oekom Industry Focus
October 2012
Chemicals The industry at a glance
1. Background
oekom Universe Chemicals
The importance of the chemicals industry has risen significantly in recent decades, in line with its production and turnover. Whereas in 1970 the industry’s global turnover stood at just 171 billion US dollars, by 2010 it had reached a figure of more than 4.1 trillion US dollars. Worldwide, around 20 million people are now employed by the industry, either directly or indirectly. At the same time, the regional structure of the industry has shifted towards the emerging economies. For example, the market share of the chemicals companies domiciled in the OECD countries fell from 77 per cent to 63 per cent between 2000 and 2009, while the BRIICS countries (Brazil, Russia, India, Indonesia, China and South Africa) saw their market share rise from 13 per cent to 28 per cent. For the period 2012 to 2020, the American Chemistry Council (ACC) anticipates further growth in global chemicals production of more than 25 per cent. According to the ACC’s estimates, growth will be particularly strong in China (+66 per cent) and India (+59 per cent). The oekom Chemicals Universe comprises a total of 101 companies, 21 of which managed to qualify for a comprehensive oekom Corporate Rating. The largest contingent in the universe, 21 companies in all, comes from Japan, with 17 companies from the USA, nine from Germany and eight from Taiwan. More than 46 per cent of the companies have their headquarters in Asia.
Total number of companies analysed
101
Number of companies in oekom Corporate Scouting
80
Number of companies in oekom Corporate Rating
21
Key sustainability issues –– –– –– ––
Chemical and product safety Climate protection Renewable raw materials Employee, plant and transport safety
oekom Prime Status Number of companies with oekom Prime Status Proportion of companies with oekom Prime Status
5 4.9% n=101
Top 3 companies Linde (DE)
B
Akzo Nobel (NL)
B-
BASF (DE)
B-
Average score of all companies analysed (n=101)
D
Japan!
Germany! South Korea!
Most frequent breaches of exclusion criteria Chlororganic mass products
USA!
20.8!
29.7!
38.1%
GMOs
33.3%
Biocides
23.8%
Controversial business practices
23.8%
16.8!
3.0!
Switzerland!
4.0! 7.9!
n=21
Taiwan!
8.9!
8.9!
China! Others!
Composition of the oekom Universe Chemicals by country; in %; source: oekom research (2012)
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oekom Industry Focus Chemicals 2. Key sustainability issues
substances that are known to be harmful and to minimise the environmental impacts of new chemicals right from the design stage. Initiatives by the industry in this area are still few and far between. The German company BASF, for example, has developed a tool that makes it possible to compare products and processes against one another in terms of their eco-efficiency. Akzo Nobel reports that it has introduced a programme which is aimed at developing products with lower toxicity, improved energy-efficiency and reduced emissions. Other sustainability concepts, such as that of chemical leasing, where the focus is no longer on the quantity sold but on the service provided, have barely gained ground since the last industry study.
Chemicals and chemical products form an integral part of our modern lifestyle. Besides organic and inorganic primary products, the industry also produces chemical products both for industrial use and for private consumption. These include, for example, plastics and synthetic rubber, industrial gases, paints and varnishes, insulation materials, pharmaceuticals, glues, scents, food additives, chemical fibres and detergents and cleaning agents. Some chemical companies’ product ranges also include agrochemicals such as fertilisers, pesticides and seed. Given this wide product range, the chemicals industry bears a huge responsibility toward mankind and the environment.
B 2.1. englisch!
Chemical and product safety
60.0!
BASF!
The chemicals industry brings large numbers of new chemical compounds and products onto the market every year. The benefit of many of these products is often offset by a corresponding risk. Assessing the impact of chemicals and chemical products on the environment and on human health is therefore extremely important. According to the study “Global Chemicals Outlook – Towards Sound Management of Chemicals”, published in 2012 by the United Nations Environment Programme (UNEP), only a very small proportion of the chemicals which are currently on the global market have been subjected to a comprehensive risk assessment. The study predicts that the use of chemicals, particularly in agriculture, will increase sharply in the next few years. Companies thus have a responsibility to investigate the impact of their substances and products across the entire lifecycle, which covers not just production and use, but also the procurement of materials and components as well as disposal. While there is now a new European regulation on chemicals in the shape of REACH, in oekom research’s view this does not cover all relevant areas. Even though the majority of the companies analysed do carry out risk assessments and toxicity tests, there is little transparency about the content and the precise scope of these. This is true not only of conventional chemical compounds, but also of new technologies. Particularly in the field of nanotechnology, which has the potential to make products and production processes in many industries more environmentally sound (cf. on this subject the oekom Position Paper Nanotechnology), it is evident that companies often bring products onto the market without first carrying out long-term and, most importantly, independent studies. The situation is similar in the case of GM products (e.g. transgenic seed) which have been on the market for some time now but which have yet to undergo objective risk-benefit analysis. One positive development worth highlighting is that some of the companies rated are taking the first steps toward the responsible use of nanotechnology. DSM and BASF, for example, report having carried out risk analyses and impact assessments in this area. Here, too, however, there is seldom any transparency about potentially negative aspects. As well as analysing the risks, it is also important to substitute
50.0!
