ERIC - Telefonaktiebolaget LM Ericsson (publ) (ERIC) Quarterly Sustainability and Responsible Business Update (Transcript)

2023-05-30 11:21:06 ET

Telefonaktiebolaget LM Ericsson (publ) (ERIC)

Quarterly Sustainability and Responsible Business Update Call

May 30, 2023 9:00 A.M. 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

Aurora Samuelsson - Handelsbanken

Peter Kurt Nielsen - ABG

Presentation

Operator

Hello, and welcome everybody to today's briefing session for investors and financial analysts on responsible business. My name is Peter Nyquist, and I'm Head of Investor Relations here at Ericsson. With me today, I have Heather Johnsson, Head of Sustainability and Corporate Responsibility; and our acting Chief Compliance Officer, Jan Sprafke.

You will hear from both of them as they give an update and on the latest progress in their respective fields. The session today is a part of our quarterly update series on these topics for the financial community. As many of you know, we used to do run these previously and I’m happy that we are now restarting it. Going forward, our ambition is to continue to give you updates from the full ESG field.

After the presentations, there will be time for some Q&A, and today's briefing is being recorded. With that, I'm happy to hand over the word to Heather Johnsson. So, please Heather go ahead with your presentation.

Heather Johnsson

Thank you so much, Peter. It's really a pleasure to be back at these quarterly briefings and have the chance to share what we're doing on sustainability and responsible business topics. If I – go to the next slide, please. Ericsson's vision is a world where limitless connectivity improves lives, redefines business, and pioneers a sustainable future.

An important part of delivering on this vision is embedding sustainability and responsible business practice across the company under three strategic focus areas, environmental sustainability, digital inclusion, and corporate responsibility. All to support the execution of our strategy to lead in mobile networks and focused expansion into enterprise.

Working with colleagues across the company creates value and mitigates risk for our company, customers, and suppliers, as well as in society. Our ESG performance is an indicator of what we have achieved and where we need to make more effort.

Next slide, please. Let's start with our environmental targets. We've achieved several of our environmental targets, including two that were verified by the science based target initiative during 2022. And in 2022, the total value chain greenhouse gas emissions were approximately 28 million tons. If we start with our own activities, scope 1 and 2, they make up less than 1% of our footprint, but we walk the talk here and make strong progress across fleet vehicles and renewable energy in our facilities.

While emissions from scope 3 and business travel increased compared to 2021, they were still substantially lower than the 50% cap of 2019, that is pre-pandemic levels. So, combined, this meant that we surpassed our science based target initiative target to reduce emissions by 35% with achieved emissions reductions of 60% from the 2016 baseline.

Looking across our value chain impacts, products and use are our biggest impact at over 90%, which also impacts our customer's footprint, as well as OpEx. And even before last year's heightened focus on energy costs, network operators were estimated to spend over US$25 billion annually to run their networks.

The energy performance of our products has long been in focus. And in 2022, we concluded two 5-year portfolio related targets. The 5G portfolio was 10x more energy efficient per transfer data compared to 4G, and our second science based target initiative verified target was that we achieved a 39% energy savings in Ericsson Radio Systems, compared to legacy portfolio over achieving our 35% target.

Our supply chain impact is approximately 9% of our total footprint. Working across our value chain is essential to meeting net zero, and therefore, we continue to engage with suppliers to have their own [Paris] [ph] agreement-aligned emission reduction targets. And working from a baseline year of 2019, this year we've reached 225 suppliers with accepted targets and are well on track to reach 350 suppliers by 2025.

We take a collaborative approach to supply chain climate action and co-created the 1.5 degree business playbook and supplier engagement guide with the aim to support companies to set climate targets and to help them further engage with their supply chains.

Next slide. Our path toward net zero with the first major milestone of 50% emission reduction across the value chain by 2030 with a 2020 baseline has been submitted to the science based target initiative and we anticipate verification during 2023. We will continue to deliver on scope 1 and 2 reductions, as well as put concerted effort on scope 3 reductions, including design and material choices to reduce product embodied carbon emissions, investing in R&D to continuously improve portfolio energy performance, as well as using AI, machine learning, and other technologies to reduce energy use and operate networks intelligently.

