As the pressure heightens for all industries to address their sustainability issues, we are starting to see separation in the ambition of different sectors’ sustainability goals. Some industries have higher levels of external pressure or regulation, giving them greater incentives to be ambitious, whilst others have sector specific complexities that make meeting ambitious targets more difficult. The chemicals sector is one of the industries struggling to secure itself a position amongst the leaders in this race. The sector is not just diverging from other industries, but companies within the sector are also divided in their sustainability ambitions.

Why are the same ingredients creating a different reaction?

Most companies in the chemicals sector are experiencing the same external pressures to increase their sustainability ambition: legislative requirements from governments, investor and customer pressure, and an emerging sense of personal responsibility amongst sector employees. However, these pressures are not translating into the same actions; instead, we see a large range in the amount of responsibility chemicals companies are prepared to take over their own environmental impact. This trend is seen clearly in the boundary of emissions companies are willing to take responsibility for.

Avieco conducted a desktop survey on over 40 chemicals companies (predominantly in EMEA) and found that more than 90% of them reported their direct operational scope 1 and 2 emissions, whereas just over 50% of our sample go on to account for emissions in their supply chain by report their scope 3 emissions. Furthermore, even fewer companies take extra steps to guarantee accuracy in their footprint for their stakeholders by getting their carbon footprint verified by a third party. Our survey showed us that only 59% of the businesses with a Scope 1 and 2 footprints, sought third party verification.

In general, larger chemical companies are leading the charge with exhaustive carbon footprint disclosure. Our survey showed us that only 50% of chemical companies with under 1000 employees had completed a Scope 3 assessment, whilst over 75% of companies with 1,000-10,000 employees had completed a Scope 3 assessment.

Although we have seen large variation in the ambition of the chemicals companies, the survey showed an early and comprehensive response to the Carbon Disclosure Project (CDP) questionnaires, with 81% of chemicals companies found to have responded to at least one CDP questionnaire. This high response rate is expected, due to the magnitude of stakeholder pressure B2B businesses receive both upstream and downstream. However, this commitment to CDP from the chemicals industry has not been reflected in the sector’s uptake of other environmental reporting standards, such as TCFD or GRI or met with similar ambition of science-based targets (SBTs), with only 35% of the companies surveyed having SBTs. We expect to see this uptake increase drastically in the future, as CDP and TCFD are aligning, to encourage disclosure against both standards.

What are the catalysts behind this divide in climate ambition?

There are multiple barriers preventing a large proportion of the chemical sector from achieving ambitious sustainability strategies:

  • Complexity of establishing a carbon footprint baseline: Calculating scope 3 emissions is challenging for chemical companies as their upstream raw material footprints are very extensive. It is difficult to get reliable supplier data, and data collection requires extensive resources to either access raw data or estimate values for, often making it an inaccessible process for most small chemical companies.
  • Difficulty meeting SBTs: Once a baseline is established, and targets have been set the journey is not over, it’s time to meet the targets that were set! It’s always easy to say what you are going to do, but much harder to do it. The largest emissions source for chemicals sector, supply chain, is often one of the most challenging to decarbonise, due to limited nature of chemical companies’ value chains.
  • Ever-changing sustainability requirements on chemical companies: Chemicals companies have previously been scrutinised for sourcing high volumes of fossil fuel-based products, to combat this they have moved towards sourcing a larger proportion of raw materials over the last decade. However, the sector is starting to wake up to the unintentional consequence of sourcing raw materials: increase in land and the astronomically large emissions associated. With emerging regulation on this topic (Forest Land and Agriculture Guidance from SBTi), likely to lay out strict guidance on calculating land use and agricultural emissions, chemicals companies are coming under scrutiny for sourcing materials they thought were a more sustainable choice. This clearly demonstrates the tumultuous sustainability landscape that companies have to navigate on their journey to becoming more ‘sustainable’.

What do chemical companies need to do in order to not be left behind?

Chemical companies have been calculating and disclosing their internal operations (scope 1 and 2) for a long time. However, as the appetite of investors and customers grow, assessment of their supply chains (scope 3) will become essential in the near term. This will no longer be enough to stand out against the leaders, and chemicals companies will need to be prepared to:

  • Define a decarbonisation roadmap, focusing on increasing the data accuracy of emissions hotspots. The largest source of a chemical companies’ emissions is likely to be due to the supply chain. It is important to collect concrete supplier data, instead of making large estimates on upstream emissions, as without this data, it is difficult to make informed decisions on more sustainable procurement practices throughout the supply chain as it is difficult to quantify the impact of these sustainable changes.
  • Set ambitious Science-based targets. The new sector-specific guidance details the procedure chemicals companies should follow to account for their emissions and offers tailored exclusion criteria for the sector to enable chemicals companies to set feasible targets. The SBTi has recognised that the chemicals sector often has little transparency on their downstream emissions, in particular ‘in use’ emissions. Even when there is transparency of downstream emissions, allocating responsibility for emissions is difficult due to the intermediate nature of most chemicals; therefore, downstream ‘in use’ emissions can be excluded. This enables the sector to calculate baseline footprints without having to make wild estimates about the magnitude of their ‘in use emissions’.
  • Explore benefits in use of their product portfolio. As the landscape of sustainability guidance is ever-changing, with new regulations emerging (FLAG guidance), pushing new sustainability agendas, chemicals companies are experiencing a never-ending scrutiny on their supply chain. To combat this, it is important chemical companies strive to explore unique ways to holistically capture their environmental impact. Calculating the avoided emissions through the use of sold products (benefits in use) forms a more accurate macro view of companies’ environmental impact. Although it is a complex and poorly explored area of environmental reporting, it offers endless rewards beyond accurate carbon accounting, it helps companies align incentives to invest in more sustainable products. As emerging guidance is appearing on environmental factors beyond carbon, benefits in use calculations are flexible to this and can capture savings of endless environmental factors such as water and land savings.
  • Disclose environmental data using standard frameworks such as TCFD. Whether mandated to or not, chemicals companies need to be answerable to the investment community, outlining of how climate-related risks and opportunities will impact their business over the short, medium, and long term. With sector-wide adherence to TCFD, the chemicals sector has the opportunity to not only help account for their own climate-related risks sufficiently, but also elevate the position of environmental reporting alongside financial reporting.

Although the chemicals sector has previously escaped large scale scrutiny from the public, clients, investors, and regulators due to the complexity of calculating emissions in the chemicals sector, the release of sector specific guidance means this is no longer the case. The industry is now receiving ever-growing and changing environmental pressure from investors, clients and regulatory bodies. Consequently, chemical companies must strive for ambitious climate action, or be left behind.

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