Akzo Nobel! 37.0!
DuPont!
33.0!
Lanxess! 25.0!
Syngenta!
20.0!
Braskem! 7.0!
SGL Carbon! 0!
20!
40!
60!
80!
100!
Evaluation of measures regarding sustainable chemicals management; scale: 0 to 100 (highest score); as at: 30.09.2012; source: oekom research (2012)
Climate protection The chemicals industry is one of the main emitters of anthropogenic greenhouse gases (GHGs) such as CO2. The industry sector is responsible for 21 per cent of global GHG emissions. Out of these, 22 per cent of the emissions can be ascribed to chemicals and petrochemicals. In the chemicals sector, CO2 is produced both by the burning of fossil fuels to generate power in the factories themselves and indirectly by the external procurement of energy from external suppliers. In addition, NOx, methane and other climate-relevant gases are released in the manufacturing process. To supply its production plants with energy, the chemicals industry operates some power stations of its own, which fall under the European Union Emissions Trading System (EU ETS). As of 2013, the coverage of the EU ETS will expand to include chemical plants. The chemicals industry has in fact already responded to a number of the climate-related challenges that are relevant to it. In particular, it has introduced measures relating to the reduction of energy consumption. For example, the chemicals industry in
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oekom Industry Focus Chemicals
B 2.2.3. englisch!
the OECD countries has made significant progress in improving energy efficiency and in reducing CO2 emissions. While production in the European chemicals sector, for example, rose by 56 per cent between 1990 and 2004, greenhouse-gas emissions per unit of production were halved over the same period. The industry rating has shown that it is chiefly the large chemical corporations which have introduced comprehensive climate protection strategies. These contain clear CO2 reduction targets and extensive measures for achieving them. Akzo Nobel, BASF, Linde and Solvay have performed particularly well in this area. Despite all this progress, however, it must be noted that the companies are much more vocal in publicising the solutions which chemical products (such as insulation materials) could potentially provide to help protect the climate than in mentioning the negative role played by the industry here. Many companies also need to improve the way in which they portray the business risks which the consequences of climate change will entail for their companies, as well as the countermeasures they intend to implement.
58.0!
Symrise! 50.0!
Akzo Nobel! 42.0!
Braskem! 33.0!
DSM! 17.0!
Dow Chemical! Dupont! 0.0! Bayer!
0.0! 0!
10!
20!
30!
40!
50!
60!
70!
80!
90!
100!
Evaluation of measures aimed at the sustainable procurement of renewable raw materials; scale: 0 to 100 (highest score); as at: 30.09.2012; source: oekom research (2012)
Employee, plant and transport safety
Renewable raw materials
Safety aspects of plant operation and of transportation play an important role in the production of materials which are potentially hazardous to health and the environment. Overall, the companies perform well in this area. Almost all the companies have in place management systems for complying with and promoting safety in the workplace. Over the past two decades, the chemicals industry’s global “Responsible Care” initiative has helped bring this about. Nonetheless, despite the companies’ overall progress (e.g. falling accident rates) marked differences are evident in the detail. It often remains unclear whether the measures described – for example regarding safety standards for freight transport or disaster prevention – apply worldwide or only to sites in the industrialised countries. Particularly in emerging and developing countries such as China, the situation is seldom transparent. Additionally, incidents such as gas explosions, uncontrolled chemical reactions in plants or the contamination of soil, water and air present further risks, and not enough is yet being done to counter these. Progress has also been made in recent years on involving the local population in emergency measures and in general information policies about the products manufactured and processes used on site. This has included, among other things, setting up neighbourhood forums and complaint management systems, holding information events and involving communities in crisis management. One company which stands out here is the US industrial gas company Air Products & Chemicals. However, it remains unclear in almost all the companies whether appropriate measures are also being implemented at production sites in emerging and developing countries.