Our net zero ambition is truly an example of how we are embedding sustainability practice across the company. To strengthen the link between sustainability efforts and our strategic priority of technology leadership, Ericson launched a green financing framework to enable the company to issue green bonds and other green financing instruments.

The framework has been developed in accordance with the 2021 ICMA green bond principles, and CICERO Shades of Green rated Ericsson medium green and a governance score of excellent. Proceeds raised under the framework will include capital expenditures and R&D investments in enhanced portfolio energy performance in our existing 4G and 5G offerings, as well as future 6G solutions.

Extending our leadership and energy efficiency is a key priority for Ericsson and of strategic importance for our mobile network customers. And while the ICT sector must address its own carbon footprint, it has the potential to play an important role in enabling other sectors to reduce emissions such as through management systems, and smart meters and buildings, smart electrical grids, telematics, and inventory management solutions and enterprises. All of which are dependent on ICT Solutions and infrastructure to function.

Ericsson's own peer-reviewed research suggests that while the ICT Sector is responsible for 1.4% of global emissions, ICT Solutions have the potential to enable decarbonization of up to 15% in other sectors by 2030.

Next slide, please. Turning our attention to progress on social topics, we look at both our value chain, as well as societal impacts and these span the focus areas of digital inclusion and corporate responsibility efforts. The number of Internet users has increased from a few million to almost 5 billion within 30 years. This growth has enabled a digital transformation that is reshaping global economies and society, yet the potential of the internet for social and economic growth remains largely untapped as roughly one-third of the world's population remains offline due to lack of access to meaningful connectivity and skills.

For digital inclusion, we take a portfolio, partnership, and advocacy approach to our work to ensure that everyone can enjoy the benefits of the digital economy and society. From a portfolio perspective, mobile broadband is one of the most cost efficient options to connect society, and fixed wireless access is an efficient and scalable alternative to wired connections and a portfolio solution that can benefit institutional coverage.

Fixed wireless access is currently the largest 5G used case after mobile broadband in terms of uptake. Around 50% of Ericsson 5G live networks have commercial 5G fixed wireless offerings. There is a very large unserved market and broadband connections for both households and enterprises worldwide with more than a billion premises lacking fast and reliable broadband.

The growth potential provided by fixed wireless access is especially attractive as it leverages mobile broadband assets. Another part of the portfolio, this one supporting financial inclusion is our mobile financial services platform, which enables leading mobile operators and financial institutions to provide easy to use, affordable, and secure services helping underserved people worldwide.

The Ericsson wallet supported over 80 million active consumers in 24 countries use mobile financial services powered by Ericsson's platform every month, many of whom were previously unbanked. In 2022, the platform carried 26 billion transactions amounting to US$369 billion.

However, without sufficient digital literacy, many people cannot partake in employment opportunities in the digital economy regardless of whether they have meaningful connectivity or not, which is why digital education is another key enabler to achieving broad digital inclusion in society.

Ericsson’s commitment to bridging the digital divide includes advocacy and deployments for access to education and digital skills development. To reinforce this effort, the company set an ambition, to empower 1 million young people with access to digital tools, learning content and skills development programs by 2025.

To date, Ericsson has positively impacted 400,000 students across 36 countries through our Connect To Learn initiative. In addition to that commitment, we are a proud partner to UNICEF and the International Telecommunications Union's Giga Initiative, which aims to work with the public and private sectors to connect every school to the Internet by 2030.

Next slide, please. Now, turning to our social targets. Human Capital is one of the most important assets for companies involved in high technology business. Employees with the right skills, as well as a diverse workforce, are critical for driving innovation and serving the needs of a global and varied customer base.

Ericson has a target to achieve at least 30% representation of women at all levels of the company by 2030. To support this 2030 target, part of the variable compensation to executives is linked to a performance criteria where the share of women in-line manager positions is to increase to 23% by 2024.

During this year, the share of women line managers increased to 22%. Among all employees, the share was stable at 25%, while decreasing slightly to 35% within the executive population. Ericsson worked with its recruitment partners to have a 50/50 gender balance for early career and graduate hires.

