As the GPCA launches its First Annual Sustainability Report, we catch up with one of the regions sustainability heavyweights, BASF, to find out how sustainability initiatives are safegaurding profitability
Historically the Middle East has had an uneasy relationship with the issue of sustainability. Twenty years ago, easy oil and soaring profits meant that sustainability initiatives were practically non-existent. Where they did exist, companies saw them as a hindrance to profitability, little more than an inconvenient hoop through which they were apathetically forced to jump.
Fast forward to today and you are faced with a very different story. Climate change and a global population boom have thrust the issue of sustainability to the forefront of the public’s consciousness.
“We are facing several critical challenges, like energy scarcity, food security, population growth, water availability and resource recovery. However, the biggest challenge is to embrace the fact that sustainability means doing everything better for the future of our children,” said Sabic’s vice chairman and CEO, Mohamed Al-Mady.
With the world’s attention firmly on the issue of sustainability, the Middle East is engaging with the issue like never before and is emerging as a genuine region for innovation in sustainability.
The Gulf Petrochemical and Chemical Association has released its First Annual Sustainability Report this month, which details the Middle East’s triumphs and challenges in the race for a more sustainable downstream sector.
“The petrochemical and chemical producers in the region are striving to continuously improve the utilisation of energy and water in their processes, reduce their carbon and water footprints to as close to zero as possible, promote the development of local innovation capabilities, create sustainable employment and provide a good return to shareholders,” said GPCA secretary general, Dr Abdulwahab Al-Sadoun, upon the release of the report.
Al-Sadoun’s comments highlight a shift in mentality that has been fundamental to the realignment of Middle Eastern perceptions of sustainability. Sustainability makes sense from an altruistic, environmental responsibility perspective but crucially it also makes good business sense.
Shareholders of the refining and petrochemical sector’s key companies are demanding that their business plans are based on good sustainable practices, ensuring long term productivity and profitability, whilst simultaneously safeguarding the earth for future generations.
The GPCA Sustainability Report reveals that around 70% of producers in the region now have a formalised environmental sustainability strategy, while 60% of companies have established environmental targets in their corporate strategy, often as a key target. These statistics add weight to the idea that Middle Eastern producers see the concept of sustainability as making good business sense.
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The Middle East’s attitude to sustainability is changing perhaps more rapidly than anywhere else in the world. The speed of this change in mentality is creating some disparity between regional producers, according to the GPCA report.
“Petrochemical and chemical producers have engaged in the journey towards a sustainable future. However, not all companies are proceeding at the same pace. The early movers and fast followers have rapidly gained momentum, while others are still in the early stages,” the report said.
The Middle East’s downstream sector has benefitted from international expertise regarding the successful implementation of sustainability strategies.
“The GCC sustainability leaders were able to leverage experience from their global piers. They were fast to adapt and implement existing ideas. Today, producers in the region are not far behind global sustainability leaders in Europe and the US. Indeed, they have aspirations to become the global sustainability leaders of the future by developing future proof strategies,” the report said.
This assertion is corroborated by statistics for regional and global CO2 emissions in the downstream sector. Figures published in the GPCA First Annual Sustainability Report show that on average the Middle East’s petrochemical and chemical producers emitted 0.85 ton of CO2 per ton of product. Global sustainability leaders, like BASF and DOW Chemical Company, emitted 0.64 tons of CO2 per ton of product, 25% lower than the GCC average.
European companies like BASF are helping to cement best practice for sustainability here in the Middle East as Volker Hammes, head of the business unit for Turkey, Middle East and North Africa and CEO of BASF Turk, points out.
“We strive for more sustainability not as an end in itself but because this is key to our long term business success. Chemistry is an enabler offering business opportunities that significantly contribute to sustainability. With innovative solutions, we can differentiate ourselves in the market place and simultaneously contribute to tackling the world’s environmental and social challenges,” he said.
Three years ago, BASF began a systematic review of 50,000 of its own products, valued at a total of $70bn, and graded them according to sustainability criteria. The Sustainable Solution Steering Method will be completed shortly and has provided the company with plenty of food for thought.
