Features, June 2000 Chemical companies embrace stewardship In the face of a series of public relations disasters in the 1980s, the chemical industry has done much to improve its environmental performance. But new issues are constantly taxing environmental analysts. Mark Nicholls reports It's an ill-wind that blows no good, but it would be hard to find much good in the breeze that carried a cloud of methyl isocyanate over the Indian city of Bhopal in December 1984. Over 3800 people were killed and thousands more injured. However, the spill, from a plant owned by US chemicals company Union Carbide, was the catalyst for a radical reassessment of the role - and ultimate sustainability - of the chemicals industry. Bhopal, and similar, albeit less disastrous, spills have lead to great strides to improve health, safety, environmental management, public accountability and the sustainable development of an industry with one of the most significant environmental impacts. The improvement is far from uniform. But Environmental Finance's May poll of environmental analysts and investment funds found that Germany's Bayer AG is currently the chemical stock-of-choice for 'best-in-class' investors, followed by US firms Dow Chemical and DuPont (see box). "There has been a profound philosophical change in the industry," says Geoff Lye, a director of SustainAbility, a London-based consultancy. "The old view was that it was fine for companies simply to comply with legislation. This is no longer the case." The chemical industry now is much more aware of its 'licence to operate', and of the need to win public trust. "There's an appreciation that those that embrace all notions and values of sustainability will be those most likely to survive," he adds. A key development following Bhopal, was the development of the Responsible Care programme designed to clean up the industry's image and pre-empt swingeing legislative controls. "This represents a rethinking of the industry's relationship with society," says Brian Wastle, of the Canadian Chemical Producers Association. "It has defined a new ethic of the public right to know, awareness of social and environmental concerns, and of the stewardship of a molecule over its whole life." The programme was launched in 1985 in Canada, and now extends to 45 countries. While an international umbrella organisation exists, each national programme develops its own codes of conduct. Member companies now represent over 90% of chemical production, signing up to a commitment to address employee health and safety, process safety, pollution prevention, product stewardship, community awareness and emergency response. But there are drawbacks to the programme, notably its lack of sanctions. SustainAbility's Lye believes this lack of teeth risks undermining its credibility. "There are many examples of companies, if they were truly held to account, that should have been expelled from the initiative," he says. This philosophical shift, and the re-focusing of leading companies' long-term strategies, makes the job of the environmental analyst a difficult one. The drive - among industry leaders - towards more sustainable operations is seeing chemicals firms moving away from the 'old' chemistry, often based on hydrocarbons, into life sciences, and a wholesale restructuring of the industry. "With such rapid change in the industry, it is hard to find a benchmark for environmental performance," says Lye. It is striking that Ð on an admittedly small sample - there are significant differences in the rankings of some of the leading companies. Germany's Henkel, for example, has consistently performed well in the ranking performed by the Hamburger Umwelt Institut, coming in head-and-shoulders above its competitors. But only one other participant would have held Henkel in a portfolio of the top five sustainable chemical stocks. Part of the reason for this, say analysts, is the overall high level of environmental awareness within the sector: there is a smaller gap between the average and the excellent compared to many other industry groups. This is particularly true in regard to environmental reporting. "Environmental management and reporting in the chemical industry is better than any other industry's management and reporting," according to research from Storebrand, a Norwegian financial services group. Bayer, particularly, was praised for the quality of its environment reporting. "Its reporting is extensive and informative," says Mariann Stoltenberg, environmental analyst at Storebrand in Oslo. "For example, it is particularly transparent on its emissions: the company has clear and measurable targets." It is in reporting that Henkel, too, wins plaudits. "It has a long history of environmental reporting," says Robert Niggli, an environmental analyst at UBS Asset Management in Zurich. "When we started [analysing companies' environmental performance] in 1996, we could already look back on a number of environmental reports." In environmental management systems (EMS), too, the chemicals industry has led the way, say analysts. Ciba Specialty Chemicals, which ranked number five in the poll, has one of the best examples in its Safety, Energy and Environmental Protection system, says Niggli. But while effective EMSs are becoming industry standard, the more progressive companies are moving beyond simply managing the environmental impact of the production process. "What separates the really good companies from the average is a focus on the products, and on their impact throughout their whole lifecycle," says Stoltenberg. Product stewardship, as the concept is known, can take a variety of forms. At Sustainability Asset Management (SAM), a Zurich-based investment research firm, analysts look to whether systems are in place to ensure that the company informs and trains suppliers and customers, as well as its own staff on the impact of chemicals throughout their lifecycle, says Regula Bosshard, an environmental analyst at SAM. The concept can be taken further. Bosshard points to the 'safetainer' developed by Dow Chemical. The company produces a solvent used by the chemical cleaning industry. Rather than simply selling the solvent, and leaving the onus on the user to manage its impact after use, Dow now markets a container that does not need to be opened by the customer: after the solvent is used, the customer returns the container to Dow for disposal. "Dow is shifting from simply selling solvents to providing a service," Bosshard says. Stoltenberg says that she is also looking at companies' production of persistent organic pollutants Ð compounds which can accumulate to potentially dangerous levels as they are absorbed throughout the food chain. An initiative from the United Nations could see 12 of these compounds banned by the end of the year. As Lye points out, the idea of a truly sustainable chemical industry is some way off - and maybe even unattainable. But advances are being made in moving away from a reliance on non-renewable hydrocarbons as raw materials in chemical production. For example, Cargill-Dow, a joint-venture company set up by the commodities giant Cargill and the chemicals company has developed a process to make polymers from maize, rather than hydrocarbons. While the technology is not new, Cargill-Dow found a way to make the process economical. The leading firms in the industry are also addressing their energy usage, and their greenhouse gas (GHG) emissions. DuPont, for example, has set ambitious targets for reducing GHGs by 65% by 2010 from 1990 levels, and has already managed a 45% reduction. It is also a global leader in developing emissions trading. The ranking was compiled by asking two research companies and two fund managers to name their top five oil and gas companies, placed in order of their commitment to sustainability and/or their environmental performance. The results of the Hamburger Umwelt Institut 'Top 50' Project were also incorporated. It should be noted that the results are indicative at best. The participants use different criteria to measure companies' performance, carry out their research at different times, and, indeed, do not all analyse the same companies. The two research companies that provided their top five performers are Innovest, based in New York and Sustainability Asset Management in Zurich. Storebrand, a Norwegian asset management company, and UBS Asset Management, part of the Swiss bank, provided the top five chemicals components in their environmentally-orientated 'best-in-class' funds. Chemicals: the sector leaders Bayer Dow Chemical DuPont Ciba Specialty Chemicals Henkel FOR THE FULL STORY EVERY MONTH, SUBSCRIBE TO ENVIRONMENTAL FINANCE, OR CONTACT info@environmental-finance.com FOR OUR BACK ISSUES SERVICE