The company also progressed on gender balance through its altitude career accelerator program for women, with a third of program participants progressing to more senior positions within a year. We are taking meaningful steps, but will need to keep sustained focus and more effort to meet this target by 2030.

Next slide, please. Part of our responsible business transformation is also around creating a safety culture to both protect the health, safety, and well-being of anyone working on behalf of Ericsson, as well as decreasing absenteeism and increasing productivity and the employee experience. As such, we have deployed a mandatory health safety and well-being induction course, which was launched in 2022 with a 92% completion rate.

Ericsson also has a safety leadership training program for leaders within 3 levels of the CEO, including the executive team members, and selected key roles that have direct impact on field safety. The primary safety risks identified in Ericsson's operations are related to suppliers, especially within field operations and linked to driving, climbing at heights, and working with electricity. Incidents related to these account for all fatalities and a significant portion of major incidents.

We continued to strengthen our supplier consequence management practices and improve reporting of near misses, which increased 45% as a result of raising awareness and enhancing reporting capabilities. The main health and well-being risks within the workforce concern mental health, including stress, and Ericsson's well-being approach comprises four main areas, physical, emotional, financial, and social.

And the company has been providing tools, training, and other resources, including a mindfulness app to all employees through an Ericsson Care portal on the company's [Internet] [ph]. But while progress was made in terms of fewer [lost workday] [ph] incidents and fatalities in 2022, any fatality or major incident is a failure. So, we are putting more effort into this area during 2023 with a clear commitment and effort from the top.

Next slide, please. Now, to take another important topic within the social sphere of ESG, human rights due diligence. Ericsson conducts human rights due diligence across its value chain. However, for today's presentation, I'll focus on the sensitive business process, which is an essential part of our downstream due diligence.

Before going into the process itself, I want to highlight that Ericsson since 2019 is a member of the global networking initiative, an initiative addressing freedom of expression and right to privacy in the ICT Sector. Participants include some of our mobile network operator customers, and Internet companies, human rights, and press freedom groups, investors, and academic institutions.

During 2022, Ericsson underwent an assessment as a member of GNI, and the assessment concluded that Ericsson has good processes in place related to human rights, and the main process in focus for the assessment was the sensitive business framework. In order to assess prevent and mitigate potential misuse of Ericsson's technology, human rights due diligence is integrated into the sales process through the sensitive business framework.

The framework aims to ensure that Ericsson’s solutions are used in accordance with international human rights standards. Four main factors are considered when assessing the potential human rights risks in a given sales opportunity: portfolio, whether the sale includes technology that stores or processes personally identifiable information; customer, the type and ownership structure of the customer; purpose, the purpose and context in which the customer intends to use the product, service, or solution; and country, the country specific risk with regards to human rights.

A third-party risk and analytics firm is used to assess countries based on risks related to the right to privacy and freedom of expression. Following the assessments, a sales opportunity may be approved, approved with conditions or rejected. In terms of the country risk, we use a third-party risk firm to assess these countries in question. In this assessment, we focus specifically on factors related to conflict and governance.

Apart from this more automatic assessment, the sensitive business process can also trigger further due diligence measures, including a detailed review of legal frameworks in a country, heightened to human rights due diligence concerning a customer or a country, before a decision is taken on an opportunity, as has been the case in relation to many countries where risks are elevated. This is really an important step and one that I think is quite unique to Ericsson in terms of human rights due diligence.

Next slide, please. And finally, to look ahead a bit, since 2021, Ericsson has been working from an ESG roadmap to prepare for upcoming legislation on corporate sustainability reporting. We are closely following developments in the EU and the U.S., and work continuously to strengthen our data collection and internal controls.

One concrete step that we will take this year is in a double materiality analysis to define impact and financial materiality as a foundation for the company to both meet these regulatory requirements, but more importantly, to take decisions and to further embed sustainability across the company, support a more resilient Ericsson and create value for our stakeholders.

Thank you so much. And with that, I will hand it over to Jan.

Jan Sprafke

Yeah. Thank you, Heather, and a warm welcome for my side as well. So, let me shortly introduce myself. I'm the acting Chief Compliance Officer, and I have assumed that role end of February. I'm an attorney at law by profession. I joined Ericsson in 2020, and I was the Head of Compliance for the market area here from Latin America. I've served in several multinational companies and leadership positions with global responsibility. And today, I'd like provide you an update about the status of our ethics and compliance program at Ericsson.

