In a world increasingly focused on environmental, social, and governance (ESG) impact of business operations, the chemical industry finds itself at a critical juncture. As concerns over climate change and social justice intensify, businesses are under growing pressure to address their impact. In this blog, we explore the current sustainability landscape in the chemical industry, key challenges faced by chemical companies, and noteworthy ESG developments applicable to the sector.
The Current Landscape: A Closer Look at the Challenges
Carbon Footprint and Energy Management
The chemical industry, often likened to an extension of the fossil fuel sector, stands as the third-largest contributor to carbon emissions in the industrial sector after steel and cement industries. With 95% of manufactured products relying on chemicals, the sector has an important role in reducing global warming. The sector’s energy consumption is heavily dependent on the utilization of feedstock, resulting in increased embedded emissions and end-of-life emissions in chemical products. (Source: [GreenBiz](https://www.greenbiz.com/article/will-legacy-issues-capture-chemical-industrys-future))
Worker and Consumer Health and Safety
Beyond environmental concerns, the industry grapples with issues related to worker and consumer health. Hazardous chemicals, some still in use, pose threats to both human well-being and ecosystems. (Source: [Sustainability Update](https://ga-institute.com/Sustainability-Update/sustainability-challenges-and-reporting-frameworks-in-the-chemical-industry/#:~:text=Major%20Sustainability%20Challenges%3A,to%20remove%20impurities%20from%20wastewater))
Regulatory Compliance and Raw Material Price Volatility
Stringent regulations, safety standards, and the volatility of raw material prices further complicate the industry’s sustainability journey. Balancing regulatory compliance with profitability remains a significant challenge for chemical companies. (Source: [Zenfold](https://www.zenfoldst.com/chemical-industries-challenges-and-opportunities/))
Insights into Sustainability Challenges
The [Ecovadis DFGE report](https://resources.ecovadis.com/blog/how-to-tackle-key-sustainability-challenges-in-the-chemical-industry) highlights ten key challenges faced by the chemical industry. Notably, energy management and CO2 emissions emerge as primary concerns. The substantial energy consumption of the industry demands fossil fuel inputs, contributing to a significant carbon footprint.
Key ESG Developments
ESG Data Management
In the chemical sector, proficient management of ESG data is crucial for business success, facilitating alignment with sustainability objectives and regulatory compliance. Challenges in the sector include the complexity of reporting to multiple frameworks (e.g., GRI, SASB) and meeting diverse stakeholder demands, underscoring the importance of data-driven decision-making to navigate these intricacies, enhance transparency, and fortify the industry’s commitment to environmental and social responsibility.
The delayed integration of polymers and organic chemicals into the EU’s CBAM (Carbon Border Adjustment Mechanism) until 2026, and subsequent expansions targeting carbon leakage-prone products like crude petroleum, inorganic chemicals, and industrial gases, poses challenges for global chemical exporters. This underscores a rising regulatory focus on supply chain sustainability, urging chemical companies worldwide to prioritize environmental measures.
Responsible Sourcing of Raw Materials
Responsible sourcing in the chemical sector is crucial for sustainability, ensuring ethical and environmentally conscious practices in the extraction, production, and distribution of raw materials. By prioritizing responsible sourcing, the industry can mitigate environmental impact, promote social responsibility, and contribute to a more sustainable and resilient supply chain.
Recyclability and Circular Economy
Consumer awareness prompts chemical manufacturers to enhance recyclability. Companies like BASF, Shell, BP, and LyondellBasell are investing in recycling technologies to tackle plastic waste. (Source: [Houston Chronicle](https://www.houstonchronicle.com/business/energy/article/Chemical-makers-launch-projects-to-tackle-plastic-14882872.php))
Water stewardship in the chemical industry involves the sustainable management of water throughout a product’s life cycle. Given the industry’s impact on water resources, companies need to adopt measures to ensure ethical water management, with a special focus on reducing the impact of their operations on water as a shared resource, affecting communities and other stakeholders.
Reducing Greenhouse Gas Emissions
To combat climate change, chemical companies are investing in energy-saving equipment and transitioning to renewable energy sources. Globally, approximately 199 companies within the chemical sector have either pledged to the Science-based Targets Initiative or officially established goals for reducing emissions, with 56 of them dedicated to attaining Net-Zero Emissions. (Source: [Indian Chemical Council] (https://www.indianchemicalcouncil.com/docs/ERM-ICC-Knowledge-papers-10-12-21.pdf))
Consumer Behavior and Safety
Consumer behavior is a driving force for change in the industry. As consumers prioritize personal health and an aversion to environmental risks, chemical companies are reassessing their product portfolios, their sourcing strategy, reviewing their supply chain decisions, and investing in sustainable solutions.
Governance and Ethical Practices
ESG concerns are under scrutiny, with an emphasis on CEO compensation tied to ESG Key Performance Indicators (KPIs). Regulatory scrutiny has led to increased transparency in reporting, with companies reporting to the Carbon Disclosure Project (CDP) or to the Task Force on Climate-related Financial Disclosures (TCFD).
Managing Priorities Effectively
Diverse stakeholder concerns, priorities and ESG impact areas play a pivotal role in shaping a chemical company’s sustainability strategy. By understanding and addressing the unique expectations of investors, communities, and regulatory bodies, companies can tailor their approaches, fostering resilience and credibility in the pursuit of comprehensive and effective sustainability initiatives. Utilising data to assess the real impact of operations on ESG areas provides valuable insights, guiding companies toward a focused and impactful sustainability strategy.
As the chemical industry faces sustainability challenges head-on, the adoption of ESG practices becomes not only a necessity but also a catalyst for innovation and positive change. Businesses in the chemical sector can leverage the experiences of industry leaders and embrace sustainable practices to not only reduce their environmental impact but also foster long-term success. Addressing the challenges of ESG data management in the chemical sector is simplified with Sustainext’s advanced solution. Streamline and automate emissions management seamlessly through our Comprehensive Carbon Accounting Solution, empowering your business to navigate diverse reporting frameworks and stakeholder needs. Initiate your journey towards sustainability excellence—contact us (LINK) today to transform your operations and contribute to a greener future.