Sustainability and the chemical industry: Where’s the money?
By Dr. Bernd Elser, Senior Managing Director, Global Chemicals Lead, Accenture
In the chemical industry, demand for sustainable products has been growing—and it is reshaping entire value chains, from upstream raw material providers to end customers. As they contend with the significant changes involved in the shift to sustainable processes and products, however, chemical companies also face another challenge—the need to comply with a growing range of sustainability-related regulations relating to greenhouse gas emissions and plastics recycling.
With the investments needed to focus operations on sustainability and the expected high costs of compliance, many industry executives have asked “where’s the money?” That is, can chemical companies find value and profit in a new era of sustainability? Recent Accenture research explored that question and found that a shift to sustainability can indeed pay off for chemical companies. In fact, over the next five years, sustainability-related offerings will account for nearly one-third of industry growth, according to Accenture research, creating a possible USD 200 billion opportunity for chemical companies.
The potential for growth is there, but it will only be realized if the chemical industry can meet the increasing demand for sustainability-related offerings—and that is by no means certain. The industry is already struggling to keep up with that demand, the research shows, and if that continues, it could limit chemical companies’ ability to grow. Fortunately, there are several steps that companies can take to ensure that they have access to the resources, technology and knowledge that will be needed to deliver the sustainability-related offerings that customers want.
What’s behind the growth?
In the coming years, demand will grow for both sustainability-enabling products—such as materials for wind turbines and solar panels—and for products involving sustainable production—including bio-based products or those made from recycled materials.
The Accenture research indicates that the market for sustainability-related offerings, which stood at approximately USD 300 billion in 2022, should reach about USD 500 billion by 2027. About two thirds of this growth will come from existing products and markets related to sustainability—insulating materials for buildings, plastics for electric vehicles, polyurethane foams used in wind turbine blades, etc. Many of these offerings will take advantage of existing infrastructure, and thus involve relatively low levels of investment and risk. About one third of the growth will come from new markets and offerings, such as carbon-capture materials and bio-based inks and coatings.
With such a broad mix of traditional and new offerings, sustainability is bringing growth opportunities to companies across the chemical industry. What’s more, sustainability-related offerings will be an especially attractive opportunity, because they will see a compound annual growth rate of 11% over that period, compared to a 2% rate for “traditional” industry products.
Gearing up—but is it enough?
An analysis of company announcements shows that over the last five years, the chemical industry has invested an estimated USD 60 billion to USD 90 billion in new plants that produce sustainability-related products—and that does not include startups or greenhouse gas (GHG) reductions at existing plants. In general, these investments are focused on products that are core to the industry—such as chemically recycled bio-based products, recycled standard polymers and bio-based intermediates and polymers—as opposed to new or niche products.
As significant as these investments are, the industry will still find it difficult to meet growing demand. Already, chemical companies’ customers are looking for more sustainability-related offerings than the industry can supply. In some cases, new chemical plants that are not yet operating are reported to be sold out or nearly sold out—an unprecedented development in the industry. And demand is unlikely to decline. Many chemical companies’ customers have made commitments for recycled content and increased sustainability—and in many cases, they are falling short in meeting those commitments. In part, this is because they often find it difficult to get the sustainability-related chemical industry offerings they need.
Planning for success
Clearly, companies will need to scale up operations to meet the growing demand for sustainability-related offerings. But that alone will not be enough to keep up. As the push to sustainability continues to reshape industry value chains, chemical companies will need to take steps to solidify their positions in those chains.
For example, there is a shortage of the raw materials that will be needed for sustainability-related offerings, which means chemical companies may have to cast a wide net to ensure they have access to these key resources. In addition, meeting customer needs for sustainability-related offerings, efficiently and reliably, will require collaboration with partners across the value chain—and companies should begin to forge those partnerships sooner rather than later.
Meanwhile, sustainability-related chemicals—such as those that have low carbon footprints or are made with bio-based feedstocks—will require new production methods, assets and equipment. That means that chemical companies should focus on securing the intellectual property (IP) and proprietary knowledge that will be needed in those areas. This is especially true for IP related to technology—both production technology and information technology.
Finally, sustainability is an increasingly important driver of share price and enterprise value. With that in mind, chemical companies should develop sustainability-related narratives for investors and other stakeholders. Those narratives should include not only intentions and plans, but also reports of actual action and progress with sustainability-related initiatives. This will be critical to building ongoing support for the shift to sustainability.
Adapting to a sustainability-focused world will require change. But in making this change, chemical companies have an opportunity to continue their long history of successful, ongoing innovation and transform themselves for an era of sustainability. This transformation will be key to achieving significant profitable growth for decades to come.