The Chemical Industry Must Pass the Litmus Test of Sustainability   

By Hans Wijers, CEO AkzoNobel

Resource scarcity represents one of the key challenges that the chemical industry faces today. With many of the world's non-renewable resources diminishing just as economic growth in emerging markets is taking demand - and price - to new levels, we are faced with a perfect storm where only those users of raw materials that adapt by shifting their business onto a sustainable footing will survive.
    What is the CEO of a chemical company doing writing about sustainability when sustainability affects all of us, you might ask. It is a fair point. The products we create rely heavily on non-renewable materials and are used in the manufacture of thousands of everyday objects. Reducing our industry's reliance on scarce resources means reducing the input costs and ecological footprint of the whole manufacturing sector, something which is not lost on our customers, who are increasingly proactive in coming to us to help co-develop sustainable answers.
    The need for greater sustainable growth must not be underestimated, because social and environmental trends are reshaping the competitive arena. By 2050, global economic development is expected to lead to a five-fold increase in global GDP, creating over a billion new aspiring middle class. This in turn is calculated to lead to an enormous growth in the world's carbon footprint and energy use and will see gross domestic product among the four BRIC economies collectively overtaking the G6 group of nations in 2035. The current scarcity for key resources such as oil, water, land and other raw materials is only going to intensify.
    As heavy users of scarce resources, the chemical industry has always been seen as part of the problem rather than the solution, but by more efficient use of non-renewable resources we are in a unique position to profit from the opportunities presented by these huge demographic changes. The successful players in this competitive arena will be doing more with less and our incentive to come up with new, products and processes that use less resources and emit less greenhouse gases is simple: by doing this, we will increase profits and ensure our long term survival.
   The industry's sustainability leaders are already applying new risk assessment guidelines to all their investment decisions. IRR calculations, payback times and total cost of ownership are too narrow if viewed within their classic accounting definitions: life cycle assessment, life cycle costing and the cost of carbon emissions must be built in to, and given equal weight in, all investment decisions. The introduction of global, more efficient carbon emissions trading schemes will result in big winners and losers among those that are able to keep their CO2 emissions under control and those that are not. Also, environmental impact must not be measured solely in terms of carbon emissions, but must also address other parameters such as water, land, energy and raw materials use.
   The industry's biggest growth driver will be the development of more sustainable products, and those that are ahead of the game will enjoy a clear competitive advantage. R&D budgets will be invested in building products that help our customers build lighter, stronger, longer lasting and recyclable products that require less energy and raw materials to manufacture.
   This is the holy grail of our industry, and will be the litmus test for its survival, but change must also come from external stakeholders. Governments need to create a regulatory framework robust enough to give the private sector the certainty it needs to make investments that will take 10-20 years to pay off. Likewise, the investment community needs to recognize long term investment, even if this does occasionally impact on short term returns.
   The world is changing at an unprecedented rate and this pace of change is accelerating. Success in the previous hundred years is by no means a guarantor of success for the next ten. If Milton Friedman were alive today, perhaps he might say; "The business of business is sustainable business."