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Chemicals and Materials in the Spotlight at Davos

Michael Holman, Ph.D., Vice President, Research
January 22, 2020

Here’s some recent critical quotes about the social role and impact of the chemicals business:

The old-fashioned belief that the raison d’être of a commercial enterprise is to maximize shareholder value belongs to another century, as businesses that do not embrace holistic approaches to engage their stakeholders, that go beyond financial returns, simply won’t survive in today’s reality.”

Plastics are also at the heart of a global tragedy and are undeniably harming our earth’s bio systems.”

We should resist the temptation to make profits on the short term… We derailed a little bit and saw making money as the real goal of the economy, whereas the real goal is to live happily here all together.

Radical activists aiming to tear down competitive free enterprise in pursuit of their utopian visions? No, statements this week by CEOs of major global chemical companies – Solvay’s Ilham Kadri, Dow’s Jim Fitterling, and DSM’s Feike Sijbesma. All of them are at the World Economic Forum in Davos this week, so getting a bit carried away with lofty rhetoric is to be expected – but none of these statements are out of the blue. Chemical and materials firms have been throwing themselves into efforts to deal with plastic waste and build out recycling capacity, touting efforts to promote diversity, and signing on to statements about business promoting the interests of all stakeholders.

One could be forgiven for viewing this all as a cynical marketing ploy – the industry is in many ways deeply conservative and often doesn’t have the greatest social record, on environmental issues in particular. Still, while the words need to be backed up with action, there are reasons to believe serious change really is coming to the chemical industry:

  • Its business is genuinely at risk. Dow stands to lose up to $7 billion in revenue if consumer choices or single-use plastics restrictions bite into demand for its polymers. With major brands making commitments to reduce impact, materials firms need to make the case that their offerings are sustainable in order to hold these customers. In addition, petroleum feedstock risk and volatility, along with potential competitive threats from their upstream suppliers, makes diversifying their supply chain to more environmentally friendly options a smart hedge.

  • A challenged industry needs to improve its image. Plastics isn’t the glamour industry young graduates are advised to go into today – but digital transformation and disruptive threats, along with an aging workforce, mean that it needs to attract skilled and dynamic young employees. Priorities that appeal to a more idealistic generation can help build its bench. Further, with its business vulnerable to government rulings from environmental regulations to trade policy, positioning itself more positively in the public’s eyes only makes sense.

  • Investors are calling for sustainability too. Ultimately, firms will face accountability to shareholders, but even many big investors are pressing for more socially conscious strategies to manage risk and stabilize longer-term returns. The world’s largest investor, BlackRock, is emphasizing environmental, social, and governance (ESG) funds and divesting stocks it believes face climate risks. The stakeholder-focused “Statement on the Purpose of a Corporation” from Business Roundtable was promoted by the CEOs of JPMorgan Chase and Vanguard – names that will make any public-company leader sit up and take notice.               

  • Chemicals and materials do have much to offer. Executives like Kadri, Fitterling, and Sijbesma like to tout the role that their firms’ innovations can play in addressing global megatrends like the energy transition, food security, and aging populations. This boasting isn’t all hype, and in fact, these megatrends can be a good guide to finding new business targets. Whether it’s improvements to the lithium-ion batteries that power electric vehicles, treatments that can help crops weather the impacts of climate change, or materials that enable medical sensors and connectivity, materials opportunities often flow from challenges.

Of course, if any idealistic initiative turns out to hurt the bottom line (and, inevitably, some efforts will fail), or simply when budgets get tight, we should expect a backlash – and a test of whether leaders will stay true to this long-term vision. However, the forces pushing chemical firms to make these moves are real, substantive, and likely lasting – even if you don’t believe industry leaders will always make the most socially conscious decision, they have good reason to at least take those considerations seriously.

What’s more, the simple fact that leadership is loudly supporting these principles will have an impact on how the thousands of individuals in their firms make decisions. Executives considering how to order their innovation efforts should, at least cautiously, follow the lead of these Davos-goers and look to enable and benefit from the push into an approach to chemicals and materials that put more weight on social and environmental impact.  

 

 

 

FURTHER READING: 

- Blog: Cutting Global Emissions is Not as Simple as Greta Thunberg Makes it Sound

- Executive Summary: 20 for 20 Annual Report

- On Demand Webinar: The Future Role of Green Hydrogen (Watch it now)

- Upcoming Webinar: Finding Successful Strategies for the Circular Economy (Save your seat!)

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