Sustainability
Deeper-running transformation
Sustainability runs deep with Singapore, which, from its early days as a newly founded independent country, adopted the vision to become a “city in a garden.” Downtown, tall tropical trees compete with even taller skyscrapers, greens and greys mixing in what can be described as an urban jungle. Over the last year, two main high-level developments reinforced the country’s progressively more ambitious sustainability vision: The first is the higher-than-expected increase in the carbon tax from the current S$5 per tonne (t) of CO2 to S$25/t in 2024, and up to S$80/t by 2030 (see our next article on the Energy Transition). The second is the government’s newly expressed vision to transform Jurong Island, Singapore’s integrated petrochemical complex, into a sustainable energy and chemicals park.
The project is called “Sustainable Jurong Island,” a juxtaposition that daringly puts sustainability right next to the country’s biggest CO2 emitter (Jurong Island produces 54% of Singapore’s CO2 according to a recent paper by the National University of Singapore (NUS)). Ow Kai Onn, VP and head of chemicals and materials at the EDB, said: “The plan represents a recognition that the industry can and must become more compatible with Singapore’s long-term aspiration of achieving net-zero emissions by or around mid-century.”
If successful, the carbon-intensive industries on the island will quadruple the output of sustainable products and achieve more than 6 million t of carbon abatement per year by 2050. The project was developed by a cartel of public institutions, including the Economic Development Board (EDB), Jurong Town Corporation (JTC), the Agency for Science, Technology and Research (A*STAR), the Energy Market Authority (EMA) and the National Environment Agency (NEA), and directly concerns over 100 companies on the island.
Big industry announcements suggest that the vision written on government paper fits well with the industry’s own plans, starting with the three refinery operators: ExxonMobil, operating the country’s largest refinery at Pulau Ayer Chawan; Shell, operating the Pulau Bukom refinery; and Chevron, which has a 50% JV in the Singapore Refining Company. All three players have embarked on sweeping restructurings. Shell has halved its crude processing capacity at Bukom, the country’s oldest refinery, repurposing the unit into polyols production. The company is also investing in what will be Asia’s largest pyrolysis oil upgrader, with a capacity to transform 50,000 t/y of waste-derived pyrolysis oil into circular chemicals, and is also planning to build a 550,000 t/y biofuel capacity to convert cooking oil, animal fat, and green hydrogen into bio-chemicals, sustainable aviation fuel (SAF), and renewable diesels.
The three energy giants are also defining new business units specifically dedicated to low-carbon energies. Since April of this year, Exxon has divided itself across three business lines: upstream, product solutions (including chemical and downstream), and low carbon solutions– which will focus on carbon capture and storage (CCUS), hydrogen, and biofuels (including SAF). Similarly, Chevron has created a new business unit called Chevron New Energies (CNE), also focusing on CCUS, hydrogen, and renewable products.
Money and mentality
In the last few years, Singapore has attracted a few massive investments, all of which represent veritable flagships for a more sustainable chemical industry. Arkema’s 100% bio-based amino 11 plant will be the world’s largest integrated bio-factory dedicated to high-performance chemicals. The project has entered the final construction phase and is due to come on stream this year. Early next year, another world-class project will come live in Singapore when Neste completes the construction of its €1.3 billion bio-refinery. This will supply up to 1 million t/y of SAF and renewable raw materials for chemicals and polymers.
Beyond these headline developments, almost every player we spoke to in Singapore is either studying, planning, or seeing through initiatives to reduce their carbon footprint, sustainability weighing heavily on their mind. But we must ask, are these individual, often small-scale and early-stage projects, systemic enough to drive real change, and do they, together, put the industry on track to meet mid-century net carbon zero goals?
