INDUSTRY INSIGHTThought Leadership

Sustainability achievements and aspirations of the GCC chemical industry

By Alexandra Zakharova, Partner and Ruchin Jain, Partner, McKinsey & Company

Setting the stage: Sustainability in the chemical industry globally and in the GCC

The drive for sustainability is impacting the chemical industry globally and in the GCC. Our research shows that the largest chemical end users have committed to reducing greenhouse-gas (GHG) emissions.

For example, in Europe as of early 2023, 66% of the chemical end users have short-term (2030) commitments, and 37% have pledged net-zero targets by 2050.

Manufacturing chemicals is energy intensive, with some critical processes producing large amounts of CO2 as a by-product. Chemical products can release CO2 if they are incinerated or decomposed at the end of their lifecycle. These factors make it particularly difficult for the chemical industry to cut emissions to reach net-zero emissions.

There are several levers to create greener solutions in chemicals – such as reducing the carbon footprint of operations through energy efficiency, electrification of equipment and switching to green energy, capturing and storing CO2, using circular and renewable feedstock.

In this article, we aim to provide an overview of the sustainability achievements and aspirations of the GCC chemical industry, key challenges, potential enablers, and industry level synergies. The insights below are based on our recently conducted survey among the chemical players in the GCC (percentages refer to the share of replies).

Sustainability priorities of GCC chemical companies

Results of the survey show that sustainability is recognized as a clear priority by more than 90% of the GCC chemical companies. More than 75% of the players have developed a sustainability roadmap and publish an annual or biennial ESG/ sustainability report. More than 70% provide Board update on the topic at least once every six months.

While sustainability is a priority for GCC chemical companies, for some of the players there is an opportunity to sharpen focus on the key areas. 50% of the players indicated less than three focus areas in sustainability, 33% have clear focus on three to six areas, and 17% prioritized more than six areas. Our research indicates that the winning sustain- ability strategy involves:

  • Leading on selected number of focus areas where the company can make a distinctive contribution through bold moves, setting itself ahead of the competition
  • Meeting the industry aspirations on remaining areas, ensuring the company is on par with peers and complying with ESG standards

GCC chemical companies identify “Environment” as a broader priority area for them together with three key focus areas in sustainability:

1. Scope 1 and 2 decarbonization

GCC chemical companies have short- and long-term decarbonization targets. Players that have committed to decarbonization targets aim to reduce CO emissions by 10-40% by 2027-2035 and target net-zero by 2050-2060 in line with the existing national decarbonization ambitions.

In their decarbonization strategies, GCC chemical players are considering several decarbonization levers, including energy efficiency, renewable energy, CCS, electrification, green/blue hydrogen, circular and renewable feedstock, and offsetting of hard to abate emissions.

Powering operations with green energy and increasing operations’ energy efficiency are “in-the-money” in the GCC region, therefore chemical companies are pursuing them as a priority. Other levers are also being considered by the players, and options for their deployment are being evaluated under different scenarios to develop robust decarbonization strategies.

2. Circularity

More than 55% of GCC chemical companies have circularity targets. Most of the players consider mechanical recycling as a priority to achieve their ambition in circularity, while chemical recycling is considered by 20% of the players.

3. Diversity & Inclusion (D&I)

Most of GCC chemical companies are currently seeing moderate representation of women in key roles – less than 5% on a Board level, less than 10% at executive positions, and less than 10% in operational roles.

More than half of the companies mentioned that they are actively working on increasing women representation.

Challenges and potential enablers to achieve the GCC chemical industry sustainability aspirations

GCC chemical companies see several key challenges when it comes to achieving their sustainability aspirations:

  • Solutions for sustainability are expensive – companies see the shortage of economically viable solutions and available incentives to drive the adoption of decarbonization and circularity.
  • Uncertainty is high – many players consider market demand and price premiums for sustainable products to be uncertain, new technologies are emerging affecting the future technology landscape, and regulations driving sustainability in the chemical sector are evolving in the region and globally.
  • New capabilities and talent are required – companies mention that new capabilities are needed, including identification of applicable decarbonization levers, understanding of decarbonization economics and new technologies, and availability of diverse and skilled talent is a limiting factor.

Achieving the GCC chemical industry sustainability aspirations can be enabled by industry level synergies:

  • Partnerships and collaborations for multi-sectoral infrastructure – players can unlock access to renewable energy sources and CCS infrastructure at competitive cost due to economy of scale, and develop joint recycling infrastructure.
  • Joint technology development and knowledge sharing – industry-wide platform for knowledge and best practices exchange can be created to define decarbonization levers and develop decarbonization and circularity roadmaps, players can engage in joint decarbonization and circularity technology development.
  • Setting talent aspiration, potentially together – players can establish capability development programs for sustainability, embrace a D&I mindset and culture, potentially as a joint initiative for the chemical industry.
  • Position the region as a “sustainable chemicals hub” building on its unique renewable energy and CCS potential .