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Chemical Makers Grapple With Sustainability

Industry struggles to implement a profitable business model in a world of limited resources and increasing environmental risk

by Alex Scott
September 24, 2012 | A version of this story appeared in Volume 90, Issue 39

Many of the chemical industry's major customers are adopting "zero" targets.
Table shows that many of the chemical industry's major customers are adopting "zero" targets.
Many of the chemical industry's major customers are adopting "zero" targets.

When it comes to environmental performance, most chemical companies’ modus operandi is incremental reduction of their environmental footprint. In the face of finite resources and unprecedented population growth, this is a business model that will fail, said chemical industry customers and sustainability analysts earlier this month at the Global Chemical Industry Sustainability Summit in Brussels. If chemical companies are to survive they will have to adopt a new model—and soon, the experts argued.

The event could have been titled “Tough Love for the Chemical Industry,” given the extent to which chemical firms were confronted with advice on how to change their reactive approach to sustainability.

Seeking to present the issue in alanguage chemical executives understand, several speakers discussed the financial risks associated with what they consider the industry’s business-as-usual model. Those risks are already here today, according to a survey by Barend van Bergen, who heads the climate-change and sustainability center at the consulting firm KPMG. In the survey, KPMG found 43% of the chemical industry’s profits to be exposed to risks posed by environmental factors such as water scarcity.

Although some financial risks are present today, they will pale in comparison to the large-scale environmental disruption that is forecast to take place in the next 20 to 30 years, and not all chemical companies will survive, predicted John Elkington, founding partner and executive chairman of Volans, a London-based firm providing sustainability consulting services.

The industry’s customers are looking for help in heading off future disruptions. “We don’t have a sustainable business model yet,” said Hans J. Bender, vice president for external relations with Procter & Gamble’s household care business and a speaker at the meeting, which was hosted by Chemical Industry Roundtables, an independent U.S. firm that hosts conferences on environmental performance in the chemical sector. Bender was one of several speakers who sparked so much discussion that coffee breaks were cancelled for the duration of the two-day event.

A major obstacle to any transition to a sustainable business model for companies such as P&G is that few consumers are willing to pay a premium for green products, Bender told delegates. Of P&G’s customers, 75% are interested but unwilling to pay more for greener products, and 10% are indifferent to sustainability. Only 15% will accept trade-offs in cost or performance, Bender said.

“This is a fundamental issue,” he observed. “If the consumer was willing to pay more for greener products it would solve everything. We need industry sectors to deal with it, and we need the whole industry to come together along with academics and nongovernment organizations. We also need private-public arrangements to enable a new business model.”

Elkington argued that even more steps are required. To survive, chemical companies need to adopt a new business model that involves cutting emissions, including carbon dioxide, to zero, he said.

As radical as zero-emissions targets are, they are being adopted. One example is the airline industry, which, under the leadership of the International Air Transport Association, has set a target of zero CO2 emissions by 2050. It plans to achieve this goal through the use of biofuels. The chemical industry as a group, however, has yet to debate the concept.

The adoption of zero-emissions strategies across the broader business community is gathering momentum, delegates were told. More “zeronauts” are emerging, according to Elkington, who said he met recently with food giant Nestlé to identify how a zero agenda would affect the company. Other consumer product firms such as Coca-Cola, Nike, and P&G also have adopted zero targets in certain areas.

The World Business Council for Sustainable Development (WBCSD) disclosed earlier this month that it will reevaluate its long-term Vision 2050 strategy in a way that could lead to zero targets appearing on its radar. “I think we will start to see the implications of this ricochet around,” Elkington said. His advice to the chemical industry was that it “needs to be getting together” to develop a sectorial road map with zero as the destination.

The industry doesn’t have such a road map yet, but it is searching for new ways to account for its environmental impact. Solvay is one of a dozen chemical industry members of WBCSD that are working together in a project dubbed Reaching Full Potential. The goal of the project is to develop a harmonized greenhouse gas measurement and reporting system and identify ways for the firms to cooperate on sustainability. As part of the project, “we are building a bridge trying to identify a link between the present and the future,” said Michel Bande, senior executive vice president for sustainable development at Solvay.

Although Elkington’s thesis is being taken literally by consumer product companies that buy chemicals, representatives of some leading chemical companies present at the Brussels meeting considered the zero approach to be solely aspirational.

Achieving zero emissions is like chasing the North Star—you can follow it, but you will never get there, said Joachim Krüger, vice president for corporate environment, health, and safety at Clariant, a Swiss specialty chemical company.

A few chemical firms have bought into the idea of zero. “It’s ambitious, but we’re aiming for zero—zero impact—a positive impact on the world we all share,” DuPont states in a brochure highlighting the company’s sustainability efforts.

Still, David Cook, executive ambassador of The Natural Step, a nongovernmental organization, criticized the industry for failing to deliver sustainable chemistry. The problem, he said, is that “it’s quite easy for you to carry on and make good money.”

Although targeting zero emissions may not suit all chemical companies, the longer businesses wait before they adopt a sustainable model, the less choice and the greater constraints they will face, Cook warned. He pointed to the apparel industry where, prompted by Greenpeace in 2011, leading brands including Adidas, Nike, and Puma adopted a plan to reduce their hazardous chemical discharges to zero by 2020. “But they’re doing it without you,” he told the chemical industry executives at the conference, “and they are talking about chemicals. You weren’t at the table. You are having to react to it rather than be there from the beginning.”

Cook blamed the chemical sector’s reactive approach on the activities of its trade associations. “What is coming out of those groups is frankly appalling. Industry needs to understand what sustainable development means,” he counseled. “Fire public relations consultants that believe in defensive tactics and greenwash, get tough on your supply chain, and motivate your R&D teams with sustainability.”

Three start-up biomaterials companies at the meeting—Avantium, BioAmber, and Myriant Technologies—each pressed the case for the sustainable nature of biobased chemicals, which they assert generate significantly less CO2 than comparable processes based on fossil fuels.

Sustainable production is complex, however, and “biobased chemicals are not always greenest,” countered Bärbel Arnold-­Mauer, vice president of corporate brand management for BASF.

“We’re on a journey,” Arnold-Mauer told the Brussels delegates. The problem is that the chemical industry doesn’t yet know which way it is headed. Until it does, as a minimum, it can expect more tough love from regulators, environmental activists, and even its own customers.


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