Here is an excerpt from an article written by Martin Glaum, Alexander Gerybadze, Thomas Müller-Kirschbaum, and Ralph Schweens for MIT Sloan Management Review. To read the complete article, check out others, sign up for email alerts, and obtain subscription information, please click here.
Illustration Credit: Roy Scott/Ikon Images
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As chemical sector giants BASF and Henkel pursued transformations to make good on net-zero pledges, they unlocked new strategies by collaborating.
Whether driven by regulation or by conscience, many large companies have made commitments to reduce their greenhouse gas emissions as part of worldwide efforts to limit global warming. Doing so is particularly challenging for industrial companies that have energy-intensive production processes or sell products that consume a great deal of energy during their use.
European Union programs and directives have put the identification, monitoring, and mitigation of carbon emissions unequivocally on the corporate agenda. As compliance with those regulations compels EU-based organizations to tackle the transition away from fossil fuels with greater urgency than many of their peers in North America, advances in practice are emerging.
Our study of two of Europe’s largest chemical companies, BASF and Henkel, reveals that even in an especially challenging industrial context, it’s possible to achieve meaningful progress on reducing greenhouse gas emissions. In this article, we’ll show how high-level climate goals, set at the corporate level, can be translated into policies that are implemented in companies’ divisions and business units — and, importantly, be achieved in collaboration with partners in the value chain.
The Chemical Sector’s Carbon Problems
According to the International Energy Agency (IEA), the chemical sector is the largest industrial energy consumer and the third-largest producer of direct CO₂ emissions among industry subsectors. While chemical companies’ high dependence on energy-intensive processes plays a significant role, the IEA has also noted that about half of the subsector’s oil and gas use is for raw material inputs rather than as a source of energy.
Furthermore, value chains in the chemical sector are highly complex and heterogenous, which makes assessing carbon footprints and developing strategies for carbon reduction challenging. And because they supply a broad range of materials to all other sectors of the economy, chemical companies influence the CO₂ footprints of companies in downstream industries and service sectors.
This interconnectedness via supply chain relationships underscores the importance of collaborative thinking and cooperation along entire industrial value chains, from producers of primary goods to the end consumers of products and services.
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References
1.Naphtha, sometimes also called raw petrol, is a mixture of hydrocarbons typically consisting of four to 12 carbon atoms. It is mostly generated as a fraction of crude oil but can also be produced from natural gas, coal tar, or peat.
2.Biomass feedstocks are organic input materials that come from living organisms. The feedstock can come from different sources, such as crops, agricultural residues, algae, or industrial waste.