The drive toward sustainability is gathering momentum across industries, and the chemicals industry is no exception. Chemicals companies are focused on reducing energy use and waste and increasing their chemical recycling efforts. But in addition to these subtractive actions — which are typical of many industrial environmental, social and governance (ESG) efforts — chemicals companies are also adding products. Demand for “green” chemicals (i.e., chemical products designed to minimize or eliminate the use of hazardous substances1) is a leading driver of new investment in sustainability among specialty chemicals companies, with over 50% of specialty industrial and consumer chemicals manufacturers reporting double-digit demand increases for green chemicals from 2018 to 2021.
Chemicals companies serving consumer-facing industries and healthcare alike expect their investment in sustainability to impact their competitiveness significantly. We see examples of these businesses leading the charge on green chemicals development and innovation.
Insights into the chemicals industry’s sustainability evolution are drawn from L.E.K. Consulting’s 2021 U.S. Specialty Chemicals survey. This first annual survey of 260 chemicals sector professionals across a broad range of industries and executive functions, conducted in late 2021, explored how chemicals companies are shifting their sustainability programs into higher gear.
The survey describes an industry adapting for the long term to a world in sharp transition, emerging from the COVID-19 pandemic and grappling with pressures including supply chain challenges and digitization.
Here is what survey respondents told us about their highest sustainability priorities, the current and expected future demand for green chemicals, and the investments the industry is currently making and expects to make in sustainable practices.
Top sustainability goals have an operational focus
The highest-priority sustainability goals for specialty chemicals manufacturers have an operational focus (see Figure 1). When asked to rank their top three sustainability goals, survey respondents most often cited reduction of energy use (44%), reduction of waste (43%) and chemical recycling (43%).
In a separate question asking which single goals were most important, industry executives most frequently cited reduction of waste (81%), reduction of energy use (80%), reduction of water use (72%) and chemical recycling (65%).
Customer demand for green chemicals is driving investment
Survey respondents reported that their chemicals and materials customers across all end markets have increased their demand for green chemicals over the past three years (see Figure 2). The overall increase exceeded 50%, with the highest increase in environmental services (73%) and oil and gas (72%). Even in the lowest-ranked end market, automotive, demand still increased by 54% according to respondents.
In response, chemicals companies have increased their investment in green chemicals across all end markets over the past three years. The biggest increase in green chemicals investment was for personal care and household products, with 62% of respondents reporting they increased their investment in that category. The investment uptick is one of several signs that consumer demand is among the factors behind the increased green chemicals focus.
Survey respondents reported that investment in sustainability is important to their competitiveness in end-user markets (see Figure 3). At least 50% of respondents rated sustainability investment as “very important” in every customer category.
Chemicals manufacturers have seen a rise in demand of more than 5% over the past three years for green chemicals across chemical customer segments, including specialty industrial, specialty consumer, agricultural and pharmaceutical chemicals. Specialty chemicals companies saw the greatest rise in customer demand for green chemicals, with over 50% of specialty industrial and consumer chemicals manufacturers reporting double-digit demand increases for green chemicals from 2018 to 2021.
To keep pace with this increased customer demand for green chemicals, a majority of organizations have increased green chemicals investment by more than 5% over the past three years (see Figure 4).
Investment priorities may signal longer-term plans
How will sustainability develop in the chemicals industry? Investment plans may offer a clue.
Investment to reduce energy consumption commands the most attention — 58% of professionals surveyed reported they have either been investing toward that goal over the past three years or plan to over the next three years. Only 41% said they had no investment plans toward that goal. Reducing carbon output also ranked high, with 44% either making or planning investments. Fifty percent are investing or plan to invest in asking suppliers to utilize green energy sources, and 48% plan to enter or have already entered into agreements with utilities or power providers to increase their share of renewables.
One subcategory likely to have strong growth potential is bio-based chemicals and other alternatives under development for renewables applications — a response to the negative environmental impact of petrochemicals. According to L.E.K.’s estimates, green chemicals are poised to grow from a less than $1 billion global market in 2020 to more than $2 billion by 2025, more than doubling in value. There is significant investment from venture capital and strategic partnerships in developments such as bio-BDO, surfactants and bio-fibers, and over 120 new academic research studies in the space in 2021 alone (up from ~20 research efforts in 2015).
Overall, investment plans show the chemicals industry continuing and expanding its commitment to sustainability (see Figure 5).
Sustainability and supply chain are not the only pressing issues for the industry. In our next articles on the 2021 U.S. Specialty Chemicals Survey, we will examine the impact of digitization and other emerging trends in the post-pandemic world.
1U.S. Environmental Protection Agency
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