INSIGHT: ESG to drive chemicals growth and investment in 2021 and beyond

Author: Joseph Chang

2020/12/18

NEW YORK (ICIS)--As we say goodbye, or good riddance to 2020, one key positive development for the chemicals industry is the sharpening focus on ESG (Environmental, Social, Governance) - a trend that will only accelerate in the years to come and offer great opportunity to develop new business models.

That brings us to our ICIS Top 40 Power Players, the senior executives making the greatest positive impact on their companies and the industry. The focus on ESG figures prominently in the listing, with a number of CEOs boosting sustainability efforts in a big way through the pandemic.

See the ICIS Top 40 Power Players ranking in the latest issue of ICIS Chemical Business.

“The pandemic has given us an opportunity to recalibrate - to put out big goals, listen to stakeholders, and re-prioritise and focus investments that will catalyse greater innovation across value chains,” said Dow CEO Jim Fitterling. “The entire industry can really provide strong innovations and extend the growth of the sector for decades to come.”

Major advances and investments are being made in plastics recycling, new technologies to reduce carbon and other emissions from chemical production processes and the production of battery materials for electric vehicles (EVs), along with blue and green hydrogen for energy use. Managements are also stepping up their commitments to sustainability with goals to become “carbon neutral” or “carbon positive” well into the future - think 2050.

It’s an exciting time for the global chemicals industry as these developments, enabled by chemistry and engineering, will change the world as we know it.

“Accelerated change is also underway in oil markets. Joe Biden’s decision to reclaim US leadership of the climate-change agenda presents major challenges for OPEC+ and for industries currently based on fossil fuels. It also creates major opportunities for companies to gain first-mover advantage as the sustainability agenda starts to dominate,” said Paul Hodges, chairman of New Normal Consulting.

PLASTIC RECYCLING ADVANCES
On the plastics recycling front, companies are rolling out tangible products and real targets. Chevron Phillips Chemical in October produced its first tonnes of chemically recycled polyethylene (PE) from mixed waste plastics and announced a target to produce 1bn lb/year (454,000 tonnes/year) of chemically recycled PE by 2030 - the largest chemical recycling polymer capacity so far announced.

LyondellBasell announced a target of producing 2m tonnes/year of recycled and renewable plastics by 2030. It started up its molecular recycling pilot plant in Ferrara, Italy in September. In December, its Quality Circular Polymers (QCP) joint venture in Europe with SUEZ acquired TIVACO, another producer of mechanically recycled polymers.

By 2030, Dow aims to enable 1m tonnes/year of plastic to be collected, recycled or reused through direct actions and partnerships, and by 2035 have 100% of its packaging products recyclable or reusable. In November, the company launched a post consumer recycled (PCR) low density PE (LDPE) shrink film containing up to 70% PCR content.

Big advances are also being made in recycled polystyrene (PS), with Agilyx leading the way. The recycling technology company has partnerships with INEOS, AmSty, Trinseo and ExxonMobil, and several PS recycling plants using its pyrolysis technology will be built over the next several years.

“You’ve got this hydrocarbon reserve sitting above ground that is available. What we’re trying to do is make it a valuable resource for a circular economy as opposed to something that just becomes a huge societal problem, whether it’s in terms of landfill or marine pollution,” said Agilyx CEO Tim Stedman.

CPG DEMAND, CONSUMER PREMIUMS
Demand for sustainable consumer packaged goods (CPG) is only growing, and consumers are willing to pay a premium, noted UBS, which recently hosted an ESG Speaker Series call with Tensie Whelan, director of NYU’s Center for Sustainable Business (CSB).

“Sustainability drives growth, commands premiums and is resilient to shocks,” concluded UBS analysts in a 16 December report.

The CSB Sustainable Market Share Index, which examines the importance of sustainability marketing for CPG purchasing decisions using actual purchasing data provided by IRI, highlighted four striking results.

“First, sustainability-marketed products are growing 7.1x faster than conventionally marketed products and 3.8x faster than the CPG market as a whole,” said the UBS analysts.

Second, even as sustainability-marketed products are only 16.1% of the total CPG universe, they delivered 54.7% of the growth from 2015-2019. Third, these products commanded a 39% price premium on average.

“And fourth, there are early indications from the 2020 data that Covid-19 did not decrease the interest and premium of sustainability-marketed [products] in the CPG space,” the UBS analysts added.

Meanwhile, a number of European oil companies such as Total, BP and Shell are shifting investments to green energy as well as infrastructure to service the expected exponential growth in electric vehicles (EVs).

Underscoring the accelerating EV trend, the world’s largest chemicals company, BASF, is directing the majority of its growth capital spending (capex) to battery materials, as well as China.

The coronavirus crisis has sharpened companies’ focus on what they believe is truly important, and sustainability has come out on top.

“Disruptions and change can be catalysts for growth… As essential as our chemistry is to the things people need and use every day, that just isn’t good enough,” said Mark Vergnano, CEO of Chemours.

“Here’s the bottom line as I see it - societal expectations and government and community demands on our industry are changing. What worked a generation ago does not work today. We must come to be widely accepted as an important part of creating a more sustainable world. That’s what I mean about future-proofing our companies and our industry. I believe it’s both a competitive advantage and the right thing to do.”

Insight article by Joseph Chang

Thumbnail image by Shutterstock

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