Having a sustainability target has become the status quo, but to get a better panoramic of the progress of the industry on its sustainability journey, we spoke to Laura Ashton, managing director of Low Carbon Advisors, a global advisory firm offering board-level advice on decarbonization. We learned, first of all, that the pandemic has pushed change in the right direction, highlighting existential issues, among which, climate change; but the transition is far from simple. “Even very dedicated companies with bold climate ambitions often do not have fully worked-out plans to deliver net zero. For companies that are only now starting to think about this issue it’s hard to know where to begin and how to prioritize,” said Ashton.
Accountability
One of the biggest issues that holds companies back is accountability, or who is, in fact, responsible for sustainability? Corporations answer to governments, to the financial community, and to the public at large, all three expecting sound climate strategies for 2050. By that point in time, the people leading chemical businesses today will be retired. This is the first obstacle to accountability. A Greek proverb says that ‘a society grows when old men plant trees in whose shade they shall never sit’, but even if the willingness is there, leading a sustainability strategy is not as simple as planting a tree. This complexity is a second obstacle to accountability. And finally, sustainability has not traditionally fallen under the deliverables expected of a CEO, and so it tends to be delegated to a department within the organization. CEOs not seeing sustainability as part of their job is the third obstacle to accountability.
Chemical companies and their extended value chain are starting to push past these obstacles and own sustainability at the board level, either by linking executive compensation to sustainability goals and KPIs, like Maersk has done, or by creating high-level corporate titles, like VP for Sustainability, to oversee the sustainability strategy. Once sustainability is deeply ingrained at the top level, the next challenge for chemical MNCs is to translate it locally. Geri Liu, senior account manager at EcoVadis, has noted a maturity gap between sustainability initiatives at the HQ and at the regional level: “Our clients start with a global strategy, which they roll over to their subsidiaries, but it is important that they understand the appetite for these initiatives at a local or regional level. What happens globally does not necessarily fit the purpose of the regional team, so there is a need for a bottom-up approach too.”
Sustainability can get stuck at the corporate directive level or buried within a dedicated department of an organization, but some companies have done well to make the issue more relevant for everyone by encouraging some bottom-up initiatives. Behn Meyer, the 182 years-old ingredients distributor with German-Singaporean roots, ran its first sustainability campaign last year, inviting employees to come up with innovative projects for sustainability. 38 projects were submitted, and the winners will see their ideas implemented in the business.
“Within 5 years, all listed and large privately held businesses will need to have a roadmap to net zero carbon by 2050, or earlier. Long-term ambitions to do something by 2050 no longer cut it, there needs to be fast and demonstrable progress by 2030. Business leaders must drive this sense of urgency to achieve net-zero emissions, with clear, KPI-linked short and medium-term goals linked to science-based targets, and ensure their culture is aligned to purpose.”
Laura Ashton, Managing Director, Low Carbon Advisors
The long lapse of time until 2050
The other big trap that chemical companies can fall into is to think that there is enough time - that 2050 is far away, that much can change by then, and that new technologies may become available and cheaper while others become redundant. So they wait. Marc Allen, the co-founder of Unravel Carbon, an enterprise-software solution to track GHG, thinks that this perception of time leads to inaction: “Beyond lots of talk around net-zero ambitions, the actual implementation is lagging. The next few years will be about operationalizing those net carbon targets.”
“By 2050” is not such a long time, and the strong language coming out of COP26 stressed that the next decade will be critical. More frequent checkpoints (2025, 2030, 2035, etc.) and short-term targets give chemical companies a better awareness of where they are while breaking down the task of carbon neutrality into multiple interim targets gives them a more realistic grip of what is achievable. These strategies are becoming popular among players with well-defined sustainability roadmaps. Linde, for example, has set an interim target to reduce GHG emissions by 35% between 2021-2035. The targets are also becoming more sophisticated, covering a wider sphere of ESG targets besides carbon emissions, including water use, circularity, or diversity and inclusion (see our article on Talent). BASF, for example, wants to achieve 22 million euros in sales from “accelerator” products - these are products with a sustainability contribution - by 2025. Lanxess, a leader in sustainability on the Dow Jones Sustainability Index in Europe and second worldwide, is targeting groundwater reductions of 15% by 2023 for its operating sites. And companies that imposed targets earlier can already tick boxes on their progress. Henkel, for example, has already achieved 68% renewable energy as part of its 2030 Sustainability Ambition Framework, and it has eight years to get to 100%.
