Chemical Industry & Climate Change - An Introduction

The chemical industry is central to the economy. It provides a wide range of essential products and materials that are integral to various sectors of the global economy. Various sectors of the global economy and many industries- the automotive industry, construction industry, agriculture, electronics, consumer goods, and food and beverage industry, are heavily dependent on chemical products and materials. Incidentally, activities and emissions from industries and businesses together pose a threat to the environment and are highly responsible for rising temperatures. 30% of greenhouse gas emissions are due to aluminium, concrete, steel, and chemicals sectors. The means of transporting the raw materials and goods - the ships, planes, and trucks, are also responsible for the growing emissions. 

Due to high greenhouse gas (GHG) emissions, the chemical industry plays a major role in driving towards climate change. While the world is pivoting towards decarbonization, the role of industry becomes crucial. The chemical industry, in particular, is under high pressure and is in dire need of addressing its sustainability profile.

‍1. Global Pressure

The 2022 United Nations Climate Change Conference, COP27, saw clear emission gaps between current national climate plans and what's needed to limit temperature rise to 1.5 degrees C. These gaps urge countries to urgently put a strong foot forward towards climate change by curbing emissions from major emitters. The chemical industry, being one, must put robust climate plans into action and also implement stricter and stronger policies to drive the transformations needed to limit the global temperature rise.

2. Environmental Impact

• The industry has high energy consumption. Besides, this energy is generated using depleting sources i.e. fossil fuels. The significant dependence on fossil fuels for power generation and hydrocarbon supply not only strains the reserves but also leads to the emission of high levels of CO2 and pollution. Moreover, high usage of water may also contribute to water scarcity. Being situated along the coasts of Gulf states that are already experiencing water scarcity, the chemical industry in the Middle East is believed to be exacerbating the issue.
• Poor human health is one of the most severe aspects of emissions from the chemical sector. It is estimated that chemical exposure is directly or indirectly related to 8.3% of all deaths and 5.7% of the total burden of diseases worldwide. In addition, the chemicals industry ranks as the second-largest emitter of sulphur dioxide (SO2), a harmful substance that impacts human respiratory health, and the third-largest producer of CO2, accounting for 18% of industrial CO2 emissions.
• The chemical sector generates millions of tonnes of plastic waste. The United Nations reports that plastic waste makes up as much as 80% of the marine debris that poses a threat to over 800 species across the globe. The total quantity of plastic waste disposed of between 1950 and 2016 is estimated to be around 6 billion tonnes. Recycling this waste is very important. Improper disposal of these plastics causes serious environmental harm by running ecosystems and destroying plant and animal life.
  

3. Pressure From Stakeholders

Due to scrutiny or a genuine inclination toward a cleaner environment, sustainability has to be a major focus of the chemical industry. They are bound to assess and negate their impact on the environment. The relevant stakeholders are maintaining enough pressure on the chemical industry and wouldn't spare defaulters. Also, governments, investors, customers, and even stock exchanges are increasingly judging companies according to ESG compliance.

• For example, Climate Action 100+ is an investor-led campaign aimed at exerting pressure on major corporate greenhouse gas (GHG) emitters worldwide to address the issue of climate change. The initiative requires 46 companies in the oil and gas as well as chemical sectors to develop long-term plans for energy transition that align with short- and medium-term objectives.
• ‍BlackRock, an investment firm, has also made a public statement that emphasizes the importance of sustainability concerns as a central part of its investment strategies.
• With increasing awareness of the environment, customers are opting to go green in every possible way. They are putting sustainability at the top of their buying preferences which is pushing the industry to pave way for ESG practices at their end. The financial gatekeepers also favour the aspect of being ESG compliant for financial and investment-related decision-making, enforcing chemical plants to address it.
  

4. Better reputation and financial opportunities

• The advantages of sustainability practices are evident and chemical companies are apprised of that. Being major contributors to GHG emissions, businesses in the chemical industry are aware that they need to maintain their reputation along with their bottom line. A good rapport w.r.t to sustainability practices ensures an edge over competitors. It attracts more business and increases the company's appeal to top talent. Strong ESG practices are becoming an essential prerequisite for employee recruitment, brand enhancement, and investor funding.
• By complying with industrial and governmental standards, chemical plants can very well avoid fines and expensive audits. Practices to curb emissions and cut down on waste can help reduce expenses and increase profit margins.
  

5.  Sustainability creates value - attracts young talent and consumers

Today, consumers are consciously supporting and choosing companies that are organized in an environment-friendly and socially responsible manner (which includes their supply chain). Sustainable companies, with the right reporting and mindset, enable more trust among consumers. Specifically, young talent prefers working with organizations built on environmental, social, and governance (ESG) principles and actively supports communities that work towards social causes.

Sustainability Practices and Trends

The world is decarbonizing. The chemical industry, too, is already on its journey of sustainability to leverage the powerful set of opportunities that a sustainable future holds for the environment and economy. It is an essential participant in the manufacturing value chain. So, it is important for chemical companies to comply with more rigorous ESG standards to outstand the rest and to incite innovation. Reaching net zero is a goal like no other. It requires deep-rooted efforts and transitions which many companies are already working on and some others want to accomplish but are unsure of where to begin. Below are some practices and trends that the industry is looking at.