So, next slide, please. But before I jump into some of the details of our current ethics and compliance program, I would like to draw your attention to our enhanced approach, how we, in general, manage global risks.

In 2022, the company introduced a number of enhancements to establish a stronger governance and oversight of our ethics and compliance program. For one, we have reviewed country risks and our go to market model where we do business, how we do business. While our ethics and compliance program aims to prevent corruption risk from materializing, a multinational company like Ericsson is usually exposed to a variety of business, commercial, legal, financial, reputational, or compliance risks.

To this end and to ensure a more holistic risk management is so-called material risk protocol and a heightened risk assessment process governed by our so-called Group Business Risk Committee was established to further enhancing the approach a global risk management system. The purpose of the global risk committee is to consider the overall risk profile of the group and ensure risk informed decision-making and also to serve as a forum to monitor and assess enterprise risk management on a regular basis. This is chaired by the Chief Financial Officer and the Chief Legal Officer.

Further, the audit and compliance committee scope has been expanded to ensure enhanced oversight of the ethics and compliance program, high-risk investigations, and risk management in general. The Chief Compliance Officer, so do I is reporting on a regular basis to the audit and compliance committee. And also, I have a solid reporting line not only to the Chief Legal Officer, but also to the Audit and Compliance Committee, and its chair to ensure independence of the compliance office.

Also, senior business leaders in so-called business partner review boards monitor the risk landscape and review high-risk third parties on a regular basis. This is true, for instance, for onboarding of third parties like suppliers and the life cycle management of any third-party once we have onboarded, engaged, and signed a contract with any third-party.

And last but not least, was this very important, I think I need to shed some more light on that, you know, that in Ericsson, we want to have end-to-end control and oversight of our ethics and compliance program, and we want to test with our internal units continuously how effective our compliance program to identify, self-identify deficiencies and shortcomings if needed run root cause analysis and ensures rift remediation. But let's go into the concrete ethics and compliance program on the next slide, please.

So, this slide shows a number of steps we have and are taking for us to continue the ethics and compliance journey beyond the monitorship that is supposed to end by mid of 2024 with the aim to become best-in-class when it comes to compliance. To get there, we need to continue execute on our commitment and continuously work enhancement, simplification, and digitalization.

I will speak a bit more about these topics in the upcoming slide. But the pivot, and that means, to me, ultimately, a sustainable approach to compliance requires embedding of compliance and assurance into the business and operations with business ownership of controls and risk decisions and compliance and assurance functions are trusted partners and advisors to the business.

So, I'm happy to share with you that we do have a sustainability plan for the ethics and compliance program that goes way beyond 2024 and the end of the monitorship in, specifically, it goes until 2027 already and is anchored in our strategy and our deliverables. Mostly important to me and the company is, however, maintaining a robust ethic and compliance culture as a cornerstone to prevent risk materializing.

Every company needs to work on its culture continuously since a culture's object of constant change for instance, due to managers joining or leaving and managers, as we all know, should do the role modeling. So, I think this piece, the compliance culture is something we have started from the beginning to focus on, and it will continue after the monitor should be in the center of our efforts.

Next slide, please. So, here I would like to share with you a couple of key program developments that enable us to execute more effectively both at the company overall, but even so more specifically within the ethics and compliance program. These eight areas are all important, but I like to highlight just a few of them. Maybe we take on the left hand side what we call reward and sanctions our compensation and rewarding schemes.

To further drive Ericsson culture and aspects of ethics compliance and integrity, a review of the Top 200 executives' performance, including the President and the CEO and the executive team members is made when considering the short and long-term [variable pay] [ph] outcomes. The review established a clear connection between our integrity transformation and rewards for executive.

Once the year is completed, a process is used to decide whether an individual executive or manager has over performed and demonstrated, for instance, over and above integrity, ethics and compliance expectations, or underperformance was demonstrated not achieving the goals that have been set. Upon completion in 2022, the President and the CEO reviewed a series of integrity indicators, including for instance, the completion rate of mandatory compliance, trainings and their respective units, our completion of our code of business and ethics acknowledgment applicable results from our employee surveys we run on a regular basis where we also include compliance related questions in.