“Companies go above and beyond to show the community they are taking sustainability on board and committing to ambitious carbon reduction goals by 2025, 2030, or 2060. Whatever the timeline, I would like to see more companies, of all sizes, closely monitoring their goals beyond showcasing their targets. Big companies must also think about how to help smaller players. Each of us has a role to play.”
Geri Liu, Senior Account Manager, EcoVadis
Costs stop change, costs drive change
Most chemical companies in Singapore have put together roadmaps that directly tackle their Scope 1 (direct) emissions as well as Scope 2 emissions associated mostly with the purchase of electricity. Only a handful of chemical players are starting to look at GHG outside their premises, referred to as Scope 3 GHG. These are indirect emissions from both upstream and downstream of the value chain and have to do with the extraction, transportation, distribution, and trading of raw materials and products. Anticipating greater scrutiny from their chemical clients, logistics companies are also starting to pay more attention to their customers’ Scope 3 emissions, which happen to be their Scope 1. These emerging considerations from logistics providers will be essential in closing the circuit of emissions, but so far, they are still limited by cost considerations. The attitude of the logistics industry reflects how sustainability is seen as both an opportunity to add value and as a cost burden.
“For the longest time, global trade has been run by costs, but for the next 100 years, we need to make global supply chains more sustainable, more integrated, and greener; this is what Maersk is working hard to do,” said Rupesh Jain, managing director overseeing Singapore, Malaysia, and Thailand for global shipping company Maersk.
Maersk is already offering an eco-delivery service where customers pay for green fuel on their ocean transportation, and, by 2030, it wants to scale this up and see 25% of cargo shipping using green fuels.
Sudheer Vijapurapu, the CEO and founder of New Asia Shipbrokers (NAS), thinks that the shipping industry will not adopt low carbon alternatives at a wider scale unless regulations dictate it to. “The shipping industry is a traditional, reactive industry, worried about costs above everything else. Pledges about investments in decarbonization are often empty-handed and designed to please shareholders. The owners and the charters will feel pressurized to do something only when direct policies or penalties are implemented – that’s when the sector will run into decarbonization overdrive.”
Defying the old thinking that sustainability equals costs is probably the biggest mindset challenge the chemical industry is faced with. The financial sector has already helped introduce a new paradigm grounded in compliance – the idea that no sustainability equals more costs. Seeing climate change as a financial risk, banks will refuse loans without evidence of a convincing decarbonization strategy in place, while a strong ESG agenda has become a necessary condition for private and institutional investors. This “risk and compliance” paradigm is spreading through the chemical supply chain, vendors and suppliers sometimes having to demonstrate good sustainability practices to win, or even to participate in, tenders. The more this happens, a third paradigm takes root: that sustainability equals opportunities.
The cost-reward equation is central to the sustainability approach taken by the chemical industry. This can be driven through compensation measures (like executive pay, winning clients and attracting investors), or through taxation. The failure to respond to the sustainability impetus will be costlier in the long run, when companies will need to turn their businesses upside down to stay relevant, but this faraway reality may be difficult to fathom today. “Decarbonization has a cost, and letting CO2 into the atmosphere is the cheaper option for many stakeholders today. But carbon pricing is acting as a lever, strengthening the business case for decarbonization,” said Marc Allen, the co-founder of Unravel Carbon.
Image courtesy of Pexels
CONCLUDING THOUGHT
“Stories about VLCCs engaging in carbon-neutral voyages to ship crude oil have been making the news, but this carbon neutrality status is obtained by offsetting the carbon footprint with carbon credits purchased on the open market. Applauding such initiatives illustrates how, in the kingdom of the blind, the one-eyed man is king.”
Sudheer Vijapurapu, CEO, New Asia Shipbrokers (NAS)