The transition to a net-zero-carbon future may be one of the biggest challenges to ever face human society.
Perhaps that is why less than 40% of US-headquartered chemical companies in the ICIS Top 100 have published net-zero climate goals or climate goals aligned with the Science Based Targets initiative (SBTi). The initiative now counts over 1,000 companies worldwide that are setting emissions reduction targets grounded in the science and actions necessary to limit global temperature rise to below 2 degrees Celsius above preindustrial levels. Buy-in lags in the US despite demonstrations across industry sectors that these targets boost profitability, improve investor confidence, drive innovation, reduce regulatory uncertainty and strengthen brand reputation.¹
Decarbonization is particularly challenging for the chemicals sector, which sits at the center of the connections between the products that people use in everyday life and the raw materials used to manufacture them. The most carbon-intensive sectors (such as oil and gas and power and utilities) have faced shareholder pressure regarding climate change for years, and chemicals now face more of the same scrutiny. Most of the largest companies have enhanced climate disclosures and conducted scenario analyses following the Task Force on Climate-related Financial Disclosures (TCFD) recommendations.²
In the past year, many leading companies have set net-zero or other decarbonization ambitions. The financial sector is showing greater awareness of the systemic risk of destabilization that climate change presents, calling on companies to lead and considering the changes that will be necessary at a portfolio level to achieve net-zero greenhouse gas (GHG) emissions by 2050 or sooner as a society. Pressure continues to accelerate on all industries to decarbonize, especially those that are carbon intensive or highly consumer-facing. This pressure is also increasing in the US, intensified by the Biden administration’s emphasis on climate.³
Renewable energy is increasingly cheaper than fossil fuel energy, and even the previously dismissed idea of cracking using renewable energy is being taken seriously.⁴ ⁵ ⁶
Many aspects of this work are putting pressure on long-term value for the chemicals sector, including:
- Increased demand from governments, regulators, investors and the public to support net-zero commitments and decarbonization more quickly than previously considered.
- Investor uncertainty about future growth in the context of a changing and increasingly volatile business environment, which can now be described as “BANI”⁷ – brittle, anxious, nonlinear and incomprehensible.
- The changing future of the global energy system, which is the primary feedstock supplier to the chemicals industry. Many thought leaders are wary of the future role of carbon-intensive sectors, advocating for complete removal of fossil fuels from the global energy system and a rapid transition to lower-carbon energy sources. This move would probably bring increased volatility and higher pricing to basic chemicals feedstocks.