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Sustainability is the incentive we need, says Wärtsilä chief

Finnish engineering business writes sustainability targets linked to decarbonisation into management incentive plan. This might be hard to support in a competitive and fluid labour market

Shipowners need to know what they should invest in and when. The answer lies in building closer partnerships

THE directors of Wärtsilä Corp have announced a long-term incentive scheme for the company’s management and key employees.

The aim is to align the interests of management with those of the company’s investors. This will promote shareholder value creation in the long term, commit management and key employees to achieving strategic targets, and retain key resources.

The incentive scheme is in the form of a performance share plan which, for the first three-year period 2023-25, will focus on economic value added and sustainability targets linked to decarbonisation.

Wärtsilä receives applications for research and development positions from all over the world and from a wide variety of disciplines, chief executive Håkan Agnevall told me. But competition in engineering is fierce and the labour market is fluid.

Over the past five years, there has been a shift in the attitude of prospective candidates towards decarbonisation, he said. Graduates are looking to work with a business that has a culture fitting their values.

Aligning management performance with sustainability makes sense at two levels: It will encourage applications from researchers with a heart for the environment and it will incentivise divisional heads to position their business in the realm of sustainability, essentially the only game in town.

Wärtsilä is not the only engineering company transitioning from a builder of hardware to a provider of solutions.

Plenty of big corporates have set targets for carbon-neutral operations by 2050 or earlier.

But what makes it slightly tricky for this propulsion systems business is that Mr Agnevall believes the combustion engine will continue to play a part in shipping for decades to come. Manufacturing an engine block takes a lot of energy, and this will be the case even if cleaner fuels come onto the market in sufficient quantity and at an affordable price.

The other incentive, economic value added, is probably even harder to attain if the financial statement for 2022 is anything to go by.

The year was characterised by geopolitical tensions and uncertainty in the global business environment, said Mr Agnevall. “The war in Ukraine has had a strong direct and indirect impact on the markets we operate in, especially the energy markets.”

To its credit, Wärtsilä was quick to exit the Russian market following the unfolding of the situation in Ukraine.

Soon after, the company announced its plan to centralise four-stroke engine manufacturing in Europe to Vaasa, Finland, and to scale down manufacturing in Trieste, in Italy. That came with hefty transformation costs of about €130m ($139m) and will spill over into 2023.

This is a business that looks and feels very different from the Wärtsilä of 2013, and there will be further change by 2033.

Mr Agnevall expects partnerships between shipowner customer and solutions provider to strengthen. He anticipates closer ties between hardware and software, and he envisages a deeper trust between all the parties involved.

Sustainability must be financially viable. Shipowners need to know what they should invest in and when.

The longer they wait, the tougher those performance incentives become.

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