Cutting greenhouse gas emissions can be good for profit as well as the planet

Chemicals companies have a lot of good reasons to reduce their greenhouse gas (GHG) emissions on top of the urgency of tackling climate change. There’s regulation, brand management and the expectations of investors, customers, and other key stakeholders. 

Another crucial factor is cost. Chemicals companies might have to invest to reduce their GHG emissions, but they will also get valuable opportunities to generate savings.

FT Longitude and Maersk worked together to find out how motivated the chemicals sector is to reduce its emissions. The FT Longitude survey of 500 chemicals companies worldwide, to be published shortly, shows that about one in five now see cost savings as a reason to reduce their emissions. And about one in five say that the chance to create operational efficiencies is a motivation.

Are these figures in line with expectations or is the industry underestimating the cost savings potential hidden in reducing greenhouse gas emissions? 

There’s a case for reducing GHG emissions in a tough economic climate

Potential cost reductions could be a boon in the current environment. Slower global economic growth and high inflation in many markets, combined with supply-chain disruptions that haven’t got any better since the COVID-19 pandemic, have affected the chemicals sector just as they have other industries. Geopolitical tensions are adding to the pressure. 

Against this backdrop, it would be unsurprising – but unfortunate – if chemicals companies were deprioritising sustainability objectives. The industry may have some anxiety about the need for upfront investments, which would explain why only a minority in the survey see the potential for emissions-reduction strategies to benefit their bottom line.

While decarbonisation can be a capital-intensive process, particularly in industrial sectors, reducing emissions and cutting costs can be complementary business goals. A study by consulting firm McKinsey found that some chemicals companies are now achieving overall emissions reductions of up to 10% and as a direct result are benefiting from cost savings of up to 15%. 

How to access the cost savings

Obvious ways for the chemicals industry to save money by reducing emissions may include improving energy efficiency, shifting to lower GHG emitting energy sources such as renewable electricity and using circular economy models that reduce both waste and the cost of raw materials. There’s also considerable potential to reduce the indirect emissions generated by partners in the supply chains. The businesses in the survey, which include commodities as well as speciality chemicals companies, say these scope 3 emissions are responsible for an average of about two-thirds of their total greenhouse gas output, which is in line with data published by the European Chemical Industry Council.

Even if actual figures vary, logistics is a significant source of scope 3 emissions for most of the companies in the research. And even relatively here, such as optimising loads and more intelligent planning and scheduling, would translate into cost savings as well as emissions reductions – a relatively easy win.

It might be time to rethink procurement KPIs

So why do only about a fifth of chemicals companies say that cost savings are motivating them to reduce emissions? One answer could be companies’ procurement functions and their traditional focus on cost, quality, and speed, which doesn’t always accommodate the bigger picture. To reduce scope 3 emissions such as those generated by warehousing and transportation, companies might need to look at their procurement KPIs and update incentives and bonus structures in order to factor in emissions. There are other financial opportunities too. For example, chemicals companies with a track record of cutting GHG emissions might be able to access green finance – potentially with lower borrowing costs. A smaller GHG footprint can also give a company a competitive advantage, bringing in new business and an increase in margins. Emissions reduction isn’t going to be cost free. Some investments will probably feel like they’re out of reach for now – and particularly in the current market and economic environment. So, the sector needs to find a viable trade-off between cost efficiency and improved sustainability needs.

Emissions reduction can create a virtuous circle

The good news is that chemicals companies that do pursue their sustainability goals in this way can create a virtuous circle. They can use the cost savings generated by what they do at the start of their decarbonisation journey – often the less capital-intensive changes – for further emissions reductions that need greater upfront investment. These investments, in turn, create further savings. The goal should be to reach a self-sustaining momentum, and there is some evidence that this is beginning to happen. The chemicals companies in the survey that are moving fastest on sustainability – the minority of companies that already have strategies for mitigating their scope 3 emissions – are more likely to be looking at cost-saving opportunities and are less worried about pressures such as the demands of investors.

For these earlier movers, emissions reduction is increasingly driven by incentives instead of penalties. For them – including the 21% of businesses in this survey pointing to cost saving drivers for change – decarbonisation is a way not only to clean up their businesses, but also to improve their financial performance.

Revisit the first part of this article on how logistics could help chemicals companies tackling climate change.

For more information on this topic:

• Listen to the latest episode of “Beyond the Box” on how to tackle supply chain emissions in the chemicals industry.
• Discover more logistics opportunity for chemical businesses

About FT Longitude

FT Longitude is a specialist thought leadership agency, owned by the Financial Times, working with a wide range of the world’s most prestigious B2B brands across Europe, the US and Asia-Pacific. FT Longitude’s 80+ clients are concentrated in the professional services, financial services, and technology sectors, but also stretch into energy, infrastructure, manufacturing and other industries. Headquartered in London, the company was founded in 2011 and was selected as one of Chief Marketer 200, Top Marketing Agencies of 2020, an Inc. 5000 Europe in 2018, an FT 1000 company in 2017, and a 2016 Leap 100 high growth UK company by City A.M. and Mishcon de Reya. It is led by founders Rob Mitchell (CEO), James Watson (COO) and Gareth Lofthouse (Chief Revenue Officer). For more information: visit longitude.ft.com.