21:48 PM | February 6, 2020 | Lyn Tattum
2020 is shaping up to be a year of different tone for industry and business. Climate change and sustainability were front of mind at the annual World Economic Forum in the Swiss Alps—to an extent that was breathtaking, according to seasoned Davos attendees, including our own IHS Markit CEO Lance Uggla.
Sustainability was also front and center in the warmer locale of Orlando, Florida, at the American Cleaning Institute (ACI) convention. It was clear at ACI that industry discussions have moved quickly beyond the premise or concept of sustainability to development and implementing the solutions quickly.
Cleaning products ingredients companies—a subsector of the chemical industry that is significantly closer to the customer—are pushing to reformulate and meet the needs of savvy and sustainability-minded consumers. Discussions around sustainability have become much more concrete, says Ralph Schweens, president of BASF Care Chemicals. It's a much stronger theme in 2020. It's a deeply dominating topic and sustainability discussions must coincide with industry innovation, he believes.
Why is sustainability rocketing to top the agenda after years of taking a lower profile in the business of energy and chemicals? Partly because of increased activism, alongside a series of unusual climate events and growing consumer awareness. It also adds up to a level of risk that is catching the eye of investors. This was magnified by a well-timed letter from Blackrock CEO Larry Fink prior to Davos, noting that sustainability will drive a “fundamental reshaping of finance.”
Investors, including Blackrock, will exit investments that present a high sustainability-related risk as sustainability becomes more integral to portfolio construction and risk management. Some will launch new investment products that screen fossil fuels. Companies must understand their roles in society and accept that ultimately purpose is the engine of long-term profitability, Fink tells his fellow CEOs.
These trends, under the guise of corporate environment and social governance (ESG), circular economy, and others have been spurring research in the chemical sector that will be coming to fruition as companies put in more stringent waste, water, and GHG emissions targets. New product innovation is increasingly focused on offerings that provide clear sustainability benefits such as greener cleaning products; environmentally sustainable agricultural chemical solutions; and renewable energy development, including advanced materials and battery development.
The wake-up call for plastics came two years ago with televised programs such as Blue Planet showing an ocean littered with plastics debris and beaches laden with plastics waste. This led to the formation of Association to End Plastics Waste (AEPW) under an unprecedented move by chemical and plastics industry leaders to garner a $1.5-billion investment fund. Action should become more visible as the newly appointed CEO Jacob Duer and full-time staff take up their positions in Singapore this year.
Many chemical companies already do great work with sustainability reporting, but energies here will increase significantly with demands for even more widespread and standardized adoption of ESG metrics. Every public company of any scale will need a chief sustainability officer to report climate, sustainability and other ESG-related metrics. Deselection will be the consequence in terms of stock portfolios and consumer purchasing, acting as the specter to urge progress. Blackrock put coal on the chopping block first and notes that in the absence or robust disclosures, it will increasingly conclude that companies are not adequately managing risk and is ready to vote against management and board directors when companies are not making enough progress on sustainability-related disclosures.
Blackrock effectively has a meaningful stake and influential voice on governance at every globally publicly traded company. Are you ready for this new sustainability environment?
We will be monitoring industry initiatives and individual company steps—watch this space.