The Future of Specialty Chemicals Industry: An ESG Perspective

Environmental, social and governance (ESG) portfolio strategies have become paramount for specialty chemicals manufacturers. An increased emphasis on sustainability could open avenues of organic growth to serve as a foundation for strong financial performance. With specialty chemicals witnessing bullish demand across industry verticals, the challenges and opportunities have become more pronounced pertaining to sustainability, health & safety and governance policies. These trends have made ESG a top priority for boards, venture capitalists, investors and other stakeholders.

Chemical companies are well-positioned to inject funds into sustainability initiatives, including hydrogen production and advanced recycling. Companies have also shown traction for near-zero emissions, net-zero emissions and carbon neutrality by 2050. With chemical companies being held accountable for sourcing raw materials sustainably, investments in bullish ESG practices will gain ground. Moreover, the prevalence of stringent environmental regulation has furthered the prominence of sustainability. For instance, specialty chemicals produced from waste materials, including furfural from biomass and polyols from waste gas could gain ground to recycle waste into products.

Financial and non-financial performances pertaining to ESG have become pronounced. Prominently, specialty chemical companies are gearing up to boost health & safety and environmental stewardship. Corporate players are overcoming challenges on the back of diversity and sound corporate governance. ESG strategies adopted by leading companies are elucidated below:

Environmental Perspective

Global push to minimize emissions, waste management, water management and underpin biodiversity has ramped up investments in the environmental strategy. Specialty chemicals companies grapple with waste, toxicity and pollution, compelling them to face litigation or liabilities. Chemical producers have exhibited increased traction to be in line with the objectives of the Task Force on Climate-related Financial Disclosures (TCFD).

Climate reporting has become pronounced with the growing adoption of TCFD. Furthermore, well-established players have set a bullish target to combat climate change. For instance, Evonik aims to reduce absolute scope 1 and 2 emissions by 50% by 2025 (compared to the 2008 level). It also vies to minimize scope 3 emissions from the upstream value chain by 15% by 2025 (compared with 2020 base). The Germany-headquartered company has also earmarked sites that would be most affected by water stress in the next two decades. It contemplates 5% reduction of absolute energy consumption and energy consumption relative to production by 2025.

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Social Perspective

Companies that are working towards the development and well-being of people and emphasize an inclusive working environment are expected to stay ahead of their competitors. A robust ESG practice also demands hiring and engagement practices that complement employee diversity. Nova Chemicals is gearing up to rev up the representation of women across all levels of the organization to 30% by 2030. The Canada-based company is vying for a 10% surge in diversity across all levels and a 5% rise in representation of people of color in leadership by 2030 (from 2020 baseline).

Notably, the development of a strong talent pipeline and emphasis on training can underscore the social pillar. Chemical companies have also shown a bullish approach to safety through the establishment of a safety culture, promotion of safety awareness, interaction and implementation of hazard recognition training and learning policies. For instance, Nova asserts its employees recorded over 57,000 safety interactions while working from home or at the workplace. Safety programs and vision to achieve zero injuries are expected to reinforce the core values of ESG.

Governance Perspective

A company’s corporate behavior, board diversity, anti-competitive practices, transparency and business ethics are the precursor to sound and effective governance. Strong corporate governance practices have become instrumental to underscore the value of the company and ensure efficient use of resources. In essence, the Supervisory Board at BASF has at least 50% members from various professional experiences and educational backgrounds. Furthermore, the company is on course to propel the representation of women in leadership positions to 30% by 2030 with disciplinary responsibility.  It has also furthered its approach to anti-money laundering to foster transparent business relationships. Besides, concerted efforts to protect sensitive information, including Know-how and prevent misuse or unauthorized disclosure have also gained ground across the business vertical.

The integration of sustainability into strategic management and the inclusion of social and environmental aspects in the portfolio will reshape the global landscape. These dynamics are expected to encourage key players to ramp up their ESG efforts. To illustrate, in August 2021, Evonik issued €500 million (USD 543 million) to bolster its sustainability portfolio. It reportedly published Green Finance Framework and is striving to minimize its ecological footprint. Prevailing trends suggest the specialty chemicals market size garnered USD 586.5 billion in 2020 and could witness around 4.3% CAGR from 2021 through 2028. Grand View Research expects promising growth opportunities for companies with an emphasis on sustainability.

About Astra – ESG Solutions by Grand View Research

Astra is the Environmental, Social, and Governance (ESG) arm of Grand View Research Inc. – a global market research publishing & management consulting firm.

Astra offers comprehensive ESG thematic assessment & scores across diverse impact & socially responsible investment topics, including both public and private companies along with intuitive dashboards. Our ESG solutions are powered by robust fundamental & alternative information. Astra specializes in consulting services that equip corporates and the investment community with the in-depth ESG research and actionable insight they need to support their bottom lines and their values. We have supported our clients across diverse ESG consulting projects & advisory services, including climate strategies & assessment, ESG benchmarking, stakeholder engagement programs, active ownership, developing ESG investment strategies, ESG data services, build corporate sustainability reports. Astra team includes a pool of industry experts and ESG enthusiasts who possess extensive end-end ESG research and consulting experience at a global level.

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