We also review the data we get from our gifts, expenses, and hospitality management tools to see how many benefits have been granted. Are they above the applicable limits and threshold or not? And how has this executive performed oversight, as well as third-party management and delegation management statistics.

So, there are wider [reviews held and] [ph] how team members have driven Ericsson Integrity Transformation during the year. And for last year, a total of a 181 executive team members and executives were evaluated. As an outcome, there was a proposal to approve additional incentive awards of 4% of the annual base salary for eight executives, while there was also a proposal to approve additional incentive awards 8% of the annual base salary for one executive team member and one executive.

And there was at the downside as well the proposal to adjust and reduce the [short-term level pay] [ph] for one executive team member by 4% and for one executive by even 10%. So, and for the remaining 170 executives, the proposal was to retain the variable pay as it is. But you can see this is anchored now in our systems, in our tools. We have data that underpins taking these decisions, and this is part the sustainability of the program.

If we draw our attention to the next item here that we call business critical transformation that for us is also very key, despite the efforts, the compliance office and other assurance functions, like [corporate audit] [ph] are driving, it's very important that the business takes ownership steps up when it comes to controls, risk decision making, and compliance and assurance functions advise them as trusted partners and advisors.

And this is very, very important also for the stainability of the program that the compliance office and insurance functions are embedded in the business and underlying business processes and are not acting in silos. You can hire as many compliance professionals as you want. If they [don’t – are] [ph] not part of the business of the leadership teams, they do not know the business, this will not be sustainable long-term, and this is what we have achieved already to do so and embed compliance in the business.

The next item I would like to highlight here is the data driven operations. If you can go back one slide, please. For me, I get very passionate about it. Having gathered a lot of experience in other multinational companies, and all companies struggled with the use of data and how to interpret data in a meaningful way. For us, as compliance professionals, of course, we want to use data to prevent risk from materializing. So, that's I think what we have achieved here in the compliance office at Ericson in a world-class fashion already.

So, we make use of data points, almost 60 data points globally for all of our items of the compliance program, and we have defined KPIs, how to identify trends and to interpret data to act upon it and take decisions and try to prevent risk. And I would like to give you an example that is more tangible that is usually missing when companies talk about digitalization and the use of data, and that is here, Speak Up Roadshows.

So, we have done Speak Up Roadshows globally for Ericsson in selected countries, like in Brazil and in Mexico. I did it myself being responsible for Latin America. But how have we picked Mexico for a Speak Up workshop? And this was underpinned by data, and this is really a good example to show how Ericsson makes use of that.

So, for instance, you know, we have our voice survey, our internal employees. So, where we have three compliance questions in. And one of them is, how safe do you feel to speak up in your area of responsibility in your unit, in your legal entity? And then, of course, we have global results, but then we have also local results of the unit.

So, we can see what's the average global. And if there is a score below average. This is for us an indicator why do people do not feel safe in this unit, compared to the global benchmark. But this is just one indicator. Then we have a state of the art allegation management system and I will come to the statistics in a second, but I want to tell you what we can learn and derive data from the system as well, because we record any allegation we receive over years.

So, we can see a trend over the last 3 years, if you would never have ever received an allegation in one country over the last 3 years, we could wonder ourselves and ask ourselves why? Because we have a high employee base in that country, and it's quite normal that people speak up and complain or voice a concern. So, for us, it's quite natural that people do that. If you would see in the system nobody in the last 3 years have ever done it, it would raise a red flag and the local compliance officer would need to act upon it.

A third data driven, data point we have, you know, and we reconcile all these data points before we do something about it, is to see what is the average rate of [anonymous] [ph] reporting globally versus coming from this unit. So, there might be a trend in one unit that a 100% of reporters prefer to report anonymously. And then we ask ourselves why do – they do not trust in the system in the process? Why do they not share their names when they speak up and file a report in our systems.

And all of these 3 data points we combine, we reconcile the professionals in country on the ground make a decision and then we run compliance road up – Speak Up Roadshows, workshops to create trust in the process, trust in the people who are processing once an allegation is filed to help creating an environment where people feel free to speak up. And, of course, with our data, we can see the impact of these workshops later on if we see an increase of numbers, allegations received, or people – less people report anonymously, for instance.

