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Corporate climate neutrality

 

How to measure the climate neutrality of companies: risks and opportunities

Achieving climate neutrality for companies, the so-called net zero, is becoming increasingly important. The risks associated with polluting production and high carbon dioxide emissions are overcoming those inherent in the transformation into low-impact production inspired by the circular economy.

It is not just about environmental and social risks, but also about economic penalties. The Financial Stability Board created the Task Force on Climate-related Financial Disclosures (TCFD) to concretely measure the result of decarbonisation actions on the financial health of organizations.

The TCFD recommendations formed the basis for the Covestro 2021 report and demonstrate the results achieved thanks to the decision to reduce the climate impact and become fully circular.

Choices that current events make increasingly urgent to increase the resilience of companies, decrease dependence on fossil fuels, reduce the risks deriving from climate change. The report touches on four key points: governance, strategy, risk management, metrics and objectives.

Changing the chemical industry in a sustainable way: governance

Changes are made possible if management is aligned on corporate strategy and embraces the values related to climate change, its risks and opportunities. In Covestro, all Corporate Business Entities governance bodies have been set up for ESG issues.

A Sustainability Committee was created by the Supervisory Board in August 2021. Made up of members of the Supervisory Board and representatives of shareholders and employees, the Sustainability Committee provides advice to corporate management bodies on sustainable corporate governance issues and on the company's activities in the environmental, social and governance (ESG) fields . The task of the Committee is to accompany and monitor the strategies, objectives and initiatives of the Board of Directors, in all aspects of corporate activities related to sustainability and the climate and formulate recommendations in this regard.

Since sustainability and climate-related issues are central elements of the corporate strategy and with a growing impact on commercial activities, to encourage the implementation of commitments, it was decided to align the remuneration system of the board and employees also with the achievement of targets for reducing emissions and net zero.

Net zero strategy: monitor risks and seize opportunities

A good environmental strategy accurately assesses the actual and potential impacts of risks related to climate change but also knows how to seize opportunities for activities and provide information to improve the strategy and financial planning of organizations.

 

The risks of the ecological transition for companies

The aspects related to logistics, the presence of sanctions on carbon emissions, or the new needs of the markets, delimit areas of risk for companies that are faced with the effects of climate change.

The ETS (Emission Trading Scheme) of the European Union heavily sanctions high energy impact industries that do not respect the assigned carbon quotas. And if these operate in a global market, it can constitute an additional cost on the final product which makes it less competitive. Lowering quotas, through certifications attesting to emission reductions, is a strategy to reduce costs and realign oneself to the prices of production in other countries.

Climate change can cause severe slowdowns in terms of logistics. Many trade routes along which materials and products travel suffer from disruptions of an environmental nature. This is the case of the movement of goods across the Reno river which saw the lowering of the water level due to an anomalous drought and the consequent stop of ship traffic.

This route is used by Covestro for its factories in Germany and a large part of the production travels along the river to the world routes and supplies of raw materials. Preparing alternative transport plans has become essential in order not to stop commercial and production activities.

Last but not least, the changing habits of consumers and their choices that aspire to sustainable and climate-friendly products must be considered. The demand of companies is turning towards innovative and recyclable materials. Disregarding this trend means becoming more and more marginal and irrelevant. But thanks to continuous innovation and as a manufacturer of high-tech polymers, Covestro positions itself as a leader in the plastics sector and promotes a radical change in the chemical industry.

The opportunities of sustainable transformation

Investing in sustainability is already showing its validity, anticipating results and rewarding eco-sustainable choices. The sectors that invest to respond to the paradigm shift in customer and consumer demands are constantly increasing.

The energy crisis requires an increase in low-consumption and low-impact solutions. In the construction field, the insulation segment has grown exponentially to make homes and buildings more efficient and less energy-intensive. The demand for insulating panels and materials has increased considerably.

The cost of oil and European incentives push the electric vehicle market, and new generation batteries have become an indispensable complement to photovoltaic systems. In this sector, the technopolymers for lithium battery cells are making the difference.

Opportunities must also include partnerships and collaborations with research institutions and universities. Cooperation with these partners pushes the vision of sustainability and the circular economy even further in the search for alternative raw materials and renewable sources such as hydrogen; and the development of innovative recycling or product life technologies is triggered.

Measure emissions. The Greenhouse Gas Protocol standards

Since its founding in 2015, Covestro has worked to improve the environmental impact. An important horizon in the field of plastic material production which is one of the most energy-consuming and polluting industrial activities. Yet the vision of achieving complete circularity and the transition to net zero is materializing faster than planned. Already in 2021, what had been planned for 2025 was achieved in advance, reducing specific greenhouse gas emissions by 54%.

To measure the actual achievement of the objectives, reference is made to a universally accepted protocol, the GHG Protocol. According to this standard, emissions are classified into direct and indirect and separated into three different areas (Scope):

  • Scope 1 - direct emissions generated by the company
  • Scope 2 - indirect emissions generated by the energy purchased and consumed by the company
  • Scope 3 - includes all indirect emissions generated by the company's value chain (transport, indirect raw materials, sales).

Covestro has established to reach net zero for Scope 1 and Scope 2 by 2035. The commercialization of the first climate-neutral products: MDI and polycarbonate, traces an innovative way to produce polymeric materials and their precursors from alternative raw materials and sources of renewable energy. Specifically, based on greenhouse gas emissions of 5.6 million tons in 2020, Covestro intends to reduce emissions to minus 60% (i.e. 2.2 million tons) by 2030 through coordinated actions at the level of governance and careful management of risks and opportunities.

In the search for sustainability the chemical industry can count on research activities and technological investment. There are three fronts on which to act: research into polymers and their precursors sustainable and from renewable sources, energy efficiency projects of production processes, partnerships with alternative energy producers.

"We are convinced that developing more sustainable, circular and climate-neutral products will help our customers in key sectors such as mobility, construction, nutrition and digitalisation, address global challenges, help achieve the United Nations Sustainable Development Goals, and ultimately , achieve the circular and climate-neutral economy we are all aiming for. (Lynette Chung, Chief Sustainability Officer Covestro)"

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