BASF believe that the move towards sustainability in the region is being driven by greater demand from consumers themselves. The study allowed BASF to identify products with a high sustainability rating, known as ‘accelerators’ and prioritise these products going forward.
“The target is to increase the share of solutions with a substantial sustainability contribution. We are convinced that solutions with a pronounced contribution to sustainability will grower stronger than average due to rising demand from our customers. Investment decisions will also take sustainability into consideration,” he said.
Accelerator products currently account for 22% of the company’s portfolio of products. By prioritising the manufacturing and production of accelerator products, BASF hopes to boost sales across the range.
“Innovations from chemistry play an important role. The continuous search for more sustainable solutions secures BASF’s future business success,” Hammes added.
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As well as identifying and prioritising accelerators in its product portfolio, the Sustainable Solution Steering Method also allows BASF to identify products which do not meet its own stringent standards for sustainability.
“All our solutions fulfil the global and local legal requirements in their respective applications. However, there are upcoming changes in legislation and changes in customer needs concerning the sustainability performance of our solutions which will pose a market risk for these products. Sustainable Solution Steering will serve as an early warning system to help in identifying such market risks and to proactively address them, for example, with our customers or in our innovation pipeline,” explains Hammes.
The criteria for assessment is derived from the three key areas of sustainability; economy, environment and society. Each product must go through three checks on each criteria before a decision is made on its sustainability status.
“If a solution does not pass the qualifier check, it is subjected to a sustainability concern intensity assessment to evaluate the extent of the concern. A solution that has successfully passed the qualifier check is then subjected to a benefit assessment to assess its contribution to sustainability.”
Products which fail the sustainability concern intensity assessment are labelled as ‘challenged’ products. Challenged products account for $258mn of sales per year, around 0.5% of the company’s total product portfolio. BASF are committed to redeveloping and improving their challenged products, and have already had great success transforming a number of key products.
One example of this is BASF’s products which use polyfluorinated compounds (PFCs) in their design. Polyfluorinated compounds are typically used as grease of stain repellents and can be found on the paper coating of food packaging.
“When released into the environment, these chemicals can bioaccumulate [build up] in humans over time, with adverse effects on health.”
Across the industry, some PFCs are being phased out, whilst others which meet the minimum legal requirements are still widely used. BASF have taken the pre-emptive measure of redesigning their PFC based products and transforming them from challenged products to accelerators.
“Accelerator products in the food packaging industry include Epotal SP-101D, a barrier coating for food safe paper packaging made from post consumer recycled fibres; Ecovio, a biodegradable paper coating for coffee cups; polyamide films for cheese packaging and water based resin Joncryl FLX for frozen food packaging,” explains Hammes.
Such are the efforts that BASF has made regarding sustainability that they have recently been included in the Dow Jones Sustainability Index Report, which profiles the world’s leading sustainable companies.
“Being in the DJSI is not a case of being particularly strong in this area or weak in another. You have to perform well in all areas to be included. We have been able to remain in this index for the last 13 consecutive years by continually improving our systems and by setting and reaching ambitious targets. Sustainability has no beginning and no end. It is a permanent journey of improvement and seeing new trends on the horizon,” said Hammes.
By prioritising accelerator products and redeveloping challenged products, BASF are able to stay ahead of the curve in terms of sustainability, and thus safeguard their bottom line against future developments. In doing so, the company is ensuring that its profitability as well as its business practices are sustainable.
With the publication of the GPCA’s First Annual Sustainability Report, there is reason to believe that the Middle East’s downstream sector has every intention of committing fully to the concept of sustainability. Businesses are beginning to realise that sustainability makes good business sense and by getting ahead of the regional curve, companies can safeguard their bottom line for future generations, as PIC’s CEO, Assad Al-Saad, points out.
“Sustainability is not just publishing a report. It is a means to drive change in our operations and collaborate with diverse partners to improve our quality of life. It has real business benefits, which is why it is integral to chemical producers and their strategies,” said Al-Saad.