Many of the chemicals industry’s products are derived from crude oil or natural gas. However, due to rising prices and the finite nature of fossil raw materials, increasing amounts of renewable raw materials are also being used. These can bring benefits not only in economic terms, but also from the sustainability point of view, provided that these raw materials are cultivated in a socially and environmentally sustainable way. The production of plastics based on starch, sugar, cellulose and vegetable oils is already relatively common. Worldwide, the market share of chemical primary products made from renewable raw materials stands at around eight per cent (based on the raw materials used), so is still very low. Although almost all companies are now reporting on the potential for using renewable materials, in many cases these are just one-off examples. Only a few companies are able to point to comprehensive guidelines and measures aimed at the sustainable cultivation of such raw materials. And the environmental problems involved – such as illegal logging of rainforests for palm oil production and increased pesticide use – have been known about for years. On the whole, the companies analysed have not yet fully recognised their responsibility for the suppliers of renewable raw materials. Some companies, such as the Brazilian company Braskem and the groups Akzo Nobel and Symrise, have taken the first steps towards sustainable procurement.
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oekom Industry Focus Chemicals 3. Summary
Best-performing companies in the sector
“The way the world manages chemicals will play a key role in the transition towards an inclusive Green Economy and the realization of a sustainable 21st century.” The importance assigned to the chemicals industry by the UNEP in its “Global Chemicals Outlook” has to date found only limited reflection in companies’ actions. Whilst an increasing number of companies are recognising the social and environmental challenges they face and have implemented sound measures to overcome these, for example in the areas of workplace and plant safety, there is still substantial work to be done in the area of product and chemical safety. Products are frequently brought onto the market without sufficient toxicological testing. Problematic and controversial substances are still not being replaced by more environmentally-friendly alternatives often or quickly enough. Against this background, only a small number of the companies analysed succeeded in improving their ratings. Furthermore, for around 80 per cent of the companies analysed, the measures they had taken were not sufficient to qualify them for a comprehensive oekom Corporate Rating.
Linde (DE): B
1
The highest rating in the chemicals industry was achieved by the German industrial gas company Linde, with an overall score of B. The company has performed well in terms of sustainability in recent years and has continued to improve steadily. It stands out in particular for the sound measures it has taken to ensure plant and transport safety. Other positive initiatives by the company include the production of hydrogen from biomass, the company-wide implementation of a climate strategy, and extensive training and information programmes for customers on the safe use of products. In addition, the company offers a wide range of products and technologies to help customers operate in a more climate-friendly way. There is still room for improvement, for example in the Linde Engineering business division, which deals with the planning and construction of chemical plants. For example, there is little transparency here with regard to guidelines on integrating safety and environmental aspects into plant design.
4. Selected findings
Akzo Nobel (NL): B-
Distribution of ratings
2
The Dutch group Akzo Nobel has achieved Prime Status for the first time, thanks to the steady improvement in its sustainability performance. One of the company’s strengths lies in the initiatives it has taken to promote the increased use of renewable resources. Here, Akzo Nobel is one of the few companies which is able to point to guidelines and measures aimed at the sustainable procurement of such raw materials. Further strengths include its guidelines and measures on the sustainable management of chemicals and on the use of nanotechnology, as well as its climate strategy. The company shows less transparency regarding involvement of the local population in emergency measures and in general information policies about the products manufactured and processes used on site.
The best company in oekom’s Chemicals rating universe achieved a score of B on the rating scale, which ranges from A+ (highest score) to D-. oekom research has awarded Prime Status to a total of five companies, which is equivalent to 4.9 per cent of all the companies analysed. Prime Status distinguishes those companies which are among the leaders in their sector in terms of sustainability and which fulfil the minimum requirements defined by oekom for a specific industry. The Prime threshold for this industry is B-, and the average score for all the companies analysed was D.
