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The Right Chemistry

The $100 billion business case for safer chemistry

After new chemistry policies from the like of Target, Walmart and Kaiser Permanente, the economics of green alternatives are increasingly favorable.

What would be the value to businesses and our economy if safer chemistry replaced conventional approaches? Is there a way to put a monetary value on the risks and opportunities?

Economic benefits might include more jobs or a reduction in societal costs due to an accidental release of hazardous chemicals. Business benefits might include increased revenues for new products or reduced operating expenses, because hazardous chemicals no longer require special handling and management.

Two long-time thought leaders on the topic of safer chemistry, the American Sustainable Business Council (ASBC) and the Green Chemistry & Commerce Council (GC3), set out to determine the business and economic case for safer chemistry. Trucost was engaged to research the value of safer chemistry and devised an eight-part framework to look at both risks and opportunities for businesses and economies.

The aim was to uncover where business and economic risk and opportunity could be valued to provide compelling insights in an engaging, business-accessible format. The full report (PDF) included interviews with experts engaged in adopting safer chemistry practices, as well as desk-top research of readily available data with a focus on examples of business and economic risk and opportunity within the U.S.

What were the results? In a nutshell, the green chemistry market is poised for takeoff.

Market growth, capital flows and market demand show an impressive upward trajectory the past five years. The global market for green chemistry, which includes biobased chemicals, renewable feedstocks, green polymers and less-toxic chemical formulations, is projected to grow from $11 billion in 2015 to nearly $100 billion by 2020.

Similarly, the North American market for "green chemistry" is projected to grow from $3 billion to over $20 billion during the same period, according to Pike Research.

The market opportunity is underscored by the growing number of chemical companies reporting that their customers are expressing an interest in sustainable chemistry — rising from 57 percent in 2009 to 62 percent in 2014.

The global market for green chemistry, which includes biobased chemicals, renewable feedstocks, green polymers and less-toxic chemical formulations, is projected to grow from $11 billion in 2015 to nearly $100 billion by 2020.

Large institutional and governmental buyers, such as GSA and $56 billion health care provider Kaiser Permanente, have declared their intent to purchase materials with safer ingredients, while several of the nation’s largest retailers, such as Wal-Mart and Target, have adopted policies to source personal and home-care products with safer chemistry.

As policies like these are integrated into purchasing programs, demand grows for suppliers of products made with safer chemistry.

Capital flow towards the production of safer chemistry is hard to measure, but the notable rise in patents for more sustainable chemistry, based on a search of U.S. Patent and Trademark Office records, shows increasing momentum and industry capacity, suggesting that organizations are increasing R&D investment and companies are viewing safer chemistry as an opportunity for competitive advantage and brand differentiation.

Companies both large and small have been able to demonstrate increased business value by incorporating safer chemistry into their products. Large multinational corporations, such as Dow, DuPont or Sigma-Aldrich, have higher sales growth of safer chemical products compared to sales of conventional chemicals.

While this may be related to the "small denominator" effect, excitement and interest builds around growing markets rather than those that are stagnant.

The research also showed that smaller companies whose value proposition is based on safer chemistry, such as Seventh Generation or Method, also demonstrate continued year-on-year growth.

In addition to these opportunities, the research highlighted several areas of significant business risk, in particular the fines, consumer doubts and product liability from manufacturing or using hazardous chemicals. In 2014, federal enforcement resulted in $9.7 billion in private industry cleanup actions and equipment, along with $163 million in fines. U.S. retailers in 2012-2013 were fined over $138 million for mishandling hazardous materials — along with the tarnished reputation and investment required to address any crisis at hand from negative press.

Barriers to change

These considerations factor into retailers’ efforts to encourage suppliers to disclose and improve their product ingredients, as well as develop chemical safety policies such as those developed by large retailers described above.

As another example, Johnson & Johnson had an 8.4 percent drop in market share due to consumer concern about ingredients in one of its personal care lines.

Barriers to scaling safer chemistry across the industry are numerous, but the research highlights a number of recommendations. Given the potential for revenue growth and business value at risk described above, businesses should evaluate the case for safer chemistry within their specific product portfolio and market segment as soon as possible.

A number of stakeholders noted the difficulty in translating the potential benefits of safer chemistry into conventional business terms for their peers in finance, marketing and procurement. The eight research themes used in this study — and the range of business risk and value that they capture — can provide an assessment framework that should help bridge this communication gap.

In 2014, federal enforcement resulted in $9.7 billion in private industry cleanup actions and equipment, along with $163 million in fines.

Like many other sustainability-related issues, safer chemistry initiatives require a collaborative, harmonized, value-chain approach. At the same time, faster growth is probably likely if stakeholders focus green chemistry initiatives on fewer end markets or industry verticals where chemicals are the basis for a large portion of the market value.

In addition, stakeholders should engage with investors to explore different financing opportunities that take advantage of the rapid growth in sustainable investments in the U.S., which now account for $1 in every $6.

For example, safer chemistry stakeholders should engage with investor groups to make sure that standards or criteria for green bonds, socially responsible investments and new investment products, such as sustainable investment indices, consider the right criteria for businesses incorporating safer chemistry into their production processes and products.

A lack of clarity in communications also was identified as a barrier, because safer chemistry can be interpreted to mean many things, ranging from production aspects to product attributes.

This makes it challenging for businesses within the value chain to work towards shared goals, because people may be addressing different definitions of "green chemistry" (for example, energy efficiency versus lower toxicity). Without a more precise, common language, progress to scale up safer chemistry will be slow.

In addition, by targeting limited resources around a specific objective — such as developing and using less toxic or hazardous chemicals — stakeholders would be more likely to catalyze action.

Although the safer chemistry market is poised for take-off and financial risks of conventional chemistry can be significant, company efforts to implement safer chemistry appear to be largely reactionary and situational.

The business case outlined by Trucost, coupled with clearer accounting of the societal benefits if safer chemistry is adopted at an industry-wide scale, will provide a stronger basis for policy measures and show companies that they are developing environmental solutions that create benefits for the global economy.

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