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Quick! Name a Company That Divested Its Coal to Sell Vitamins

Hugh Welsh, president of Royal DSM (North America). Courtesy Royal DSM Close

Hugh Welsh, president of Royal DSM (North America). Courtesy Royal DSM

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Hugh Welsh, president of Royal DSM (North America). Courtesy Royal DSM

Royal DSM might be the largest company you’ve never heard of. That’s how Hugh Welsh, the company’s president for North America, introduces people to the Dutch maker of nutrients, advanced materials and chemicals used in everything from agriculture, to furniture, to energy. 

DSM employs about 23,000 people globally, including 2,000 nutrition scientists. It brought in more than $9 billion in 2012 sales. DSM has recently refocused its global business on what Welsh calls “endemic problems,” which include health and wellness, energy and climate change. We spoke by phone last month.

Q: DSM was founded in 1902. So that’s already pretty sustainable. Bring us up to speed. 
A: DSM was a coal-mining company, and then got very sophisticated and started turning that coal and coal gas into industrial chemicals. And it did that for about 100 years. So it was producing petrochemicals like melamine, polyethylene and elastomers, all of these base industrial chemicals.

Around ten years ago it sold off most of those businesses. And through the billions of dollars raised in those sales, it instead bought Roche Vitamins, or Catalytica Pharmaceuticals. We've spent $3.5 billion in the last two years, here in the States, buying companies that are better positioned to meet our values.

Q: Seems like you're in sort of a fun period, when you can say you’re the the biggest company nobody’s ever heard of and be right. If you keep this up, in a year or two you probably won't be able to say that.  
A: Yeah. I'm going to have to come up with some new schtick, because in certain audiences I'm already losing that. I'm working to get DSM's name out there a little bit more. It's not going to do anything to drive our sales, and it's certainly not going to do anything from an investor relations point of view. But it's important that our employees have the capacity to be proud of what the company does. And also, I, like any organization in this day and age, am desperate to find the most talented people in the world.

Q:  What do you think when you hear people saying, Don't eat spray-on vitamins, or you have to eat things that don't have ingredient lists on them? 
A: On the food side, I would confront somebody like that with the fact that every six seconds somewhere in the world a mother loses a child because of a lack of nutrition.

And if that mother had the capacity and the wherewithal to feed their child whole foods, to buy eggs, to buy fresh fruit, to buy meat, I'm certain that mother would. But that's a luxury that is unique to those of us in the West, where we spend, what, 4 to 6 percent of our disposable income on food. In most of the world they spend between 50 and 80 percent of their disposable income on food. All that they can afford to buy are staple foods. So rice, grain, corn. And these foods may be sufficient in caloric terms, but they're wholly insufficient in nutritional terms.

Q:  Mark Lynas, the environmental advocate and science writer, recently flipped positions on genetically modified organisms, saying that they’re necessary. Does that mark a maturation in the global GMO conversation?
A: The conversation's been going on for several decades now. There's a certain salacious nature to it when you can talk about strawberries that have been genetically modified with flounder genes to survive freezing temperatures. I mean, it's just Frankenfoods.

But that the genie's already out of the bottle. In the U.S., genetically modified foods are generally accepted. You would find it impossible to buy a soybean that's not genetically modified here.  Being a European company, I guess maybe I'm a little more sensitive to it, because in Europe that's certainly not the case.

Personally, I think it's an issue that needs to be watched very closely for knock-on effects. I know that there's been a lot of issues with genetically modified corn and the impact on the insect community, and consequently the songbirds.

I think we need to be very cognizant of these things, but I don't think that we have a future without the capacity to produce food through genetically modified organisms.

Q:  How far can we go on these corporate sustainability efforts? Is there a limitation to them, and what are you guys doing,to help make sure that policy is on a productive footing?
A: In DSM, our CEO speaks almost evangelically about the future. Human beings have spend tens of thousands of years living off the land. They've spent the last 150 or so digging hydrocarbons out of the ground and living off of that. But that period is coming to an end, and so we need to develop very rapidly new technologies that will allow us to go back to living off the land and maintaining our standard of living. 

So we are working in DSM feverishly and spending a great deal of money to try to find alternative ways to produce fuels and chemicals through renewable bio-based processes, and at the same time trying to work -- especially in Europe and in the United States -- to set policy and change legislative agenda to make it feasible for companies that want to move in this direction to do so successfully and sustainably.

And it's not easy, because we are under constant attack by the oil and gas industry, which wants to put all of this away very quickly in order to maintain sort of their monopoly on energy. And it's, again, something that's very frustrating.

Q: How do you evaluate your sustainability initiatives, and how do you demonstrate their performance to other people? 
A: DSM has an integrated annual report. Essentially, we report on our sustainability goals and metrics the same as we would report on our EBITDA goals or revenue goals. And all of my bonus, and the bonuses of the top 400 in the company are tied very closely to not just meeting these revenue-type metrics, but also meeting the sustainability metrics. This is one way to kind of get everybody rowing in the same direction.  

Q: You’ve used the phrase “nutrition fortification.” That one’s new to me. So, it’s basically added vitamins and minerals.
A: Nutritional ingredients go one of two paths. One path is in animal feed, chicken feed, swine feed, beef feed, to help improve the nutritional uptake of these animals. 

The other half is into human nutrition, and it goes in three ways.

One is through dietary supplements. So it would be the multivitamin you take at the store, or omega-3 or omega-6 capsules. 

The second path, and probably the largest, is the fortification of foods and beverages. So spray-drying enzymes, these things, vitamins on cereals, mixing them in beverages, fortification of milk with vitamin D, wholesale fortification of processed foods, vitamins E, vitamin A.

The third is in infant formula, specifically, fortifying infant formula with arachidonic acid and DHA, which are essential polyunsaturated fatty acids and are absolutely necessary for a child to develop appropriate cognitive function.

Q: What’s the coolest thing DSM works on?
A: I have to be careful, because there are so many business [and they might] get angry at me. You know, I still think DHA, which is used in infant formula and other applications. It's almost like a miracle ingredient, just because of its capacity to improve cognitive function in human beings, very specifically in children and babies. You can literally put up a CAT scan of two kids and see on the CAT scan in brain matter which one had DHA and which one didn't. And also its impact on humans later in life, when they're getting cognitive deficits because of old age or other matters. It's one of the handful of things I actually take that the company produces.

Q: What are you reading?
A: Right now I'm reading a book called Start with Why. The last book I read was a little bit older. It was Fareed Zakaria's book on the post-American world. And I read a lot of those books, because I'm challenged a lot by some of our board members in Europe as to what the future of the United States is. And I happen to believe that it's pretty bright. But I'm always trying to read contrarian opinions.

Analyses and commentary on The Grid are the views of the author and do not necessarily reflect the views of Bloomberg News.

Visit www.bloomberg.com/sustainability for the latest from Bloomberg News about energy, natural resources and global business.

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