50
BASF (DE): B-
40
The German chemicals company BASF, which for some years now has been performing well in terms of sustainability, impressed us with, among other things, its measures in the area of plant and transport safety and its comprehensive management systems for emergency planning and security. In this context, BASF has also implemented sound measures for informing and involving local residents, for example in emergency planning. Another feature which marks BASF out is the relatively comprehensive information it provides on risk assessments of products and substances. It falls down when it comes to transparency regarding the responsible
30 20 10 0
D-
D
D+
C-
C
C+
B-
B
B+
A-
A
3
A+
Distribution of scores on a scale from A+ (highest score) to D-; rating (dark grey), scouting (light grey); in %; n=101; source: oekom research (2012)
4
oekom Industry Focus Chemicals 5. Outlook
handling and distribution of controversial substances and products. Products affected include critical products such as transgenic seed and highly hazardous pesticides, which form part of the company’s product range. The hydraulic fracturing activities carried out by the company’s subsidiary Wintershall are also to be viewed in a critical light.
„…the gains that chemicals can provide must not come at the expense of human health and the environment. Pollution and disease related to the unsustainable use, production and disposal of chemicals can, in fact, hinder progress towards key development targets by affecting water supplies, food security, well-being or worker productivity.” This was the conclusion arrived at by the UNEP study referred to earlier, which has once again highlighted the importance of handling chemicals responsibly. According to the study, the production and use of chemicals is set to increase dramatically. This development will take place primarily in emerging and developing countries where regulations on chemicals are often weak. The hazards posed by chemicals to people and the environment are evident not just in pesticides, fertilisers and agricultural genetic engineering, but increasingly also in substances that are carcinogenic, mutagenic or toxic for reproduction (CMR) as well as other problematic substances such as phthalates and bisphenol A in everyday products. In oekom research’s view, this is likely to lead to increased pressure on chemicals companies, both from the regulators and from customers, to implement comprehensive and responsible chemicals management programmes across the board. Downstream industrial customers, in particular, will increasingly be seeking to avoid adversely affecting their own environmental footprints by purchasing chemical products which are problematic in this respect. The importance of the use of renewable raw materials will continue to rise in tandem with growing pressure on companies to develop alternatives to crude-oil-based chemicals in order to reduce dependence on fossil raw materials. Although many companies have responded to this challenge, current initiatives are limited to isolated examples. It is anticipated that in the years to come many of the pilot projects currently being carried out will reach the stage where they are ready for series production and that the chemicals industry will come to rely increasingly on renewable raw materials. Of key importance from the point of view of sustainability is that these raw materials should be produced in a way that is socially and environmentally sustainable. Besides changes in the raw materials used and the challenge of sustainable chemicals management, the issue of climate protection will continue to be of great importance. From 2013, the EU ETS will be expanded to include chemical plants, and other greenhouse gases besides CO2 will also be included in emissions trading systems and recorded. This will place increasing demands on companies to continue to minimise their emissions and to develop more climate-friendly alternatives.
Ups and downs The proportion of companies rated as Prime has risen slightly since the last industry rating, despite the increasing demands. For example, the Dutch chemicals groups Akzo Nobel and DSM and the German chemicals company Symrise have all achieved Prime Status for the first time. Akzo Nobel and DSM have been just below the Prime threshold for the last few years, and have improved steadily in all areas. Praxair proved unable to keep up with the increasing demands in the environmental section of the rating and has lost the Prime Status it attained in 2009. Breaches of exclusion criteria oekom research is continuously analysing all the companies in the oekom Rating Universe in relation to potential breaches of a total of 18 exclusion criteria. These distinguish between controversial areas of business, such as alcohol, agricultural genetic engineering and armaments, and controversial business practices, such as violations of human rights or labour rights. Users of oekom’s ratings can activate exclusion criteria individually to suit the particular requirements of their capital investments. Among the chemicals companies, such breaches tend to occur in the area of controversial fields of business, notably those relating to bulk-produced organochlorines, agricultural genetic engineering and biocides. Many companies’ product ranges include transgenic seed and extremely hazardous biocides. Furthermore, almost one-quarter of the companies have been involved in controversial business practices, in particular price fixing. Moreover, there have been occasional incidences of labour rights violations, e.g. the use of child labour; the companies involved are primarily seed producers. Chlororganic mass products
38.1%
GMOs
33.3%
Biocides
23.8%
Controversial business practices
23.8% n=21
5
