CDP’s latest quarterly sector research report ranks companies in one of the highest-emitting sectors: diversified chemicals, based on a number of emissions-related metrics which in aggregate could have a material impact on company performance. It reveals which companies in the sector are best prepared for the future in developing green products, enhancing efficiency or addressing regulatory change across sector specific environmental metrics. The international not-for-profit organization holds the largest global collection of corporate environmental data.
The industrial sector accounts for more than 32% of global GHGs1 and is the largest contributor to manmade greenhouse gas (GHG) emissions. The chemical industry contributes some 15% of these global industrial GHG emissions. The report covers 18 global chemical companies, which is the largest set of companies analyzed so far in this series. Together they represent approximately US$500bn in market cap and account for more than 60% of the combined emissions (scope 1+2) of the 80 chemical2 companies that responded to CDP.
In the report, Back to the laboratory: are global chemical companies innovating for a low-carbon future? CDP ranks eighteen of the largest and highest-emitting chemical companies, based on a number of different GHG emissions-related metrics, which, taken in aggregate, could have a material impact on a company’s earnings.
Paul Dickinson, executive chairman of CDP said: “We are seeing investors become increasingly aware of the significance of environmental factors to the bottom line, with the prospect of ever tightening regulation to reflect scarcity of resources. What they need is reliable environmental data to assess the financial impacts. CDP’s sector research series is core to a set of tools we are building that investors can adapt as needed to engage with companies on material issues.”
James Magness, head of investor research at CDP added: “The high emissions in the chemicals sector mean there is significant potential from efficiency measures for those companies which choose to act. Of the key metrics analyzed, we assign the most significant share (40%) to process and energy efficiency, which we see as a proxy for efficiency and competitive advantage. Product innovation has the greatest potential to transform a company’s fortunes, though our analysis highlights the need for more comprehensive reporting and reliability in this area.”
- DuPont is a comfortable leader (overall score of 6.12) with A and B grades across all areas except for supply chain optimization. Data analyzed for DuPont pre-dates the June spin-off of its high-emitting chemicals business, making its achievement even more impressive;
- Dutch companies DSM and AkzoNobel are second and third, with three A-grades each. The top three are the only companies to achieve an A-grade in our new carbon regulation readiness area, emphasizing the leadership of companies supportive of low carbon regulation;
- German companies BASF and Bayer are ranked fifth and sixth. They would have ranked higher but for their poor performance in our carbon regulation readiness area, where they both scored an E. According to InfluenceMap3, BASF appears to oppose a number of policies relating to climate change in the EU, including the potential reforms to the EU ETS to make it more efficient, and Bayer lacks transparency with its position towards climate change policies. This is surprising given their good performance in the other five key areas;
- There are three Japanese companies in the top half of the table, and three in the bottom half. Sumitomo (fourth) is the leading Japanese company, with Nitto Denko (fifteenth) the lowest ranking Japanese company, due to high water risk, poor data transparency and supply chain optimization including a worrying lack of supplier or customer engagement;
- After DuPont, the four remaining US companies are spread throughout the table, with Dow Chemical mid-table (ninth) and Ashland last. All five US companies performed poorly in the supply chain optimization analysis, receiving D and E grades. Eastman and Solvay join Ashland in the bottom three of the table. They all receive two E-grades, including in the most important area of process and energy efficiency. Ashland is the worst performer on future emissions reduction targets, which does not bode well for its commitment to future efficiency savings. Solvay is ranked bottom on emissions-reduction performance over the last ten years;
- Disclosure to CDP is critical to achieve the highest level of data quality, as risk for non-responders cannot be assessed. The largest non-responders to CDP’s 2014 questionnaire were: LyondellBasell Industries, Nan Ya Plastics, Formosa Plastics, Formosa Chemicals & Fibre, Petronas Chemicals, Westlake Chemicals and Celanese Corporation.
This research is part of a series of in-depth sector analysis by CDP and will provide investors with the most comprehensive environmental data analysis in the market. It aims to identify the most material metrics for each specific sector and how they link to financial performance. It is unique in that the weighting assigned to each metric is transparent and can be adjusted according to investor preference. Each of these metrics can provide a league in itself but the over-arching research reveals a ‘Super-League Table’ – combining all metrics. Quarterly reports on the automotive sector and electric utilities were released earlier this year.