The chemical industry is one of the sectors most dependent on fossil inputs, which account for fully a third of the industrial sector's CO2 emissions. Furthermore, the sector boasts more than 350,000 toxic substances, the majority of which have not been assessed for their toxicity with respect to the environment or health, and contributes to 2 million deaths a year, while nondegrading substances pollute our ecosystems, including PFAS,1 known as ‘forever chemicals’.
The chemical industry is difficult to reconcile with responsible investment, especially as its products are often used in a wide range of sectors, some more virtuous than others. But chemistry is also:
- A catalyst in the value chain to accelerate the transition of other industries – the chemical industry is the source of many ‘raw materials’.
Reducing the sector's environmental impact calls for replacing fossil inputs with bio-based raw materials, improving product circularity, reducing water consumption and pollution, and enhancing transparency about product composition. Already, in response to toxicity issues, many players are now doing more to assess the effects of their products on the environment and health, with a view to developing non-hazardous substitutes. In addition to emissions avoided thanks to the circular economy, most players are working to reduce their CO2 emissions by improving energy efficiency, electrifying their processes, using renewable energies such as biomass, or implementing CO2 capture and storage solutions (CCUS).
- Essential to the circular economy, given that almost half (45%) of global emissions that cannot be reduced by the energy transition can be eliminated by transition to a circular economy.2
Here, a number of solutions are deserving mention, including water treatment solutions from Ecolab, SNF and Solenis, green hydrogen solutions from Air Liquide and Linde, and natural food additives from Symrise. These are all companies in which Mirova invests and which, according to Mirova, belong to the 20% of companies in the sector – Barclays Euro Aggregate Corporate index universe – that are ESG-eligible. Although chemical companies are particularly vulnerable to natural disasters because of their massive infrastructure, and thus have all the more incentive to fight climate change, behavioural changes vary with regard to ease of adoption. They require major investment in both research and assets, particularly for commodity chemicals, which involve vast industrial complexes. In Europe, where production is becoming much less competitive due to inflation, manufacturers are investing both to diversify their supplies and to reduce their CO2 emissions in order to comply with increasingly stringent regulations. In the United States, tax benefits offered under the Inflation Reduction Act are also encouraging manufacturers to invest in this direction. However, rising interest rates could weigh on their ability to transform, although this was not felt in 2023, as most chemical companies maintained good access to finance despite a difficult year.
To participate in this transition financing, Mirova has invested in several green bond issues in the sector, albeit only a few. We have been highly selective.
