Research Report
Where’s the money in sustainability for chemical companies?
Growing demand for sustainability-related products will create a US$200 billion opportunity for chemical companies—if they can reinvent themselves.
5-minute read
In brief
- Recent research says that sustainability-related offerings are creating a US$200 billion opportunity for chemical companies.
- The industry may struggle to keep up with sustainability-related demand, creating an obstacle to growth.
- To succeed, chemical companies can take steps to ensure they have the access to feedstocks, IP and partners that will be critical to meeting demand.
Sustainability: A key driver of future growth
Chemical companies have been investing in a growing number of sustainability-related initiatives in recent years. But they also face increased regulation around sustainability, including mandatory targets for greenhouse gas emissions and plastics recycling. This has led many to question whether the shift to sustainability will bring real value to the industry.
The answer is “yes.” Over the next five years, sustainability-related offerings will account for nearly one-third of industry growth, creating a potential US$200 billion opportunity. The compound annual growth rate for these offerings is expected to be 11% through 2027, compared to a 2% rate for “traditional” industry products. Thus, sustainability-related offerings are an especially attractive opportunity.
Figure 1: Projected chemical industry demand
About two thirds of this growth will come from existing products and markets related to sustainability, such as insulating materials for buildings, plastics for electric vehicles, polyurethane foams used in windmill blades, and so forth. Many of these offerings will take advantage of existing industry infrastructure, and thus involve relatively low levels of investment and risk. The other third of this growth will come from new markets and offerings, including new electric battery materials, carbon-capture materials and bio-based inks and coatings. This broad mix of traditional and new offerings means that sustainability is creating growth opportunities for companies across the chemical industry.
Can chemical companies keep up?
Chemical companies have been expanding their operations to prepare for this opportunity. An analysis of company announcements shows that over the last five years, the chemical industry has invested an estimated US$60 billion to US$90 billion in new plants that produce sustainability-related products.
Figure 2: Sustainability-related new plant investments
These new plant investments are largely focused on products that are core to the industry, rather than new or niche products. They include investments in naphtha alternatives, such as chemically recycled, bio-based or mass balanced products, mechanically and chemically recycled standard polymers and bio-based intermediates and polymers.
Despite these large investments, the industry is likely to find it difficult to meet growing demand. Customers are already looking for more sustainability-related offerings than the industry can supply. Indeed, some new chemical plants that are not yet up and running are reported to be sold out or nearly sold out—an unprecedented development in the industry. And with chemical customers across industries struggling to meet their sustainability commitments, demand is not likely to abate any time soon.
A blueprint for success
Taking advantage of this opportunity will require more than scaled-up operations. Chemical companies can take steps to occupy “sweet spots” in future value chains by considering how they can:
- Ensure access to sustainable feedstocks. There is a shortage of the raw materials that will be needed for sustainability-related offerings in the industry, and chemical companies may have to cast a wide net to find key resources.
- Forge value chain partnerships. The ability to meet and exceed customer requirements for sustainability-related offerings—reliably, efficiently and at scale—will depend on close collaboration with partners across the value chain, from raw-materials suppliers to end customers.
- Secure IP and proprietary knowledge. Chemicals with sustainability-related properties will require new production processes, assets and equipment. Thus, chemical companies that focus on securing IP and proprietary knowledge will have an opportunity to gain competitive advantage.
- Develop compelling and credible sustainability narratives. Sustainability is an increasingly important driver of share price and enterprise value. That means that chemical companies should shape their sustainability-related narratives for investors and other stakeholders to build ongoing support for the shift to sustainability.
The race is on
Overall, the market for sustainable products is highly attractive, and it presents a clear growth opportunity for the industry for years to come. But the race to occupy the chemical industry value chain’s sweet spots can be expected to accelerate, making the need to move ahead with the steps outlined above urgent. Chemical companies that don’t act soon are likely to find themselves missing out on the expanding range of sustainability-related growth opportunities.
Special thanks to Accenture’s Dr. Karin Walczyk, Ganesh Patro, Asako Sakuma, Gaurav Sharma, Ashish Kumar Gulgulia, Marek Jagiela and Pawel Kubik for their help with this research study.