Summary for investors

In a globalizing and increasingly competitive world, sustainability related risk exposure and business opportunities vary widely between and within sectors. For this reason, our 2007 Sustainbility Report is focused on the investor community. It is about how we manage key Environmental, Social and Governance (ESG) risks, how our businesses create sustainable value, how we included sustainability aspects in the acquisition process of ICI and how we are accelerating sustainable growth to become even more competitive.

Managing sustainability

Akzo Nobel’s comprehensive sustainability policy is managed through a rigorous and effective governance structure which includes representation from Board of Management level to corporate staff and the business unit managers. Key sustainability issues are included in the BU’s day-to-day planning processes and in the non-financial Letter of Representation. In 2007, our sustainability management system was reviewed by an external auditor in order to attain a reasonable level of assurance. This rigorous embedding in our business cycles contributed significantly to our number one ranking on the Dow Jones Sustainability Index.

Talent management

As the markets we compete in are subject to constant change, it is important to hire the best employee talent, as well as continually improving our employees’ skills. Therefore, the development of our workforce is a top priority for the company. We invest significantly in building and maintaining the “talent factory” we need to secure our market positions and ambitions.

Carbon strategy

Carbon strategy is the top priority among a number of sustainability issues. Energy efficiency and zero/low carbon energy consumption are key performance indicators. In 2005, Akzo Nobel set 2010 targets for these indicators. In 2007, Akzo Nobel’s energy bill totaled EUR 660 million, more than 10 percent of total costs of sales.

Overall, we have a low carbon energy mix for our power: 73 percent is from zero/low carbon energy sources: 18 percent from nuclear, 17 percent from low carbon gas fired cogeneration units, 37 percent from hydropower, and 1 percent from other renewable energy sources.

The contribution of several of our products to carbon reduction of our clients is even more interesting. Increasing demand for products that reduce the carbon footprint of our customers opens up a window to future business opportunities.

During 2008, our carbon strategy will be reviewed, including an assessment of the carbon footprint in some of our key value chains. A similar activity will be carried out for our
non consolidated CHPs.1

Creating value from eco-efficient solutions

Eco-efficient solutions help to create value for our business
and for our customers. An initial inventory has shown that 18 percent of our turnover is based on products contributing to more eco-efficient solutions than average along their value chains. These products provide top line growth opportunities because of their improved performance in areas such as raw material use, manufacturing processes and product innovation. We have a target to increase the share of products contributing to eco-efficient solutions to at least 30 percent of turnover in 2015, via 22 percent in 2009.

By adjusting their product portfolios, our businesses have anticipated on both chemicals legislation (REACH, Global Harmonizing System) and the EU VOC 2010 directive. By doing so, we will comply with emerging regulation well in advance. In the long run, the costs of compliance – for REACH in the region of EUR 120 million – are expected to be more than offset by new business opportunities.

Sustainable supply chains

In line with our 2004 objectives, in 2007 more than 80 percent of all Akzo Nobel suppliers of raw materials have signed our Vendor Policy – covering EUR 4 billion of product related spent. This vendor policy includes relevant environmental, social and governance issues.

As a next step – being part of our World Class Purchasing Policy – we have set up a program of supportive visits to key suppliers in order to foster dialog on ESG benefits and to build partnerships. In this way, our businesses are creating a healthy supplier base which enables them to compete in both mature and emerging markets.

Strong fit between Akzo Nobel and ICI sustainability capabilities

The Chemicals industry sector of the DJSI consists of around 90 companies. Membership is restricted to the top ten percent of companies with the highest scores on environmental, social and governance performance. Akzo Nobel now heads the Chemicals sector on the Dow Jones World Sustainability Indexes. ICI has also been a member of this index for four consecutive years. Initial assessment has shown that ICI brings a background of setting five-year “challenge periods” with quantifiable group-wide HSE and product stewardship improvement objectives which have delivered significant performance improvement since 1990.

In 2005, they developed an integrated approach to the whole sustainability agenda – again with wide-ranging improvement objectives to drive performance.

Based on further analysis as part of the acquisition, Akzo Nobel and ICI have concluded that the new company will benefit from mutually reinforcing sustainability capabilities.

Investor relations

Akzo Nobel actively communicates its strategy and the developments of its businesses to the financial markets.
In 2007 – the year of transformation of our company – most focus was obviously on strategic divestments and the ICI acquisition. Nevertheless, we see a clear tendency that sustainability topics are gaining momentum in the investment community.

In the Netherlands, a group of several cooperating pension funds issued a report “The Arrived Future”, which explains how pension funds can move forward to actively invest in equity of companies with a strong record on managing Environmental, Social and Governance issues. During 2007, we held meetings with several investors, focused on the way sustainability is incorporated in our business models and contributes to value creation.

Global Compact

Akzo Nobel is a signatory of the UN Global Compact. Akzo Nobel embraces, supports and enacts, within its sphere of influence, the Ten Principles of the Global Compact. This is a set of core values in the areas of human rights, labor standards, the environment and anti-corruption.

Key financial data akzo nobel

Earnings for the 2002 - 2005 period include the results of Organon BioSciences. The 2006 - 2007 earnings before incidentals reflect the performance of the continuing Coatings and Chemicals operations. Results of the continuing operations improved over the years because both segments realized strong autonomous revenue growth and reaped the benefits from margin management and cost saving actions.