So, we're continuously making use of that data and that is something I can tell you. In my experience, it's fantastic to work with, because we can prevent risk before they materialized. But now coming to the next slide and the allegation management statistics here, I think that is a very good bridge and we have also reported that in our annual report about these numbers.

So, in 2022, the number reported compliance concerns was 1,092 versus 1,059 in 2021. Most compliance concerns reported last year were categorized as pertaining to human resources 429 out of these 1,092. Second most reported category was other with 272, which includes reports concerned related to environmental sustainability, health, and safety, for instance, as well as concerns which were assessed as not involving compliance concerns, such as product quality issues, employee testing, the compliance line or comments of a general nature.

So, what we record here is everything that gets recorded in the system that does not necessarily mean there's a real compliance concern behind it. We need to assess each and every report received, but you can also see here the number out of these 1,092 allegations received. After the assessment, only 215 cases were referred to further investigation. That means roughly 20% of the received concerns gave rise to initiate an investigation regarding a potential breach to our code of business ethics.

[870] [ph] cases were not referred for investigations as they were inquiries for general nature or not deemed to be related to misconduct or breaches to our code of business ethics. However, these cases were referred directly to the relevant units for attention or remediation when applicable. And you can also take you from the statistics at year-end, 209 cases were still under investigations.

A 118 cases were concluded and found to be substantiated. A 178 corrective and disciplinary actions involving individuals found to be in breach of the company's code of [business ethics] [ph] were taken. 39 of these action resulted in terminations, 74 in written warnings, and 8 individuals resigned as a result of confirmed misconduct.

So, having said that, I would like to conclude my presentation, but want to reiterate and stress again, if you read the statistics in our annual report, please differentiate between allegations received, how many allegations ended up in an investigations, and how many investigations were at the end really substantiated. And you can see, you can put that in perspective and the numbers appear in a different light if you do that. Thank you very much.

Question-and-Answer Session

A - Peter Nyquist

Thank you, Jan, and also thank you Heather for your presentations. So, it's now time for the question-and-answer session. [Operator Instructions] So, I will look here. Have any questions in the queue. It seems like the first question comes from the line of Aurora Samuelsson from Handelsbanken. So please, Aurora, you can also question.

Aurora Samuelsson

Great. Do you hear me?

Peter Nyquist

Yes. Perfect. Thank you, Aurora.

Aurora Samuelsson

Great. Thank you both for really good presentations. And I have actually several questions, but I would try to, sort of make them into as precise as possible. So, one data point that I've been raising in previous presentations like this is the fact that you actually pointed to Jan is, the sort of variation in different [geographies] [ph] when it comes to the speak up. And from your presentation, I understand that there is a difference and that you're acting on the differences when you see that there is, sort of a low number of reported cases. So, I think that's really, really good to first understand.

So, I have one question about, sort of the workshops that you described, can you already now see that there's sort of a positive outcome after you've had, sort of these interactions with a specific, sort of geography, is there an increasing number of cases reported? So, that would be interesting to understand.

And also something I have sort of raised and asked previously, if it's possible in maybe on an aggregated level to also be much transparent on the numbers of reports, sort of where they come from and if it's sensitive to point out countries, which I can, sort of really respect, maybe at least for the business regions. That would be of interest also for us to understand exactly what you're acting on, sort of where is it, sort of quiet and where it's not? So, I'll stop there. I have more questions. I’ll stop there for now.

Jan Sprafke

Yeah. Yeah. Thank you for your question. Yes. Of course. I mean, we measure, we can see in the systems after we have conducted a Speak Up Workshop, what's the impact? What's the effect? And we can clearly see, I mean, we have started that already a couple of years ago, and I think I was the first one with my colleague from the so-called allegation management office to run the first workshop in a country in Latin America, and it's also very important, of course, to provide it in local language, by the way.

And the lessons learned. So, first thing, you have always the lessons learned. After the first workshop years ago, we have conducted. We saw a heavily increasing number of reports coming from that country, but then we looked at the reports and then we saw this is not really related to our COBE, to our code of business ethics. So, maybe content wise we have not conveyed the right message.