oekom Industry Focus Chemicals The following companies underwent an oekom Corporate Rating: • Air Liquide (FR) • Air Products & Chemicals (US) • Akzo Nobel (NL) • BASF (DE) • Bayer (DE) • Braskem (BR) • Dow Chemical (US) • EI du Pont de Nemours & Co (US) • K+S (DE) • Koninklijke DSM (NL) • Lanxess (DE) • Linde (DE) • Potash Corp of Saskatchewan (CA) • Praxair (US) • SGL Carbon (DE) • Solvay (BE) • Symrise (DE) • Syngenta (CH) • Toray Industries (JP) • Wacker Chemie (DE) • Yara International (NO)
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oekom Industry Focus Chemicals Assessment fields in the oekom Corporate Rating of the Chemicals sector Social Rating Staff - freedom of association - work-life balance - safeguarding of jobs - health and safety - equal opportunities - training and education Suppliers - supplier standards - supplier monitoring
Society - human rights - community involvement - governmental relations and public advocacy - stakeholder dialogue
Corporate Governance - independence and effectiveness of the board - shareholder democracy - executive compensation - transparency on shareholder structure
Product Responsibility - responsible marketing - product safety information - use and distribution of controversial products and substances - animal testing
Business Ethics - code of conduct - implementation of the code
Products & Services - sustainable chemicals management - renewable raw materials - transport and facility safety - water strategy
Eco-Efficiency - energy consumption - water consumption - greenhouse gas emissions - NOx / VOC emissions - COD / AOX discharge - hazardous waste
Environmental Rating Environmental Management - environmental policy - environmental management system - environmental reporting - climate change strategy - travel and transport
Background: the oekom Corporate Rating oekom research currently evaluates around 3,000 companies, covering international indices such as the MSCI World, MSCI Emerging Markets and Stoxx 600, as well as numerous national indices. In addition, the oekom universe also includes non-listed bond issuers as well as companies from sectors whose products make a major contribution to sustainable development, e.g. in the area of renewable energies. The oekom Corporate Scouting process identifies from this pool of companies those which can demonstrate that they meet minimum equirements in terms of social and environmental measures and of transparency about these. Companies which do not meet these requirements are grouped together in the oekom Scouting Universe. These currently make up approximately 2,000 of the total of 3,000 companies rated. oekom research’s analysts carry out an indicative rating of these companies. A comprehensive oekom Corporate Rating is carried out of those companies which have the potential to achieve a Prime rating or at least to come close to the Prime threshold. These are then pooled together to form the oekom Rating Universe, which currently comprises around 1,000 issuers. oekom’s Corporate Rating provides a comprehensive evaluation of companies’ social, environmental and governance performance. The rating is based on up to 100 individual criteria, approximately one-third of which evaluate industry-specific aspects, in particular the social and/or environmental quality of the products. The information used to produce the corporate rating comes partly from the companies themselves and partly from independent external sources such as environmental and consumer associations. The results of the oekom Corporate Rating are documented in detailed rating reports.
Information on the individual findings for the 21 companies that were analysed in detail can be obtained either using the database solution ORBIT - the oekom Responsibility Benchmarking & Information Tool - or in the conventional manner via the oekom Industry Report Chemicals. Both tools provide a comprehensive overview of the industry’s activities, and ORBIT also enables user-friendly benchmarking against a custom-compiled peer group at the individual indicator level. Should you be interested, we would be pleased to send you further information on both these offers. Contact Client Relations Contact Research Saskia Themans, Manager Client Relations Oliver Rüter, Project Leader Chemicals
[email protected] [email protected] oekom research AG, Goethestraße 28, 80336 Munich, Germany, tel: +49/(0)89/544184-64, www.oekom-research.com Disclaimer 1. oekom research AG uses a scientifically based rating concept to analyse and evaluate the environmental and social performance of companies and countries. In doing so, we adhere to the highest quality standards which are customary in responsibility research worldwide. 2. We would, however, point out that we do not warrant that the information presented in this Research Report is complete, accurate or up to date. Any liability on the part of oekom research AG in connection with the use of these pages, the information provided in them and the use thereof shall be excluded. 3. All statements of opinion and value judgements given by us do not in any way constitute purchase or investment recommendations. 4. We would point out that this Research Report, in particular the images, text and graphics contained therein, and the layout and company logo of oekom research AG are protected under copyright and trademark law. Any use thereof shall require the express prior written consent of oekom research AG. Use shall be deemed to refer in particular to the copying or duplication of the Research Report wholly or in part, the distribution of the Research Report, either free of charge or against payment, or the exploitation of this Research Report in any other conceivable manner.. Picture credits: Andreas Dengs / Pixelio; schubalu / Pixelio; Carsten Jünger / Pixelio; Carsten Jünger / Pixelio
