An IIGCC working group of 20 investors has set out expectations for the chemical sectors’ transition to net zero, relevant to European and North American companies, alongside recommended additional disclosures.
The document draws on IIGCC expertise, member experience, and examples of best practices from across the industry to recommend seven detailed investor expectations for the hard-to-abate sector.
This includes recommended disclosures on company ‘feedstocks’, which describe the use of fossil fuels as raw materials to create products; downstream Scope 3 emissions; and circularity practices, such as through improved mechanical and chemical recycling.
Nearly every manufactured product today relies on chemicals, from plastics to fertilisers - 95% of manufacturers use chemicals as inputs, according to the Science Based Targets initiative. This makes the sector crucial to the global economy’s transition to net zero and explains its position as the third-largest source of industrial greenhouse gases today (International Energy Agency).
However, unlike other high-emitting sectors, chemical companies’ emissions are generated as much from the fossil fuels they need to input into chemical reactions as from the energy consumption used in the process.
The industry terminology for this is ‘feedstocks’, which describes where fossil fuels are essential ingredients - inputs into the chemical reaction. Feedstocks are responsible for about half of the sector’s fossil fuel use. The other half comes from more traditional energy demand where fossil fuels are used to produce heat, steam, and power for compression and cooling.
Little information is currently available on the feedstock types used by chemical companies, and there are no clear commitments from companies toward emissions-neutral feedstocks by 2050.
More disclosures are available on the decarbonisation of the chemical production processes themselves, with several examples of companies who have set targets to use renewable energy for their electricity by 2030.
chemical companies’ emissions are generated as much from the fossil fuels they need to input into chemical reactions as from the energy consumption used in the process
Scope 3 and circularity
With such high demand for its products in manufacturing, investors considering the sector will also look to understand the steps being taken to measure and mitigate Scope 3 emissions. There are few such disclosures in the industry today, particularly in relation to downstream Scope 3, which considers emissions that are a result of the use of a company’s products or services.
To encourage disclosures in this space, the resource recommends that “Scope 3 company targets address all relevant upstream and downstream emissions, including feedstock procurement and end-of-life emissions.”
LyondellBasell is the first major chemical producer to include downstream Scope 3 in its net zero commitment and to set a 30% Scope 3 reduction target by 2030.
This resource also highlights the role that circularity must play in chemical company operations if the sector is to decarbonise. One example is Dow, which has committed to ‘close the loop’ by enabling 100% of its products sold into packaging applications to be reusable or recyclable by 2035.
Time-bound targets for circular feedstock use as a proportion of overall feedstock use, where appropriate, is one recommendation. Another recommends the disclosure of practices which develop recycling technologies or produce reusable products.
This resource also highlights the role that circularity must play in chemical company operations if the sector is to decarbonise.
“A solid basis”
The investor working group will use these expectations to build on their engagement strategy and priorities for relevant companies in the sector. We have also made this resource public to encourage more conversation in this space.
Peter van der Werf, Head of Engagement at Robeco said: “Robeco’s engagement on improving climate change performance of several chemical companies was very successful to date. It is important that we now have global investor expectations established for the chemicals industry.
“These expectations provide a solid basis for holding the companies accountable and achieving further impact with our engagement activities.”
Read: Investor expectations of chemical companies’ transition to net zero.
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