Stockholm (NordSIP) – Are chemical companies steering your portfolio away from a net-zero pathway? The chemical industry accounts for 6% of global greenhouse gas (GHG) emissions but few of the top companies in the sector have implemented credible transition plans. This is one of the conclusions of an investor-focused study by environmental non-profit Climate Tracker of eight major chemical companies.
The purpose of the new Lessons in Chemistry report is to provide institutional investors with a clear assessment of the transition readiness of BASF, Bayer, Dow, Incitec Pivot, Air Liquide, LyondellBasell, Saudi Basic Industries Corporation (SABIC), and Toray Industries, while highlighting the related climate risks and opportunities. The peer group was selected on the basis that these companies have been identified by the Climate Action 100+ (CA100+) investor initiative as major contributors to global GHG emissions. Many of these companies are held in the global equity portfolios of major Nordic investors.
Planet Tracker evaluated to eight companies on their emissions, climate ambition, investment alignment, and governance practices to identify leaders and laggards as well as key engagement priorities for each one. Individual deep-dive reports on each company are also available on the Planet Tracker website along with a Chemical Sector Climate Transition Dashboard that provides up-to-date consolidated data on the peer group.
The GHG emissions of popular holdings Air Liquide and Dow are growing at rate that is inconsistent with their stated climate targets. These two companies have also failed to publish reduction goals for their Scope 3 emissions, unlike BASF, Bayer, and LyondellBasell. Scope 3 targets are crucial in this sector as they make up the majority of GHG emissions from chemical companies.
Barring a few exceptions, the companies in the peer group also come in for criticism over a general lack of accountability at board level and a failure to link long-term executive compensation to climate metrics. With respect to capital allocation, Air Liquide lead the pack with an average $1.2 billion worth of sustainability-linked investment per year planned until 2030, in contrast to Bayer, which typically only targets 2% of total capital expenditure.
Planet Tracker sought to identify misalignments between companies’ states climate goals and their direct or indirect lobbying activities. Dow, SABIC, and Japan’s Toray Industries lack transparency in this respect and remain members of industry associations that are misaligned with positive climate action.
Only Rotterdam, Netherlands-headquartered LyondellBasell and Australia’s Incitec Pivot gain an overall positive assessment of their alignment with 1.5-degree pathways from Planet Tracker. Holders of these chemical company stocks are urged to systematically incorporate climate-related financial risks in their investment decisions and engagement activities. As part of its analysis Planet Tracker has identified a potential combined $14 billion ‘hit’ to this peer group should they fail to achieve their transition goals.