Yes, you can speak up. You can come to us, but usually, we expect that if it's not relevant to our code of business ethics, they would go to the line manager, to their people function, and so on. So, we did some self-reflection and have adjusted the presentation. And then we went to other countries, and we have measured the effect. And we can always see that people, the allegation in-take increases.

And the more relevant, really, it went over years that people truly have spoken-up in good phase if they saw a concern that is relevant to a code of business ethics. So, yeah, we can measure that. We do that. And also, for – to evolve our self and the compliance program and our efforts. It's really helpful having this data.

On your second point, to get an overview, where are the reports coming from and the countries? I think, maybe going forward in one of the next calls, we could potentially present you the regions, but we would refrain it, I, from a professional perspective would always refrain from providing insights into countries because we want to ensure and protect, of course, reporters and the speak up environment. And if you can imagine that there would be some light on certain countries and people, you know, ask themselves, why is our country spell-out or whatever? So, that could undermine our efforts here. And that's why we usually would not do that, externally.

Internally, we would, of course, discuss it with the management because the management has a responsibility to see this data and act upon it. It's not only the compliance officer who should create a speak up environment. It's the management and the corporate culture that needs to be right, and this is driven and role modeled by our leadership team. Thanks.

Peter Nyquist

You had some further questions as well, Aurora, I guess.

Aurora Samuelsson

Yes. Thank you for that comment. And I fully respect the sort of, not single out the specific countries. So that was, sort of one area where that I wanted to cover. And then I also would like to address something that you presented, Heather, and it was about, sort of you mentioned that during 2023, you have more efforts on your health and safety work. And I just wondered if you could explore a little bit more what are the efforts you are mainly focusing on for this year to work on [Technical Difficulty].

Heather Johnsson

Absolutely. Yeah. Absolutely. Thank you so much for the question, Aurora. And I'm happy to speak to this because it has been something that really has been on top management's agenda for, you know, some time now. And as I think I mentioned in my remarks, we did a safety leadership course during 2022 and really, you know, wanting to really drive that culture transformation around a health safety and well-being, you know, culture and mindset. And what we are doing during 2023 is really taking that and really taking a market area of focus, working with those management teams within each geographic area, as well as putting a lot of focus in our supplier engagement.

So that we are, I mean, you know, really taking this value chain approach both, you know, from Ericsson and our perspective, making sure that we are ensuring that all of the training, the tools, the, you know, everything that can be provided to, you know, ensure this safe, healthy, and well working environment is provided, but also that we really translate this, you know, this mindset shift to preventing, and you know, really working to reach our target zero. So, I would say that that's really the focus for 2023. Thank you.

Peter Nyquist

Thanks, Heather. Any more questions Aurora? We lost Aurora. She can come back in the queue, if you have any further questions. So, with that, I would like to move with the next question. And I think the next question comes from Peter Kurt Nielsen at ABG. Peter Kurt, you're welcome to ask your question, please.

Peter Kurt Nielsen

Thank you very much Peter, and thank you for the presentation. So, I have one for Heather and one for Jan, please. Heather, my question relates to, sort sustainability and ESG overall as a competitive parameter. I mean it is clearly as you explained that the energy efficiency and power consumption within your physical products, software products are crucial for your customers. How important are the other factors within the ESG area? One of your closest competitors speak about ESG as a competitive advantage. But, how do you view this? How important is this for your customers?

And the question for Jan, please? Jan, you said that the compliance program will obviously proceed and develop also beyond 2024 when the compliance monitorship expires. How far are you to date from where you would like to be on the compliance side? And how important has the compliance monitorship been for Ericsson in terms of the progress you have made? Thank you.

Peter Nyquist

We’ll start with Heather and then we will move to Jan.

Heather Johnsson

Sure. And thank you so much for the question. I think, you know, something that I'm very proud of and at Ericsson that we really have been working with sustainability and responsible business topics for many years. And so this embedding is really, kind of a, you know, a continuous process. And I would absolutely say that it is a competitive advantage to have been really at the forefront.

