Green Chemistry – The Impact of Sustainability on the Chemical Industry
Sustainability has always had a special place in the chemical industry. After the construction of the first large-scale chemical plants in the 1950s, exhaust air filters and wastewater treatment processes were developed and implemented shortly afterwards in the research departments of chemical companies. With increasing production possibilities, however, the responsibility of the chemical industry towards the environment grew. In view of the worsening consequences of climate change, stricter legal requirements and an increasing environmentally sensitive population, chemical companies are required to pay at least as much attention to ecological aspects as economic factors. In this blog post, you will learn how sustainability has changed the chemical landscape and what opportunities this offers for companies.
Business Model: Sustainable Products and Services
Sustainability issues are now higher on the corporate agenda than ever before. The reason is the more noticeable consequences of climate change. This not only leads to a shift of consumer behavior, but also has a decisive influence on the financing behavior of existing and potential investors. In addition, the chemical industry has created more and more production opportunities in recent decades, thanks to relentless research. With regard to sustainability, however, these opportunities present chemical companies with new challenges. Apart from the fact that, from a strategic perspective, there is no way around compliance with sustainability standards in the long term, innovative and sustainability-oriented chemical companies in particular are benefiting from the new industry trends.
In view of the current high demand for sustainable products, relatively low costs are offset by high profits. More and more companies are aware of this and are developing appropriate sustainability strategies. Meanwhile, industry experts criticize that some chemical companies hardly address sustainability issues and only meet the minimum legal standards. Those companies that have developed sustainability strategies would not pursue them consistently enough or the investments would only correspond to a fraction of the investments customary in the industry. Some companies, on the other hand, are pursuing their goals consistently and have not been afraid in the past to invest appropriately high amounts to generate even higher profits. Their success is based on the fact that green products and services are supported by employees to the management board. In addition, their focus is not only on ecologically justifiable production, but above all on customer-specific and value-enhancing properties.
The Principles of Green Chemistry
Even before the turn of the millennium, demand for green products or services was extremely low. Although the companies had numerous filter systems and measures in place to reduce environmental pollution, the company wanted these costs to be minimized as far as possible. Environmental protection, employee working conditions and safety, and the efficient use of resources therefore played only a minor role.
However, this changed rapidly at the turn of the millennium: Knowledge about the influence of manufacturing industries on the environment, the strengthening of workers‘ co-determination rights and the possibility for consumers and experts to point out grievances with the help of non-governmental organizations led to social pressure on the chemical industry. This, in turn, led associations to launch initiatives and governments to enforce stricter reforms and laws. For example, the Chinese government published the „National Action Plan on Air Pollution“, the aim of which is to gradually reduce domestically produced emissions through several environmental reforms. The first companies that did not comply with the new reforms and environmental control standards have already been dissolved by the Chinese government. In Germany, the sustainability initiative Chemie3 was launched. This is a merger of three well-known and influential associations and trade unions in Germany that have formulated „Guidelines for Sustainability in the Chemical Industry in Germany“ and anchored them in the industry as a guiding principle.
The global movements were fueled by the 17 Sustainable Development Goals of the United Nations and the sector-specific twelve principles of Green Chemistry. The latter strengthened the sustainability concept with its three dimensions of economy, ecology and social responsibility in the corporate strategy and was first described by Paul T. Anastas and John C. Warner in their concept paper „Green Chemistry“ in 1998. The twelve principles such as „prevention“, „use of renewable raw materials“ and „real-time analysis to avoid pollution“ are compatible with the economic goals of chemical companies and ensure long-term economic action, financial stability and global competitiveness.
Sustainability Trends: From Green Products to Renewable Energies
The changes in consumer behavior and new legal requirements are presenting chemical companies with new challenges, but at the same time also providing them with new opportunities to consolidate their competitiveness. For example, BCG has published several analyses on sustainability that highlight both the opportunities and risks facing companies.
One sustainability trend is called green products. These are products that are easily recyclable or whose materials are biodegradable. This category includes, for example, “green” plasticizer replacements. This opens up a new market with high demand that wants to be served by innovative and sustainability-oriented companies. At the same time, there is a risk that demand for materials that are considered resource-intensive or toxic will decline. Another trend is efficient water consumption. To meet this trend, it is necessary for chemical companies to research and use more efficient water filters and purification plants. Otherwise, limited water use or higher water consumption costs could affect companies that have not made efforts to do so. A further sustainability goal is the use of renewable energies and the achievement of high energy efficiency. Renewable energies have recently become more affordable due to economies of scale and increasing competition. In view of rising fossil fuel prices, more and more consumers are still interested in alternatives from biomass. Should research in this area lead to a cost advantage in the future, it is foreseeable that customers will reject fossil fuels from the chemical industry.
Role of the Company Depends on the Business Model
Finally, the analysis from BCG stresses that not every chemical company has the same opportunities. In any case, it is necessary to encourage chemical companies to produce more sustainably and to achieve corresponding goals through changes in demand and legislation, but the possibilities of sustainability trends are limited by companies‘ business models. It is therefore obvious that companies that predominantly produce basic chemicals are limited in their differentiation potential and therefore have relatively few opportunities to play a leading role in green chemistry. From the company’s point of view, it makes sense instead to reduce the efforts to the legal requirements.
Producers of specialty chemicals, on the other hand, have numerous opportunities to implement sustainable ideas because they have a high differentiation potential. In addition, they often maintain closer contact with the end customer because of their business model. The end customer may not only choose their company on the basis of sustainable aspects, but may also reward environmentally friendly companies with the willingness to pay higher prices for their sustainable products or services. As a result, chemical companies that produce specialty chemicals depend on a good reputation. From the point of view of chemical managers, it is therefore extremely important to invest in sustainability-driven innovations and to prioritize the opportunities offered by sustainability trends accordingly. In its study „Making a Business Case for Sustainability in Chemicals„, the analysis of BCG mentioned of five stages: From basic sustainability efforts („License to Operate“) to sustainability centricity („Sustainability at the Center“). The companies that place a high focus on the production of specialty chemicals are to be found in the higher levels and should prioritize sustainability efforts according to the analysis report.
The growing interest of the population in an environmentally friendly industry and sustainable products is putting pressure on governments worldwide to implement laws and reforms. In particular, the BRICS countries, consisting of the former emerging markets Brazil, Russia, India, China and South Africa, are characterized by high economic growth and thus play a special role in more environmentally friendly production. The Chinese government in particular has recently advocated for an environmentally friendly industry and more sustainable products and services in the form of reforms. You can find out what impact these reforms have on the domestic chemical industry in our last blog article.