A recently published report by CDP, a not-for-profit charity focusing on data for investors and chemical supply chain analysts, has found that the chemical industry is failing to meet Paris Climate Change Agreement targets. While the insightful report did suggest that some companies have made significant progress towards improved energy efficiency, sustainable feedstock sourcing, and lowering carbon emissions, on the whole progress was too slow and the changes that have been implemented do not go far enough.
How to Assess the Chemical Industry’s Environmental Impact
The report, entitled ‘Catalyst for Change’, assessed the top 22 largest chemical companies in the world in four key areas, thus aligning the study with recommendations from the G20 Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD). These areas were:
- Transition risks: Assessing companies’ emissions intensity, energy intensity and indirect global greenhouse gas (Scope 3) emissions in the value chain.
- Physical risks: Assessing companies’ use of water, water quality and governance metrics.
- Transition opportunities: Assessing companies’ progress and strategy in shifting towards a low carbon economy by looking at product and process innovation, low carbon revenues, R&D spend and use of renewable energy.
- Climate governance and strategy: Analyzing companies’ governance frameworks including emissions reduction targets and alignment of governance and remuneration structures with low carbon objectives.
Sustainability is a key area for the chemicals industry given that the environmental journal Sustainable Brands, notes that, “The chemical sector is responsible for an eighth of global industrial CO2 emissions and plays a key role in the world economy, with 95 percent of all manufactured products relying on chemicals. Despite the industry’s ability to innovate on low carbon, it will struggle to fully decarbonize if it doesn’t make rapid and significant changes to its own highly polluting processes.”
Making Progress but on Climate Change the Chemical Industry “Doesn’t go Far Enough”
This means that the CDP document is a significant school report on the progress that the industry is making. The results so far offer both encouraging and disappointing news. Its states that;
- “The chemicals sector performs well in terms of emissions and energy intensities, with most companies in the universe covered showing annualized improvements in emissions and energy efficiency of between 2-5% which flow directly to the bottom line.”
Adding that, “Efficiency improvements are likely to continue, although the pace will be incremental in the short term, evidenced by much less ambitious targets for emissions intensity, [in an industry where] even small changes in efficiency could be meaningful given the scale of operations.” - The report notes that there is a lack of strong impact innovation, with, “High carbon risks remaining for the sector in the medium to long term which require game changing technologies in feedstock and processes which are a good 5 -10 years away with current process innovation based on incremental improvements.”
- While the investment into R&D is present (notably five times higher than other industries), the industry lacks transparency, “evidenced by the lack of reporting on disaggregated data, with a prolonged period of cross border M&A and vertical integration creating groups which are hard to analyze and regulate.”
- Furthermore, the industry is likely to experience a ‘diesel’ moment, when political pressure to achieve a circular economy will impact the packaging and plastics industries. This pivotal event will be similar in scale to that affecting the automotive industry and how it has been rocked by legislation promoting lower emissions from diesel vehicles.
- The report also comments on the vast regional differences in legislation, with “European chemical companies facing tougher regulation from committed carbon emission cuts and potentially higher capex in the medium to long term.” Such differences were also noted for water consumption, which varied greatly from region to region and sector to sector.
- Finally, the report singled out AkzoNobel as a “clear leader, outperforming all other companies by a clear margin across most metrics.” While labelling Formosa and LyondellBasell as the worst ranking chemical companies in the study.
However, the report does have some major flaws, as critics (and the report itself) have pointed out that the analysis does not include, “Chinese chemical industry and the petrochemical businesses of oil & gas companies.” This is significant given that the Chinese chemical industry accounts for 40% of global chemical production, and the Chinese government’s failure to provide data for analysis harms efforts to combat climate change.
Similarly, by studying only the largest 22 chemical companies, the report is focusing on only 25% of the chemical industry’s total emissions. In fact, the report highlighted the challenges in regulating, studying, and governing such a large, varied, and fractious industry. Where law changes or processes implemented for one sector may be completely inappropriate and unworkable in another.
How Committed is the Chemical Industry to Combating Climate Change?
In response to the criticism provided in the report, the chemical industry has reaffirmed its environmental pledges. American Chemicals Society executive director and CEO Thomas Connelly Jr stating that, “Climate change represents a real and current threat to our economy, health and welfare. America should continue to take the lead in addressing global greenhouse gas emissions and become a leader in sustainable energy production and technology.”
The European chemical industry remains similarly committed, with that CEFIC already planning on ways that, “the chemical industry can become carbon neutral by 2050.” While CEFIC Director General Marco Mensink remains positive about the future, stating at a recent event, that, “The Emissions Trading Scheme (ETS) Innovation Fund should contribute to technology that can effectively decrease CO2 emissions.”
What Should the Chemical Industry be Doing for the Environment?
However, while the chemical industry as a whole has been quick to claim the moral high ground, by reaffirming its commitment to sustainability and to lowering carbon emissions, it has yet to put sufficient meat on the bones to answer some of the industry’s toughest questions.
• Can the chemical industry stop its reliance on fossil fuels?
• Can the industry self-regulate itself sufficiently to prevent cases of localised pollution (Baia Mare Cyanide spill, Bhopal, BP oil leak in the Gulf of Mexico, Tennessee fly ash slurry leak …)?
• Can the chemical industry innovate more environmentally sound and sustainable products, such as bioplastics, or sustainable, non-plastic packaging quick enough?
• Can the industry sufficiently lower its energy use, currently 11% of global total (28% of global industrial use)?
As Paul Simpson, CEO of CDP, told the environmental journal The New Economy: “As both a large energy user itself and a crucial part of other industrial supply chains the chemicals industry is an important, but often overlooked, sector when it comes to environmental impact. Today’s analysis shows it’s moving in the right direction across several climate metrics with encouraging signs on annual emissions and R&D, but it needs to go further and faster to invest in the technologies that will deliver efficiency and emissions improvements. Ultimately it needs to set and achieve more ambitious environmental targets to reach a tipping point that both catalyzes progress towards the Paris Agreement goals and directly improves the bottom line.”