IIGCC Experiments with Chemical Sector Expectations

Investor network seeks to enhance net zero alignment in hard-to-abate industry. 

A new report from the Institutional Investors Group on Climate Change (IIGCC) – ‘Investor expectations of chemical companies’ transition to net zero’ – targets increased disclosures and transparency from the highly polluting sector.  

The chemicals industry is third-largest source of global industrial greenhouse gas (GHG) emissions and almost 95% of all manufactured products use chemicals as inputs, underscoring the significance of its impact. 

The expectations are supported by a group of 20 investors, including BNP Paribas Asset Management, Nordea Asset Management, Robeco and Storebrand Asset Management.  

According to the IIGCC, these expectations have been designed to “build on and complement” the Climate Action 100+ (CA100+) Net Zero Company Benchmark, although not directly affiliated with CA100+ benchmark.  

Peter Taylor, Corporate Programme Director at the IIGCC, told ESG Investor that these represent the “first investor-led expectations of their kind” being developed by members of the investor network’s chemicals working group with the goal of “sharing best practice with the wider investment community”.  

He said that the expectations help to set out what chemical companies can disclose, target, and commit to “create transparency” on their alignment with net zero, adding that decarbonising the chemical sector is “crucial to the global economy’s transition”. 

Overcoming obstacles and appropriate actions 

The IIGCC noted that there is increasing alignment across regional policies, global regulations, and consumer sentiments supporting the “broad decarbonisation of [the] global economy”. It added that chemicals companies could position themselves for improved growth prospects, reputational benefits, and financial value in the long run by “embracing” the net zero transition. 

Elin Noring, Senior ESG Analyst at Nordea Asset Management, said that the chemicals sector has an “outsized role” to play in supporting and driving the global transition to net zero.  

Noring welcomed the new expectations for chemical firms, adding that it will allow investors to “undertake more granular, more targeted and more constructive engagement with companies in the sector”. 

Taylor said that challenges for chemical firms are “likely to be company specific” but acknowledged the availability of low carbon energy as being a ”well-known issue” across industrial sectors.  

He additionally flagged the availability of low carbon feedstocks such as renewable hydrogen as an issue for chemical companies, noting that tackling these barriers will “likely require a multi-stakeholder approach”.  

The IIGCC acknowledged the unique challenges facing the chemicals sector and the progress made by some companies operating in the industry, highlighting existing best practices among major European and US-based firms.  

LyondellBasell was spotlighted by the IIGCC for becoming the first major chemical producer to include scope 3 emissions in its net zero commitment and set a 30% reduction target by 2030. It also has set a 75% renewables target by 2030 and is a leader industry on the use of carbon-neutral feedstocks.  

The investor network also pointed to Bayer being the first chemical producer to set a 100% renewables target for all its electricity needs by 2030, and BASF for committing to a 100% renewables target based on 2021 procurement by 2030 and excelling on circularity.  

Chemical companies were urged by the IIGCC to “respond positively” to the expectations by taking “appropriate” actions and constructively engaging with investors. 

The investor network stressed that it is at the discretion of each individual company to adopt these guidelines appropriate for them, depending on their own independent capabilities, strategies, policies and practices. 

Taylor said that the expectations had been developed with European and North American chemical companies in mind, but that they could be applicable to countries in other jurisdictions if “adapted to the regional context”. 

Insufficient sector transparency 

One of the IIGCC’s expectations is to “create transparency” on chemical companies’ net zero alignment, which has been an issue historically.  

Sonja Haider, Senior Business and Investor Adviser at ChemSec, an independent non-profit that scores chemical companies on their on their environmental impact and treatment of hazardous chemicals, previously told ESG Investor: “The global chemical industry is turning a blind eye to the unfolding chemical pollution crisis. Most companies are taking little or no action to phase out hazardous chemicals despite the risks to public health, the environment and shareholder value.” 

The organisation gives 54 of the world’s biggest chemical companies by revenue a ‘ChemScore’ and ranks their performance in four different categories: the toxicity of their product portfolio, research and development of non-toxic chemicals, management and transparency, and the number and scope of controversies and scandals that the company has been involved in. 

Companies are then graded A+ to D- with unmarkable companies receiving an F. 

In last year’s report, the average score across all 54 companies is remained unchanged at 13.3 out of 48 which Haider says reveals “just how inadequate most companies’ strategies are”. 

Additionally, in both North America and Asia the average ChemScore fell and nearly half of all firms scored worse than in 2021, which the non-profit described as “disappointing”.  

These poor rankings spurred investors with US$8 trillion in AUM to call on the world’s largest chemical producers to phase out ‘forever chemicals’. A total of 47 asset managers signed a letter coordinated by Aviva Investors and Storebrand Asset Management warning CEOs of the biggest chemical companies of the dangers posed by such chemicals.  

The letter also called on companies to disclose the volume of hazardous chemicals they produce and demonstrate action to improve their chemicals management by raising their ChemScore rankings, with the next annual report due in Q4 this year.  

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