European producers need to gear up for SD reporting

16 June 2004 17:28  [Source: ICIS news]

Sustainable development is becoming important to chemical companies and it is of growing interest to investors. The high visibility of chemicals manufacturing has made the industry a focus of interest, particularly on environmental issues, analysts at ING said in a report published late last month.

 

They are, of course right. Yet the world is turning and that focus is moving towards sustainable development (SD) in ways which will become increasingly influential over time.

 

It all started with Responsible Care – although echoes from Rachel Carson’s agenda-setting book Silent Spring reverberated around the industry long before that.

 

The evolution of Responsible Care has been noteworthy but it is telling that financial analysts now are looking out further towards how companies might be rated in terms of their sustainable development performance.

 

In other words, sustainable development thinking is moving into the mainstream and into areas where sustainable development performance will ultimately affect company valuations.

 

ING notes the “substantial strides” made by some companies in their approach but also points to considerable gaps in the performance information that is being made available. Chemical companies should take note of the fact that the bank expects more detailed and “high-profile” performance reporting to become established practice in the sector.

 

This is a trend becoming reality as firms seek not only to differentiate themselves from the pack in environmental performance terms but in how they refine their approach to business.

 

ING has developed a non-financial indicator (NFI) metric to help investors who are specialised in sustainable development analyse the companies it covers in European chemicals. Beyond that, investors have to make their own judgements as to what sustainable development issues – those related not only to environmental policy but to health and safety, employee and much wider social issues – might be important to stock prices in the short and medium term.

 

Not surprisingly, the industry appears to have one view of sustainable development and most outsiders another. And certainly the focus is on the environment and, in Europe, on the impact of the European Union’s (EU’s) Reach (registration, evaluation and authorisation of chemicals) plans.

 

ING believes that Reach offers “a broadly sensible route to widespread chemicals testing in the EU.” Its conclusion is that the proposed legislation is workable as it stands now and that not a great deal will change. The costs (of Reach) estimated at Euros2.3bn ($1.9bn) over 11 years “should be seen in the context of Euro5000bn industry turnover in the same period”, it says.

 

Looked at from that perspective, Reach is no big deal, even though the industry clearly thinks otherwise.

 

“For the pan-European majors we do not see Reach as presenting a material threat either to profitability or competitiveness,” the bank’s chemicals analysts say. They acknowledge, however, that it will be tougher for smaller players where product withdrawals may become an issue for producers with relatively limited alternative potential.

 

Chemical companies may feel that Reach remains the issue in Europe but the ING research note highlights that there are stronger, underlying trends that have effectively to be addressed.

By: Nigel Davis
+44 20 8652 3214

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