We talk about pioneering a sustainable future and for over 30 years, we have, you know, milestones and, you know, steps we have taken to really be at the forefront. And I think that has made Ericsson a, as I said, what we continue to strive for to be a more resilient and successful company creating value for our stakeholders. I think the, you know, and I'm glad that it came through that, of course, on the energy efficiency side, we certainly see this real connection between both societal value and business value, but I don't think that it stops there.

And I would say, we're really, again, thinking about the value chain approach as well, so course, as well, really thinking about how we engage our, you know, our supply chain, as well as our customers to derive this. And it's, you know, when we think about the example I gave on fixed wireless access and that, you know, really being a business area for us to drive, that is going to extend this digital inclusion and it is going to be one way that both customers and governments can really help to scale some of this institutional coverage.

And I guess, you know, ultimately I do hope that by building this, you know, sort of strong foundation of these different steps that we take across the environmental, social, and governance spectrum, we are really delivering value for all stakeholders, you know, both driving company value, but also for customers and employees and investors. Thank you.

Jan Sprafke

Good. So then I take the question where do we stand with our compliance efforts as of today? And as I've shown, we have undertaken the journey here. We are still on a journey. And if you do compliance, you're on a continuous journey that never ends basically because you always have to evolve and adapt your compliance program to the requirements and changing external factors. Your go to market model can change. Your company can change. You always need to adapt your compliance program and evolve. But we, as Ericsson, we have invested heavily in ethics and compliance program over the last years.

And we shall conclude the monitorship by 2024. This year, what we want to show to the monitor to authorities, but also to ourself is basically that we are in the position to self-evolve our compliance program. And how do you do that? You have a robust framework in place that prevents risk materializing, but also to identify shortcomings and deficiencies yourself, you need to self-identify that. It will always happen in any company and any risk management concept. But then you need systematically run a root cause analysis, remediate efficiencies, and this is how you evolve the program.

And this year, we test, test, test all of our items of our compliance program. Internally, we have test units doing so. Not only in the compliance unit in finance and other units, of course, corporate audit plays a vital role here, but also, our external monitor is testing our compliance program. Everything that we have ramped up over the last years, we need to showcase now that it works in practice and it can prevent risk from materializing.

And this is super important for us because for us, it's point in time to showcase to ourselves and to the monitor that we have achieved this already. And we do have a world-class compliance program in place. So, this is basically the focus where we stand as of today. Then the question, if a compliance monitorship is helpful, a clear yes. From a company's perspective, I mean, I've been working in another company that was under a monitorship, of course, you need to have an all hands on deck approach.

The entire company needs to focus on an integrity and compliance for many years, but, of course, it's very helpful because you're on a daily review and a daily audit by an external party. And our external party and monitor was very helpful to come up with this external view with recommendations how to become better, simplify, and manage risk more effectively and more efficient. And we have listened to the monitor, and we have catered for the recommendations.

We have proactively shared with the monitor our approach. And so, it was a learning, but also very helpful to speed up everything to maintain and have a world-class compliance program. If you do not have a monitorship, usually takes for companies much, much longer to be the forerunner when it comes to compliance. And this is our clear ambition. The world-class compliance program means we have a [forerunner] [ph] globally also in the telco industry. And with these example, I've shown to you, I think we can really be proud of what we have achieved already and how we manage our compliance program.

Peter Kurt Nielsen

Thank you very much. Good answers. Thank you both.

Peter Nyquist

Are you good with that, Peter Kurt?

Peter Kurt Nielsen

Yes. Thank you very much. Good answers, both. Thank you.

Peter Nyquist

Thank you, Peter Kurt. I'm looking at the queue right now. [Operator Instructions] But it seems like we don't have any one in the queue right now. So, with that would actually, would like to close the call. And thank you, Heather, and thank you Jan, for excellent presentations. And as I said in the beginning, the ambition from our side is to repeat this on a quarter basis. Maybe we will have deep dives going forward in different subjects that we like to, sort of display and talk about. But, so the ambition is to return back after Q2 then.

So, with that, thank you all for listening to today's call, and see you next time around the reporting day in mid-July. Thank you. Bye-bye.

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Telefonaktiebolaget LM Ericsson (publ) (ERIC) Quarterly Sustainability and Responsible Business Update (Transcript)