The Sustainability Future for Energy and Chemicals

Executive Overview

During the first half of 2020, ARC Advisory Group conducted research to gain a better understanding of the current state of sustainability and “green initiatives” in the energy and chemical industries.  Specifically, we wanted to learn where companies are focusing their efforts, what challenges they face, and - ultimately - how they believe digitalization and other technologies can advance their sustainability initiatives. 

The research findings show that 90 percent of global energy and chemical companies have sustainability initiatives in place. In general, the sustainability initiatives at energy companies focus on the transition to a lower carbon future, while chemical companies focus these initiatives on producing more sustainable products. In other words, products that meet the increasing customer demand for a more circular economy, with increased recycling and reuse of products and materials.  For both industry segments, improving operational safety also plays a vital role, since – for many companies - this is part of the license to operate.

Government regulation and mounting consumer pressure are driving the investment in sustainable products and lower-carbon energy through carbon taxes, fuel standards, and a ban on single-use plastics. In addition, one of the world's largest investment firms, BlackRock, with nearly $7 trillion under management (including huge stakes in leading industrial manufacturing and energy companies), recently announced that sustainability issues would be at the center of its investment strategies moving forward.

Key findings relative to sustainability initiatives include:

• Lack of capital and resources and aging assets are top barriers to meeting sustainability objectives
• Customer buying preference drives company sustainability programs and access to capital
• Improving operational safety is a key element of most sustainability initiatives
• Digitalization plays a key role in ensuring progress in meeting sustainability objectives.

Benchmarking Research Methodology

Beginning in March and through April 2020, ARC Advisory Group conducted research to analyze and benchmark the current state of sustainability initiatives among industrial asset owners.  More than 200 industry professionals from North America, Europe, Latin America, Middle East, Africa, and Asia-Pacific participated in the survey. ARC then followed up with in-depth discussions with subject matter experts (SMEs) at energy and chemical companies. The research identified some compelling reasons for industrial organizations to rethink their current approaches to sustainability.

ARC analyzed and compared the responses from the engineering SMEs, executive or business managers, operations leaders, and supply chain managers.  Thirteen percent of respondents were at the C and VP levels and 34 percent were management. Industries represented include energy, engineering & construction, chemicals, metals & mining, pharmaceutical, and several other industry segments.

What “Sustainability” Means for Energy and Chemical Companies

Introduced in 2015, the UN Sustainable Development Goals (SDGs) represented an agenda for sustainable development.  While very general, the goals outlined aim to achieve a better and more sustainable future for all.  With UN Resolution 70/1, the UN General Assembly established 2030 as the target year for achieving the following sustainable development goals:

Across industry, sustainability is now front and center for customers and investors alike.  Several international energy and chemical companies have aligned their corporate sustainability goals with the UN’s SDGs.  Many are making progress toward formulating and executing well-thought-out strategies to improve and manage sustainability proactively. Leading industrial companies such as ExxonMobil, Dow, Saudi Aramco, and Shell have publicly announced somewhat different sustainability approaches.

ExxonMobil, for example, has articulated a commitment to producing the energy and chemical products that are essential to modern life, economic development, and improved standards of living and for protecting people, the environment, and the well-being of communities near its operations; and to employ advanced technologies to improve the sustainability of its current businesses.

Dow is collaborating with like-minded partners to advance the well-being of humanity by helping lead the transition to a sustainable planet and society. Dow, one of the world’s leading materials science companies, has expressed a commitment to using science-based solutions and acting collaboratively to help lead the transition to a more sustainable society, employing a circular economy paradigm.  

Shell’s sustainability approach is built on a foundation of safe, efficient, responsible, and profitable operations. According to Shell, it will strive to produce and deliver energy responsibly and in a way that respects people, their safety and their environment. At the simplest level, this means “doing no harm,” and involves a portfolio shift toward renewables.

Saudi Aramco’s approach involves pushing the limits of creativity and technology to drive down the carbon intensity of energy products.  To this end, the company is increasing research into new, carbon-neutral feedstocks to provide meaningful solutions to the energy and climate challenges.

Sustainability Goes Beyond Environmental, Social, and Governance

People and organizations outside the industry want to better understand how the energy and chemicals sectors are evolving.  This includes the impact of these sectors’ activities on people and the environment and the associated risks, opportunities, and trade-offs. One of the ways companies respond to these requests is through corporate reporting, specifically non-financial, environmental, social, and governance (ESG) reporting.   ESG criteria provide a set of standards for a company’s operations that socially conscious investors use to screen potential investments.

The environmental criteria consider how a company performs as a steward of nature. Social criteria examine how it manages relationships with employees, suppliers, customers, and the communities in which it operates. Governance criteria considers factors such as transparency of reporting on sustainability progress, embedding sustainability culture throughout an organization, reporting on how investor dollars are applied, and how an organization manages its data to protect customers and minimize cyber risk.  Sustainability, however, is broader than ESG and extends to meeting the business and other needs of the present, but without compromising the ability to meet the needs of future generations. 

Parties in the supply chain – suppliers as well as customers - are also refining their expectations of transparency.  Purchasing tenders now often integrate sustainability as a pre-qualification item.  High-quality reporting can make the difference in gaining valuable contracts from companies that have similar values. Companies can also mitigate supply chain risks of poor social and environment practices by encouraging transparency throughout their procurement processes.

Table of Contents

• Executive Overview
• Benchmarking Research Methodology
• What “Sustainability” Means for Energy and Chemical Companies
• Relative Importance of Sustainability Objectives Varies Between Industries
• Barriers to Meeting Sustainability Objectives
• Sustainability Program Drivers
• Relative Importance of Sustainability Objectives
• Importance of Digital Transformation to Achieving Sustainability Goals
• Case Study: Digitalization Improves Sustainability at BPCL
• Conclusions and Recommendations

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