These demands have taken sustainability to the very top of the corporate agenda. In combination with the emerging competitive landscape and other factors such as energy and feedstock costs, they are challenging the chemical industry's fundamental approach on how to produce and innovate. However, this transformation also provides the chance to redefine the industry and explore the business opportunities resulting from these changing market conditions.
Significant benefits are starting to be made by those market players – specialty and fine chemicals producers, petrochemical manufacturers, resin and fiber producers, consumer product companies, agricultural chemical firms, coating companies, inorganic chemical manufacturers – that are delivering sustainable customer solutions through innovation in strategy, product/service offerings, business models, research and development, and operations.
New business value is measured in terms of growth and profitability. Each company's approach to achieve these goals through a sustainable performance will be different. However, there is evidence that companies that excel share common factors. Such companies demonstrate the kind of positioning, organization, processes and resources that allow them to manage their exposure in line with the wider expectations of society, as well as the demands of investors, customers and business partners. Their managers succeed at the complex task of finding solutions that balance and accomplish the sometimes competing objectives for investment in new products, facilities, and technologies and the sustainability goals of the company.
In this paper, we examine what lies behind these common factors, integrating a largely fragmented area to discern how individual companies are able to achieve competitive advantages and build more shareholder value. We will sustain our assertion with specific examples derived from our engagement in the sustainability field for more than 40 years and the deeply rooted relationships with key global players in the chemical sector.
In our experience, sustainable margins come from four key business levers: lower risk profile, costs reduction, options creations, and an enhanced approach to financing.
Lower risks result from safeguarding the license to operate through stakeholder engagement, better asset management along the value chain and early detection of warnings and potential problems. Cost reduction, the quintessential quick hit, comes from material and energy efficiency, reliability based operations, effective supply chain management and compliance. New options extend the protection of existing revenue streams to newly created sources by securing brand and customer loyalty, differentiation by better environmental and safety performance of products, innovation, new market spaces, the ability to respond to faster changing customer needs and capturing certain price premiums in quality and high performance products. Lastly, a sound sustainability performance has the potential of reducing the cost of capital, lower insurance costs, and access to financial incentives.
The process industry quest for efficiency and performance is not a new objective. While learning to manage repetitive and sometimes damaging business cycles, best in class players developed the practices and competencies that are allowing them take the leap to truly sustainable performance. Energy efficiency is approached as part of more comprehensive program to source and optimize the use of a portfolio of conventional, renewables and unconventional energy sources. Waste management, initially tackled with a life cycle approach, incorporates more rigorous materials due diligence. Performance measurement and monitoring are integrated into complex data and models management systems that operate in real time and perform complex optimization and control of operations. In an environment of increased (direct and opportunity) costs, Environmental, Health and Safety permitting is giving way to new approaches to capital project management that emphasize the triple bottom line (financial, social and environmental performance). Research and development left the narrow pipelines of product development to deliver value through the creation of sustainable intellectual property platforms. Supply chain optimization is complemented with sustainable procurement programs that are helping develop new collaboration networks that reduce costs and risks for all the parties involved.
In a class of it own, emissions monitoring and abetment programs are integrated into deliberate carbon management strategies that tie back to reduced compliance costs, reduced materials costs and waste, and also reduced energy costs. Strategies to manage carbon footprint and respond to climate change include technology solutions and participation in emerging market mechanisms. On the technology side, process industry has successfully implement process improvements to reduce carbon intensity through energy integration, carbon free technologies and sequestration. Market mechanisms include carbon credits, emission trading. At the same time carbon management transcend process operations into the practices and behavior of all business functions, facilities and resources management. Businesses have also the choice approach carbon management responding to legislation and consumer mandates, or proactively anticipating regulatory changes and consumer behavior.
The path to sustainability performance is no different than significant turnaround programs. The precondition is a commitment of top management and employees to ask and respond the relevant and challenging questions in a still uncertain terrain. As a starting point, an understanding of the “context”, drivers and current performance vs. best in class creates the need to act. Benchmarking and external verification are useful tools to build consensus and define priorities. Second, the specific sustainability strategic objectives are enunciated and validated against likely scenarios. Specific actions are identified in all areas of the business (operations and support) and prioritized against the strategic objectives. Our High Performance Business Models call for specific measures regarding the organization (distinction of the sustainability and technology roles have proved to be a good approach to accountability and delivery of results), working processes and resources allocation and readiness. New measurements and monitoring systems are designed and deployed, taking in to account emerging standards and reputable codes. This are integrated to both internal and external communication plans.
To arrive to practical conclusions in this presentation, we will draw from recently completed work for our clients in the chemical industry. This includes benchmarking on how companies are addressing the challenges of climate change, carbon footprint estimation and reduction, implementation of carbon strategies and management practices, sustainability reporting, integration of R&D portfolio to sustainability concepts, integration of innovation management and adoption of clean technologies, among others. Also, Arthur D. Little is a coauthor of a Carbon Winners Equity Index that tracks performance of companies with superior management of their carbon intensity and continuous investment in emissions reduction capital projects. This index focuses in industrial sectors with sensitive exposure to sustainability issues, including the chemical industry. Finally, our work in this area is intrinsically multidisciplinary and we make a concerted effort to inform our work in the chemicals space with our experience in other sectors such as the Oil and Gas, Utilities, Manufacturing, and Public and Non-Governmental organization.
This presentation strives to prove the case that at the very least, companies need to respond to the impact sustainability concerts are already having in terms of regulation, globalization and competition. And they need to take a long-term perspective: demands for sustainable performance is not going to go away, so kneejerk reactions that are not strategically compatible and operationally integrated with the enterprise are more likely to damage business than protect it, more likely to destroy value than create it.