Despite innovation, chemicals sector is slow on Paris goals

Chemicals

The chemicals industry remains a huge source of global greenhouse gas emissions and is struggling to put itself on an emissions reduction trajectory that is compatible with the goals of the Paris Agreement.

That is the stark warning contained in a new report from CDP this week, which details how chemicals companies have become major players in the cleantech sector, but are still finding it difficult to address their upstream climate impacts.

The report from the investor-backed NGO, "Catalyst for Change" (PDF), analyzed climate-related disclosures from 22 of the world's largest chemicals companies. Together the firms boast a total market capitalization of $626 billion and responsible for a quarter of all emissions of the sector at 276 million metric tonnes of carbon dioxide emissions per year.

CDP said the industry was making progress in tackling climate risk, primarily through its emergence as a major supplier to cleantech sectors, such as the battery and electric car industries.

The report said the companies surveyed are generating 20 percent of their revenues — totaling $83 billion a year — from products designed to help tackle climate change.

However, it added that "rapid process innovations will be required in order for them to have any chance of aligning with the below 2-degree goal set out by the Paris agreement."

The surveyed companies are making energy efficiency gains of between 2 and 5 percent a year. But the report warned the sheer scale of an industry that accounts for an eighth of all global industrial emissions means more rapid progress is required.

"As both a large energy user itself and a crucial part of other industrial supply chains the chemicals industry is an important, but often overlooked, sector when it comes to environmental impact," said Paul Simpson, CEO of CDP. "Today's analysis shows it's moving in the right direction across several climate metrics with encouraging signs on annual emissions and R&D, but it needs to go further and faster to invest in the technologies that will deliver efficiency and emissions improvements."

The report also warned chemical firms need to respond to tightening regulations in Europe and China, and recognize they could be exposed to significant reputational risks similar to the 'diesel moment' experienced by the auto industry in recent years.

"A key output of the chemicals industry is plastic packaging, accounting for over a quarter of global plastics usage, however nearly 8 million metric tonnes of waste (the weight of 2,000 Eiffel Towers) ends up polluting oceans each year," the report stated. "Just as carmakers faced a regulatory backlash when the consequences of diesel on air pollution became clear, chemical companies could face a similar 'diesel moment' because of their links to plastic packaging."

Carole Ferguson, head of investor research at CDP, said the industry needed to be more open with investors about the environmental risks it faces.

"The chemical sector's significant carbon footprint means it is not just high emitters like petrochemicals that are exposed to the impacts of the low-carbon transition but the sector as whole," she said. "Our research highlights a widespread lack of transparency and limited disclosure on how processes in particular are being improved. More transparency and tangible commitments to low-carbon initiatives will be key to assess who the future industry leaders will be."

She added that some companies were making impressive progress, but the wider industry had to embrace bolder climate targets.

"This year, AkzoNobel stands out in the industry through its commitment to decarbonization initiatives and as one of only two of the assessed companies with a science-based target," she said. "However, long-term investors will increasingly look for all chemical companies to adjust their business strategies in line with more ambitious emissions reduction targets and a rise in carbon pricing schemes globally."

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