The EPO enhanced its long-term sustainably in all areas in 2019 by reinforcing internal and external governance, reducing its environmental footprint, and reassessing its long-term financial sustainability.
As part of its efforts to strengthen governance in 2019, the EPO set up a new Corporate Governance Service (CGS). This unit is responsible for ensuring an integrated approach to management of areas like risk, business continuity and health and safety across the office. It also includes a new project management office (PMO), which co-ordinates and oversees the implementation of SP2023.
In October 2019 CGS launched a corporate Balanced Scorecard (BSC) to align all activities in the different areas of the EPO with the goals set out in SP2023. Towards the end of the year we initiated the process of cascading the top-level BSC down to the DG and Principal Directorate levels.
During the second half of 2019 the goals and key initiatives of SP2023 were broken down and mapped into a portfolio of programmes and projects. By the end of the year we had appointed nearly all programme managers and nominated the first batch of project managers. An extensive internal communication campaign featuring roundtables, intranet communications, webinars, videos and meetings was also rolled out to support the implementation of SP2023. To increase transparency on our progress, we also presented the EPO's first annual work plan for 2020 to the Administrative Council in December.
Another milestone related to governance was the signature of a Memorandum of Understanding (MoU) between the President of the Office and the President of the Boards of Appeal (BoA) on 28 June 2019. The MoU will facilitate the BoA Unit's access to its legal, financial and administrative services, and also covers the possibility of drawing up service level agreements to regulate the performance level of a task performed.
Towards the end of last year a MoU between the Chairman of the Council and the President of the EPO was also drafted on enhancing support for the Council. At the December 2019 session of the Council, the MoU (CA/106/19) received a unanimously positive opinion from the delegations.
In 2019 we started to lay the foundations for an integrated management framework at the EPO. This will drive oversee the office-wide implementation of management systems for quality, occupational health and safety and risk and business continuity. In 2019 we started to implement requirements of the OHS Management System (ISO 45001) in preparation for certification in 2020.
As a responsible public institution, it is the EPO's duty to have a positive impact on people's everyday lives, society as a whole and the environment. In 2019 we launched a programme to raise awareness of the EPO's mission and the benefits of an effective European patent system for stakeholders outside the core IP community.
Overall, this programme will raise the profile of the innovation sector and foster a culture of innovation. It includes projects to increase the scope and profile of the European Inventor Award; develop an annual patent index and a new data centre; and raise our brand visibility. The EPO will also focus more on building a sustainable future at a local level by developing activities targeted at communities in our host cities.
The EPO commissioned a Financial Study in Q1 2019 by external consultants Mercer Oliver Wyman. Conscious of its responsibility to its stakeholders, the report aimed to assess whether the EPO was on course for a sustainable financial future.
Phase I – Development of four scenarios
Phase I of the study focused on how the EPO's financial future could evolve over the next twenty years, according to four potential scenarios. In three out of four scenarios the EPO was predicted to encounter a coverage gap which the EPO currently does not have sufficient asset reserves to cover.
At the beginning of May the Financial Study's key findings were presented to all EPO staff, managers and staff representatives. A wide-ranging consultation process was launched, with over 320 staff members participating in focus groups and discovery sessions (for further details, see "Communications" section).
Following a careful analysis of the different parameters and the global economic developments, the Office considered that the 'Base 2 – Economic Cycle' scenario which assumed a global economic recession was the most appropriate one. This scenario identified a funding gap of € 3.8 billion. On the basis of a sensitivity analysis evaluating the risk of a persistent low interest rate environment, the Office proposed to retain in addition a € 2.0 billion buffer. The total potential financial gap to be covered over 20 years was then identified at € 5.8 billion. This position of the Office (CA/84/19) was fully supported by the Council in December 2019.Phase II – Developing measures to address the funding gap
Phase II of the study identified 17 measures that could contribute to covering the € 5.8 billion gap. From these 17 measures the Office set about developing a package of financial measures for presentation to the Administrative Council for adoption and based upon the following principles:
These principles helped to guide discussions with social partners on the development of a package of measures.
The EPO Treasury Investment Fund (EPOTIF) reported positive results for the year 2019, when it generated a profit of € 325m, representing a 13% return on assets and bringing the total value of the fund to € 2 955m at the end of the year. The major EPOTIF risk measure (1-year Value at Risk with 95% confidence level) remained throughout 2019 in a range between 5.5% and 6.6%, which was at all times below the 20% limit defined in the EPO Investment Guidelines.
The Office continued its efforts to further improve the EPOTIF Governance. The Investment Committee was set up in August 2019 and its first annual meeting held in September 2019. The external audit of the EPOTIF was performed in Q3 2019 and its outcome reported to the BFC in October 2019 (CA/F 27/19). The auditors confirmed that the setup of EPOTIF is of high professional quality and adheres to the best governance principles. Finally, the Office established the function of the EPOTIF Risk and Compliance Officer reporting to the President. The first EPOTIF Risk and Compliance Report was issued in July 2019.
The preliminary results for January-April 2020 reveal the impact of the coronavirus pandemic, which triggered substantial declines in financial markets. In this period, EPOTIF incurred a loss of € 233m, corresponding to -7.9% of the net assets value. The total value of the fund as at 30 April 2020 was € 2 722m, a loss of € 5m since inception.
In 2019 a far-reaching new Finance 360 programme was launched covering areas ranging from core financial processes like planning, budgeting and reporting to essential procurement and sourcing. We also tested a prototype Enterprise Performance Management (EPM) tool that will provide relevant, accurate and timely information to support reporting and decision-making.
In September 2019 we commissioned an external consultant to assess our procurement processes with a view to increasing transparency and compliance, while retaining maximum flexibility. This health check included 26 initiatives which have been partly incorporated in the Finance 360 programme. Some others have been launched as mini-projects ranging from defining a procurement learning path to definition of standard procurement catalogues.
On the operational side, the total procurement spend on goods and services decreased by 14% in 2019 versus 2018. The decrease of about € 40m was mainly due to the completion of the New Main Project in The Hague in 2018. The percentage of spend awarded through published procurement procedures increased from 51 to 57% in 2019. The EPO also embarked on efforts to streamline our procurement by increasing automatic supplier invoicing management to 47% at the end of 2019 versus 20% in 2018.
The EPO is committed to minimising its environmental impact and actively contributing to a more environmentally sustainable future. The graphic below summarises our achievements in 2019 versus 2018.
We moved closer to a more environmentally sustainable future in 2019 with our completion of a new bike park and modernisation of some of our most energy-consuming technical installations at the Isar building. On top of these measures, the EPO also signed an agreement with the City of Munich and other major companies to join forces and co-ordinate its climate change activities.