$1.6tn investor group sets sights on chemicals decarbonisation

Responsible investment NGO ShareAction has convened a $1.6tn group of investors to step up shareholder engagement with the chemicals sector, responsible for over 5.8% of global greenhouse gas (GHG) emissions. 

Despite its importance for climate change, ShareAction say that the sector has been largely untouched by shareholder engagement. For example, CA100+, the world’s largest investor initiative on climate change, lists just seven chemicals companies on its focus list of 167 companies. And just two of those – Air Liquide and LyondellBasell Industries – saw any public discussion of climate change at their AGMs this year.  

Hard to abate? 

One reason for this lack of attention is that the sector has typically been seen as ‘hard-to-abate’, with investors focussing their energies on lower hanging fruit in the energy and transport sectors. But new research by ShareAction, published today, argues that it is both technically and economically feasible to fully decarbonise the production of chemicals by 2050. 

ShareAction’s research focuses on the seven primary chemicals (known as petrochemicals) responsible for over two-thirds of the sector’s energy use. Their emissions stem from using fossil fuels in roughly equal parts for:   

  • energy consumption, where fossil fuels are used to produce heat, steam and power for compression, cooling and other processes.  
  • “feedstock”, where they are an input into the chemical reactions 

These emissions can be eliminated by: 

  • electrifying energy processes using only renewable energy 
  • replacing fossil feedstock with green hydrogen or green methanol 

Doing so is increasingly economically viable, too. Renewables and green hydrogen are forecast to undercut the price of their fossil counterparts by 2030, while the costs of emissions are rising. Under the EU’s Emission Trading System, for example, emissions costs for the European chemicals industry are forecast to quadruple by 2030. 

Few credible transition plans 

Yet despite these environmental and economic risks, ShareAction’s report argues that credible transition plans in the sector remain scarce, with only two out of the 21 Stoxx Europe 600 Chemicals companies having a Science Based Targets initiative (SBTi)-approved 1.5C target 

Indeed, it goes further, arguing that industry-proposed solutions – such as blue hydrogen, carbon capture and storage and biomass – have serious limitations on both cost and emissions grounds. By 2050, green hydrogen will be a cheaper and lower emitting solution than blue hydrogen and carbon capture and storage. As such, ShareAction urges investor to be wary of companies with transition plans reliant on these technologies through 2050.  

This finding was echoed this week by the outgoing chairman of the UK Hydrogen and Fuel Cell Association, Chris Jackson. Resigning from his role, Jackson said: “I would be betraying future generations by remaining silent on that fact that blue hydrogen is at best an expensive distraction, and at worst a lock-in for continued fossil fuel use.” 

Let engagement commence 

ShareAction’s research aims to educate investors on the credibility of these various decarbonisation pathways and equip them with the knowledge to challenge companies on their climate claims. As such it includes a number of suggested engagement questions and tracking outcomes to measure corporate performance.  

The NGO has convened a $1.6tn working group of investors to take these recommendations forward in their own engagements and to disseminate the findings into investor engagement practices more broadly. The group includes EOS at Federated Hermes, Barrow Cadbury Trust, EdenTree Investment Management, Jesuits in Britain, NN Investment Partners, and Sarasin & Partners. 

Joanne Beatty, Engager and chemicals sector lead, EOS at Federated Hermes, said:  

“In our view 2021 will be seen as a tipping point for investor engagement on climate action, with greater focus shifting towards neglected sectors such as chemicals, which is vital to accelerate company progress on the climate transition.” 

Potential target companies are listed in ShareAction’s report. They include BASF SE, Covestro AG, Croda International plc, LydondellBasell Industries, L’Air Liquide S.A. and Solvay SA.  

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