parameters closer to net zero? Or is that what's driving a faster evolution at some point? Or are there any other elements to take into account here?
Heather Johnsson
I would say that these projections, I'm not really prepared to give a lot of specifics about 6G even with the forward-looking – the forward-looking statements. So I think we'll - I'll hold that for now. Thanks.
Aleksander Peterc
Thank you very much.
Peter Nyquist
Thanks, Alexander. So let's see here. If we have another question coming up as well. [Operator Instructions]
Peter Nyquist
Seems to be crystal clear, the presentation. I don't have any more questions coming up here. So with that, as we don't have any more questions coming up, I would like to thank Heather and Jan for this presentation. And I think we all look forward to the next presentation in December, but we'll update the market again. But ahead of that, we will also report our numbers here on October 17. So with that, thank you all, and have a great rest of the day. Bye-bye.
Jan Sprafke
Bye-bye.
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Telefonaktiebolaget LM Ericsson (publ) (ERIC) Briefing Session Special Call Transcript