1. Technology

Technology plays a key role in assisting with implementing and improving sustainability profiles. Emerging technologies can help revolutionize the sustainability landscape by providing platforms with increased capabilities. R&D can help provide AI-based sustainability solutions to improve and maintain ESG profiles, innovate, and address domain-related sustainability issues.

According to Deloitte's findings, numerous American businesses are projected to incorporate mechanically recycled and renewable feedstock-based polymers into their product lines. Additionally, these enterprises are expected to invest in advanced recycling techniques. A noteworthy example is BASF, which has managed to reduce its greenhouse gas (GHG) emissions by nearly 50% over the past three decades, despite doubling its production volumes. This significant achievement can be attributed to the implementation of patented catalysts that lower nitrous oxide emissions, as well as improved efficiency in its manufacturing facilities.

IIOT sensors and smart devices can help gather data on the cloud which can be monitored online. Predictive models provide analytics to spot anomalies and also help with automation. This also reduces human intervention in high-risk areas and provides high precision.

2. Compliance with regulations

The chemical sector must comply with regulations. Non-compliance can lead to unnecessary operational expenses and fines. The European Commission recently introduced a framework to ensure that by 2030, all plastic packaging is recyclable. It's also increasing regulations around the use of chemicals that could be harmful to the environment and human endocrine health.

Chemical plants are also adopting policies regarding workplace safety, ethical business practices, the inclusion of diversity at workplace, and anti-harassment laws. For example, the Dow Chemical Company recently introduced more inclusive hiring practices to increase its diversity in hiring, setting up 10 employee resource groups to support minority groups, including a Disability Employee Network to ensure accessibility and safety for employees with disabilities.

3. Innovation is the key

Being a prominent part of the manufacturing value chain, the chemical industry has the opportunity to influence and encourage other industries to make ESG innovations to their full potential. Innovations are essential to address the ESG implementation issues and the chemical industry could take advantage of the central position they are in. Innovations to reduce emissions and curb waste, replacements of plastics, and proper recycling of products or materials at the end-of-use or end-of-life could be a potential game changer in the ESG space.

4. Reconfigured value chains and increased collaboration

Value chains are required to be closely assessed and any anomalies need should be addressed. Environment-friendly practices should be enforced throughout the chain. For example, to reduce the scope 3 emissions of the chemical factory, policies, and practices need to be proper at the supplier end, the packaging can be improved by using alternate materials so that recycling is easier, etc.

In the past, chemical companies typically conducted research in-house and only collaborated with innovation ecosystems when necessary. However, the need for collaboration is evolving as the industry faces increasingly complex challenges in transitioning to a sustainable ecosystem. New entities, such as recyclers and tech startups, are emerging in the market and offering valuable support to address ESG requirements. It is now recognized that achieving sustainability goals is best accomplished through collaborative efforts, rather than single-handedly.

5. Efficient operations at chemical plants

Improving the efficiency of production processes is essential to reduce the wastage of energy, water, and other raw materials. Using cleaner fuels can also help reduce emissions. It is important to monitor all aspects of ESG metrics, not only at the plant level but also at the supplier level, and ensure that practices are ethical and sustainable. Multinational companies such as Dow and BASF are adopting circular economy frameworks that promote sustainable practices throughout the entire lifecycle of their products, from production to use and disposal. Dow has set a goal to make 100% of its packaging products reusable or recyclable by 2030. Hence working on processes is equally important.

6. Leveraging external funding opportunities for innovation

Utilizing technology can be instrumental in facilitating ESG compliance, but it can come at a cost. The cost of implementing ESG practices can often be a deterrent for companies. Nonetheless, governments around the globe are taking action by providing substantial financial support at both national and multinational levels to aid industries in their ESG transformations. As ESG investments generally require a longer time horizon to yield sustainable returns, businesses should take advantage of these external funding opportunities. By accessing funding, companies can reduce costs and increase the potential for innovation in the long term.

7. Establishing a hybrid corporate-business unit model

The road to being ESG compliant comes with a lot of challenges. It requires to pace up while developing innovative solutions. And at the same time, companies need to think about long-term challenges and goals' GHG emission reduction, meeting net-zero targets, etc. To achieve these, dedicating time to research and allocating necessary budgets are necessary. Companies must create dedicated teams which are ready to create innovative solutions thereby taking care of the ESG requirements, as well as leading the way for motivating others in the industry. This way businesses can continue to focus on customer needs and revenue, and the ESG teams can engage in research and development to ensure the sustainability goals are met. The strategic direction of research and development is typically led by a senior group.

Conclusion

In a nutshell, the adoption of environmental, social, and governance (ESG) strategies in supply chains can offer both opportunities and challenges. Large multinational corporations must prioritize the fair and respectful treatment of their workers, minimize their environmental impact, uphold ethical business practices, and promote diversity on their boards, all while navigating the challenges of a global pandemic, supply chain disruptions, inflationary pressures, and unpredictable market demand, all in the pursuit of profitability.

To keep track of how the company is doing on sustainability goals and practices, ESG reporting is one great way. At Oren, we provide ESG solutions that enable precise collection and analysis of your company's ESG data. Our services alleviate your burden, allowing you to efficiently execute sustainability initiatives and address the ongoing climate crisis.