How sustainability and ESG reporting are driving sustainable chemistry
From looking beyond carbon footprints and avoiding regrettable solutions, sustainability and ESG reporting are changing chemical companies’ outlook.
Keeping up with sustainability and ESG reporting frameworks is now front and center in the boardrooms, C-Suites, and Sustainability teams of nearly every business. There’s a particular focus on climate change and how to measure and reduce carbon emissions across the supply chain. Some of this is driven by governmental and international commitments—but many firms have also made their own commitments to reach net zero goals. In the chemical industry, this is driving a strong move towards more sustainable chemistry.
ESG reporting, sustainable chemistry and innovation: setting the scene
The EU has committed to achieving net zero emissions by 2050. It aims to cut overall emissions in half over the next 10 years. Around 90% of the top 20 global chemical companies also have public commitments to reach net-zero emissions, near-zero emissions, or carbon neutrality by 2050. To drive this, there is a near-constant stream of new regulations and standards for Sustainability and ESG reporting, including the recent European Sustainability Reporting Standards, which is a big step towards creating a harmonized approach to transparency and disclosure.
Against this backdrop, we must be clear that the carbon footprint of the chemical industry is huge. This is an industry that relies heavily on hydrocarbons as raw materials, and also uses fossil fuel-based energy for processing and manufacturing. Chemical companies are most definitely in the spotlight here.
I am not an expert on the hot topic of ESG scores or ratings, or on financial reporting and valuation. However, even I can see that investors are extremely interested in net-zero commitments. I can say with confidence that net-zero commitments will drive—are already driving—an incredible amount of investment in innovation in the chemical industry. Why? Because, as the International Energy Agency has pointed out, the technologies for achieving 75% of the required emissions cuts by 2050 do not currently exist.
Identifying emissions in the chemical industry as part of sustainability and ESG reporting
It is worth unpacking the broad categories of emissions in the chemical industry. A quick primer for those not steeped in these: Scope 1 emissions are those that a company makes directly. These include, for example, emissions from vehicles delivering products, running manufacturing plants, or staff traveling to visit customers or suppliers. Scope 2 emissions are those made indirectly. They include, for example, the emissions created by generating the electricity used to power plants. Scope 3 emissions are those that the company is responsible for indirectly, both up and down its value chain. The Greenhouse Gas Protocol organization defines these as those involved in “extraction, production, and transportation of goods and services purchased or acquired by the reporting company”.
It may seem unfair to ask companies to report on Scope 2 and 3 emissions. However, it plays an important role in ensuring that no organization can push responsibility for emissions up or down its value chain. Companies are expected to encourage their suppliers to increase transparency, and to act to reduce their carbon footprint. They may switch suppliers to work with those who are better able to do so (for example, energy companies that generate more of their electricity from renewable sources).
Generally, Scope 1 and 2 emissions are far more likely to be within an organization’s control than Scope 3 emissions. However, in some industries, the majority of emissions are Scope 3—and that is the case for the chemical industry. Estimates suggest that around 50% of emissions are Scope 3, which creates a major challenge for chemical companies.
Balancing innovation, substitution and safety
We know that 75% of the technologies required to reach net zero in the chemical industry do not currently exist. This is challenging, but there is already a lot of innovation happening in chemical recycling processes, renewable energy systems, and plant-based alternatives to petroleum-based chemicals. These are expected to have a huge impact on how fundamental commodities are produced at scale, with much less dependence on virgin hydrocarbon feedstock and fossil fuel energy.
Chemical formulators and product manufacturers are also looking for ways to source chemical ingredients and raw materials with a lower carbon footprint. While these companies are likely to look at alternative chemicals that may have a lower carbon footprint. This brings its own concerns.
Over many years, we have seen a series of what are called ‘regrettable substitutions’ happen in various industries. This is where a chemical of concern is replaced by another that turns out to be similarly harmful or even worse. Examples include the replacement of DDT (a pesticide that disrupts thyroid function and is a reproductive toxin) with chlorpyrifos, another thyroid disruptor and also a neurotoxin. There is general agreement that regrettable substitutions should be avoided.
Delivering safer substitutions via sustainable chemistry
It is therefore essential that companies have a way to assess the likely impact of potential substitutes. They need to work closely with suppliers to ensure that they are not creating future problems to solve an emissions issue now. Nobody can afford to take a short-term view here.
The first step is better (chemical) transparency across the supply chain. Companies need to be confident about what is going into their products, including via the processes used to make those products. The Enhesa Sustainable Chemistry tool SciveraLENS® provides access to a library of Chemical Hazard Assessments (CHAs). This contains over 4,500 CHAs, each one looking at 23 different endpoints covering human health, environmental health and physical health against a ‘traffic light’ rating system. This provides a clear picture of the potential impact of every chemical, and allows a careful assessment of trade-offs between possible alternatives.
Understanding the chemical hazards associated with every chemical in a product or process is also critical for staying ahead of rapidly changing restrictions and regulations. Only a percentage of hazardous chemicals are named on various restricted substance lists. This is likely to increase over time and every company can work proactively to identify and eliminate hazardous chemicals before they pose a regulatory or reputational risk to the business.
Balancing forms of sustainability
The bottom line is that carbon emissions are not the only issue that must be considered as part of sustainability calculations. Sustainability and ESG reporting may be majoring on carbon footprints at the moment. However, your company’s impact in other environmental areas, and on human health, is also important to running a sustainable business. If your company purchases any chemicals or formulations to make its products, you’ll need to be looking at changes in how the chemical is produced and if lower carbon alternatives are available and viable. However, you’ll also need to work with suppliers to understand the impacts of potential substitutes with lower carbon emissions, but potentially more hazardous inputs or impurities.