Over the past three decades environmental, social and governance (ESG) factors have not only improved the chemical industry’s impact on the planet, but also its bottom line, according to ING Investment Management.
Nina Hodzic, senior ESG specialist at ING Investment Management, says: “Many of us do not realise the importance of the chemical industry and the impact it has on our everyday lives. From the clothes we wear to the food we eat to the products we use, chemicals are everywhere enabling us to lead more productive and more comfortable lives.
“Chemical companies now see that resource efficiency is not only good for the planet but it also reduces costs and improves profitability. They increasingly look at the whole value chain and think about ways to help their customers improve their environmental footprint as well. The industry can benefit from mega-trends such as the growing population, climate change and resource depletion, where innovation is a key to success.”
ING IM notes that the industry has been growing almost continuously over the past 40 years, with global revenues increasing from USD171bn in 1970 to EUR2.7trn in 2011. Studies, projecting trends to 2050, forecast that global chemical sales will grow about three per cent per year to 2050.
Hodzic says: “The main driver for this growth is strong demand for food and consumer goods in emerging countries, as well as increasing demand for complex chemicals in developed countries. Chemical production has historically taken place in Western Europe, North America and Japan. However, in recent decades we have seen a major shift of production and sales to other geographic regions and emerging markets (mainly Asia and the Middle East).
“Reasons for this shift are slow demand growth in Europe, high demand growth in Asia (especially China), relatively high production costs in Europe (labour, feedstock and energy costs) and stricter regulatory framework in Europe. Due to these factors, the European chemical industry is moving away from bulk petrochemicals towards higher added-value products and services and significantly improved ESG performance.”
ING IM believes that ESG concerns and evolving stakeholder expectations are having a greater impact on the business environment than ever before. Chemical companies are well aware of this and many of them have shifted from managing reputational risks related to ESG aspects to seizing business opportunities in this area. Nevertheless, the investment manager still signals many ESG risks that require special attention as the use of chemicals in modern society has been accompanied by environmental pollution and adverse health impacts.
Hodzic says: “New innovations in the chemical industry, such as new products contributing to carbon reductions, can create compelling investment opportunities. We are primarily interested in chemical companies which score above their sector average on ESG policies, management systems and implementation and at the same time have no serious ESG controversies. We keep up to date with recent research and NGO reports regarding the chemical industry. Moreover we frequently discuss ESG topics with the management of chemical companies.”
