Set more credible climate strategies or lose our backing, investors tell chemicals firms

Pictured: BASF's plant in Ludwigshafen, Germany. Image: BASF

The investors, convened by ShareAction, have today (23 March) written to BASF, LyondellBasell, EMS Chemie Holdings, Air Liquide, Covestro, Croda International, Koninklijke DSM, Evonik Industries, Givaudan, Lanxess, Solvay, Symrise and Yara International.

Their letter emphasises the importance of credible climate strategies, aligned with the Paris Agreement’s 1.5C temperature pathway and net-zero CO2 by 2050 at the latest, are becoming a pre-requisite for securing investment now and in the future for corporates in high-emission sectors like chemicals.

The chemicals sector is the largest industrial energy consumer and its direct emissions have rebounded post-lockdown beyond 2019 levels, according to the International Energy Agency (IEA). Its dependence on fossil fuels lies not only in their use as a source of energy, but also as raw material inputs. Yet the sector – perhaps because it is not consumer-facing – has not faced the same level of scrutiny of its climate impacts as sectors such as agriculture and transport.

ShareAction has stated that decarbonisation is “not optional” for the chemicals sector and that the case for reducing fossil fuel use in energy and in products is “economic as well as moral”. The organisation’s head of corporate climate campaigns Penny Fowler said: “The soaring cost of gas is showing how dependent this industry is on fossil fuels. As the world pivots towards a greener future the risks of this business model are clear, and they will only keep growing. The evidence is there: green chemicals are essential for long-term profits, people and planet.”

“As investors, we are deeply concerned that major European chemical companies are not moving fast enough to help the world keep global warming to 1.5C,” the letter states, summarising the physical climate risks repeatedly detailed by climate scientists at the Intergovernmental Panel on Climate Change (IPCC).

The IPCC’s Synthesis Report this week reiterated that the world is not on track to limit global warming in line with the Paris Agreement and give the best chance of avoiding the worst physical climate impacts. Instead, we are on course for at least 2.8C of warming. The report did state that action is still possible and advocated for solutions with social, economic, nature and health benefits – but warned that the window for action is rapidly closing and costs will soon start to increase dramatically.

The ShareAction-convened letter continues: “As investors, we will support companies if they show strong potential for long-term value creation. Chemicals will still be a critical sector in 2050, but only companies that can decouple from fossil fuels and navigate the difficult transition ahead will have a share of that market.

“The investment decisions these companies make now will determine their path to 2050; inaction, delay, and prolonging dependence on fossil fuels is not a viable path for the planet or for business. Therefore, it is our view that a credible strategy to align with 1.5C is necessary to remain competitive. Companies that are quickest to scale new processes, feedstocks and circular products will be best positioned for long-term profitability and competitive advantage.”

The investors state that, while they have seen some companies setting more ambitious climate plans and claiming alignment with 1.5C, this is still the exception rather than the norm. Some plans also lack short and medium-term targets to support long-term visions. The letter expresses concern over whether companies are rapidly cutting emissions after setting targets, with several recording increases in emissions.

Also covered in the letter is the need for clearer climate transition plans. Such plans cover how capital expenditure plans contribute to climate objectives.

Importantly, the letter comes ahead of this year’s annual general meeting (AGM) season. Its signatories have stated that they will consider climate ambition and action in their voting action in the coming weeks.

A total of 14 investors have signed the letter, collectively managing $4.07trn of assets.

One signatory is French asset manager Trustream Finance. Its chief executive Claire Berthier said: “It’s becoming increasingly technically feasible and financially viable for chemical production to become emissions-neutral, especially with customers looking for solutions, but the chemicals industry is still slow to act. The long life of industrial assets means the sector is now just one investment cycle away from 2050. For the industry to align with a 1.5°C world, companies in the sector must make critical decisions now. Time is starting to run out.”

ShareAction has also been putting pressure on European banks, asset managers and financial services giants to increase climate ambitions and actions in 2023.

Action inspires action. Stay ahead of the curve with sustainability and energy newsletters from edie