ESG Interview|Syngenta Group Chief Financial Officer and Director Qin Hengde: Greener products also have stronger profitability

Every reporter: Zhang Yun Every editor: Liang Xiao

Syngenta Group Chief Financial Officer and Director Hengde Qin said the World Council for Sustainable Development has invited Syngenta Group to join the working group to develop the next version of the portfolio sustainability assessment.

Qin Hengde, who has lived in Switzerland for a long time, returned to Shanghai again and felt very cordial. On October 17, at the 2024 ESG Global Leaders Conference, he talked about the two major challenges facing the agricultural sector are food security and sustainable agriculture, and now is a strategic critical period for agricultural transformation.

Qin Hengde Image source: Photo by reporter Zhang Yun

Syngenta Group, which voluntarily withdrew its application for an IPO on the Main Board, has not given up on capitalization, but at this stage, the company is focusing more on its own integration and business adjustment. In an exclusive interview with the "Daily Economic News", Qin Hengde said that the annual R&D investment of 2 billion US dollars is mainly used to help farmers increase production and sustainable planting, and the company's product line sustainability framework (PSF) has further demonstrated that the lower the environmental impact, the higher the gross profit of the product.

Find credible ways to evaluate the sustainability of agriculture

NBD: Syngenta Group invests 2 billion yuan a year in R&D, so what percentage of the budget is in terms of ESG?

Qin Hengde: We will invest $700 million to $800 million in crop protection, $700 million to $800 million in seeds, and innovation in crop nutrition, digitalization, etc., adding up to about $2 billion. How to allocate budget and resources, and how to prioritize innovation, needs to optimize resource allocation through ESG guidelines to ensure that innovation projects are aligned with the Sustainable Development Goals.

At Syngenta Group, we have implemented the Product Line Sustainability Framework to support our R&D and innovation investments, which provide a comprehensive assessment of the economics, carbon footprint, and environmental impact of each product and assign sustainability ratings to help us better prioritize our US$2 billion in R&D investment.

The establishment of this framework is the first of its kind in the world and in the industry, and we have created a big challenge for ourselves by inviting external auditors to audit the PSF. The aim is to have a credible evaluation methodology in the field of agricultural innovation.

NBD: The PSF framework pioneered by the company seems to want to show that there is a positive correlation between product profitability and sustainability, but how should we understand the contradiction between increasing agricultural production and reducing emissions?

Qin Hengde: Indeed, agricultural production and carbon reduction are a contradiction in themselves, creating products that human beings need, but also generating resource consumption and emissions, so any human activity must have some negative impacts. Agriculture is one of the main sources of greenhouse gas emissions, and we need to further improve efficiency and reduce the impact of agriculture on carbon emissions through scientific and technological innovation to increase food production, which is the work we need to do, and it is also a common challenge for the whole of mankind.

One of the most encouraging findings is that the gross margins of products with a sustainability rating of 1 are significantly higher than those of products with a sustainability rating of 3, which means that innovative products with high gross margins can significantly reduce the use of pesticides and fertilizers and increase crop yields, so this is positively correlated with their contribution to carbon reduction. Although the amount of the product is reduced, the value of the product is higher, and the gross profit will be better.

For farmers, although the unit price has increased, the overall input has also decreased due to the significant reduction in the amount of product used. What's more, the overall yield of crops has increased.

Technology can also help farmers cope with abnormal weather, such as droughts, floods, hail, high temperatures, etc., and stable yields are also an incentive for farmers to be willing to use more environmentally friendly agricultural inputs to engage in production, which can not only increase profits, but also achieve our carbon reduction goals. Although technical solutions for extreme weather such as floods and droughts are still limited, early warning of weather conditions through digital means can help farmers take measures to reduce losses.

NBD: The company will set a Scope 3 target by 2025, how is it progressing? How to promote the cooperation path with the upstream and downstream industry chains?

Qin: Scope 3 requires a concerted effort from all partners in the industry, so we are now working on criteria for evaluating our partners, including which suppliers can be included in our supplier list, and how to track and evaluate their carbon footprint. Because we need to disclose the decarbonization progress of our supply chain to the EU, we also give ourselves a little time to complete this evaluation standard and the entire supplier evaluation system by 2025.

We will mobilize all our supply chain partners to achieve this goal. The Chinese market, which accounts for more than 60% of Syngenta Group's global supply chain, is about how to help local partners in China decarbonize. At present, China's clean energy is developing rapidly, whether it is nuclear power, wind power or solar energy, and the production facilities of partners need to be further renovated, and economic sharing mechanisms need to be considered, so that everyone has the drive to achieve carbon reduction.

In the future, biologics are expected to replace chemical pesticides

NBD: In the investment space, you mentioned that you will focus on more bold innovations, digitalization and transformative technologies, but do you see products, technologies or projects that can impact the industry at this stage?

Qin Hengde: Syngenta has two investment systems, one is the venture capital team and the other is the M&A team.

The venture capital system focuses on pioneering technologies, such as the pioneering technology in which we invested as co-investors in the United States to convert nitrogen from the air into nitrogen for crops. In the field of AI, we will invest in some small companies, and there is an artificial intelligence algorithm that automatically recognizes and accurately sprays pesticides by machines. Of course, these ideas are still very cutting-edge, and it will take a long time to commercialize them, and their foresight could disrupt the entire field of agricultural technology.

The M&A system focuses on mature and commercial companies, with a large investment in biologics in the last five years, and we acquired a leading global biostimulant company in Italy and integrated it into our crop protection products. The idea is that in the future these biostimulants can replace chemical pesticide products.

Syngenta's crop solutions in Europe and the United States are now chemical pesticides plus biologics, and the share of biologics is growing by double digits every year. We believe that biologics and biological control will gradually play a greater role in the future, but it is still very difficult to completely replace chemical pesticides now, because this technology will take a long time to accumulate.

In addition, we have acquired a number of companies that have digitalized agriculture. The CropWise digital agriculture platform can use remote sensing, satellite imagery and other technologies to provide farmers with accurate agronomic decision support for the whole cycle from crop planting to harvest by analyzing multi-source data such as soil, climate, pests and diseases. This platform has been incorporated into the multiple mergers and acquisitions we have done in the past.

NBD: Syngenta's path to IPO seems to be a bumpy one, and I wanted to understand the considerations behind it and how the company is going to capitalize next.

Qin Hengde: Based on a comprehensive consideration of our own development strategy and the global industry environment, we voluntarily withdrew our A-share listing application. Now we are more focused on our own integration and improving market competitiveness, but we have not given up capitalization and are doing a lot of alternative measures. The company will continue to pay attention to the capital market and restart the listing process at an appropriate time in the future.

National Business Daily