Q&A: Why The Chemical Industry Is Leading The Way In ESG

May 25, 2022 |

Find out why the chemical industry is taking the lead in ESG initiatives and how it serves as an example of how other industry sectors can follow suit.

By Bryan Sims, Content Director, Opportune LLP

Special to The Digest

Environmental, social, and governance (ESG) strategies present supply chains with a double-edged sword of opportunity. Global companies must consider the humane treatment of workers, strive to reduce their emissions profile, and implement sound business ethics and board diversity while simultaneously striving to make a profit amid a global pandemic, congested supply lines, rising inflation, and uncertain demand.

So, what impact is ESG having on companies involved in the chemical supply chain and how will they look going forward? Patrick Long, Director in Opportune LLP’s Process & Technology practice, Randy Whitaker, Chief Financial Officer and Co-Founder at Viridis Chemical, and Bhavesh Patel, Senior Manager of Strategic Projects at HELM AG – Americas, share their insights on the state of the chemical supply chain today, how ESG can serve as a guiding beacon for creative solutions and effect change for years to come, and more.

As companies have adopted ESG strategies at large, how has the chemical industry, in particular, reassessed its footprint and some of its common business practices?

Whitaker: I can tell you from our perspective, we’re seeing manufacturers that use our renewable ethyl acetate as having a strong interest in making their products more sustainable. And what we’re seeing is those products that are closer to the ultimate consumer are more rapidly achieving higher sustainable levels than those that are using ethyl acetate as a solvent or something that’s not so close to the consumer. Our product goes into everything from inks and paints and coatings on the industrial side to personal care products and cosmetics. And depending on which consumer we’re targeting, those two consumers are extremely interested in sustainable manufacturing processes, but the ones that are closer to the retailer are a little bit more aggressive in their interest in using our product.

Patel: As a privately held company, we want to make sure that those are core values, which are trust, collaboration, and supporting each other. Those come through in the way we structure these deals, especially on ESG. The other element of our company is that we partner and invest in assets where we take a minority investment position. We don’t operate our assets, but we enable the market to these producers.

What is the philosophy for HELM as a player in the industry and how has that begun to influence how you apply ESG and to what effect?

Patel: I go back to the core value of the company and that is to provide a better life for the next generation. We want to evolve from the brand of a chemical distributor to a chemical solution provider. I think that’s the substantial change we see and ESG is that big component. The other part of this whole sustainability exercise is to educate a lot of the buyers, educate a lot of the brand owners, and have them understand that where your feedstock comes from is important, but at the same time, knowing what your impact is on the earth from cradle to grave, and having that circular economy, enabling that economy.

One of those partnerships is with Viridis Chemical. Can you walk us through how you see this specific partnership pushing your ESG strategies forward?

Patel: We’ve had a little bit of history with Viridis. I think the number one element of the two products that are coming out of that facility is those are core principles of what we want to do in the marketplace. So ethyl acetate, for example, really touches the final consumer. One of the big places that it goes into is personal care and so we hear that in the marketplace to say we need a bio-based solution, that’s an alternative to fossil-based ethyl acetate. Now on top of that, when you work with big brands, you have to have a reliable partner. For us, it’s extremely important to have somebody like Viridis that knows their engineering, knows their technology, and knows how to operate the asset on a reliable basis.

Whitaker: We couldn’t be more excited to work with a company than we are to work with HELM. We know our place at this point in the value chain, which is a producer. We have been working hard to get our plant up and running and get our technology perfected so we can be a supplier to Bhavesh’s network. For us, it’s important who we work with and a company like HELM not only gives us the exposure and the network that we just couldn’t afford to build or couldn’t build quickly enough that we’re just left on our own but also gives us the brand quality that they have in the marketplace for who they are as a distributor of chemicals.

So from our perspective, we couldn’t be more pleased to be partners in this part of HELM’s business and be able to supply them with ethyl acetate and other similar types of products in the future as we grow as a company.

Have ESG strategies always, or at least in recent memory, commonly been a go-to solution for chemical companies?

Long: In recent years, ESG has emerged as a more common go-to strategy. What propelled it forward was the push from consumers, as Bhavesh mentioned earlier. They want to know that their end products were produced with as low of a carbon footprint as possible. I think it is a truly unique partnership between HELM and Viridis. I think that this type of dynamic will grow when others observe its success.

Whitaker: Before Viridis, I spent many years in the waste industry. While I was working at a waste company, I got an opportunity to understand how that industry was being affected by sustainability, which I think was a little out in front of most other industries because we were having to deal with things such as managing landfills, community interests, reducing waste streams, and improving recycling. So my 16 years in the waste industry I think gave me a fairly good understanding of how trends were moving. Me and my business partner, Carl Rush, felt like this was a very unique opportunity to be a producer of something that wasn’t already being recognized here in the U.S., which is taking ethanol and using catalytic processes to produce ethyl acetate.

We knew in other parts of the world that sustainability and renewable chemical manufacturing were a little ahead of what it is here in the U.S., but if we could bring something to the market that was timed right, we would be in a position to be able to give ourselves a great chance for success. And then tapping into the markets that Bhavesh and the HELM team open up for us on the distribution side was something that we really thought was a unique situation. That’s really why we got interested in pursuing Viridis as a company.

What are the main motivators that often define the scope of ESG?

Long: One of the first ones is policy. Some countries and regions are a bit more progressive than others, and it’ll be remarkably interesting to get that perspective considering HELM is EU-based. But then there also are states that have different policies. One thing that I’m seeing is in California, a number of our customers are sending renewable diesel out there again because of policies that have been passed and companies want to take advantage of the credits that those are affording. A couple of other factors is being employee-led. It’s something that we as a company at Opportune are dealing with. Employees want to work for companies that they feel good about. I think it’s unique to have that perspective in chemicals and within the chemical industry and then from investors themselves.

There’s a lot of money out there that’s looking for sustainable projects because that’s where their customers, their investors that are filling these funds are demanding there to be action and returns and so they in turn are looking for opportunities.

Patel: From a health standpoint, if we start with Europe, because of where our root is, we actively want to be participating. Responsible care is something that we joined before it became mandated. That’s a crucial element. Governance itself I think if you had to define that now, I think as we open up our books to investors, they’re starting to see that, “Hey, you have self-governed yourself for a long time.” And now it’s just more of putting that label on it, however, at the same time. A lot of it is push-and-pull. For us, we think of it as the push being internal, a lot of times, and it’s coming from our owners saying, “We want to do this. We want to be responsible. We want to leave the world a better place.”

Whitaker: Our existence, our competitive advantage in the marketplace is that we solve a problem for users of chemicals that are interested in having more sustainably oriented supply chains. We’re a producer of renewable chemicals and so we know that our customers in the marketplace are looking at us to be able to fill a need that they have, and that their customers are demanding that they bring them, which is more sustainable products in the marketplace. I think as we move forward, we’ll see reporting become even more sophisticated and more even potentially required by not only the consumer but at some point, I think the regulators for public companies, the SEC will start mandating certain disclosures and they are included in company filings. I think it’s been a really interesting evolution of this topic throughout my career to see where it was and to see where it is today.

How are investors pushing companies into ESG in the chemical supply chain?

Whitaker: I would be remiss if I didn’t mention the tremendous support that we get from our investor group, EIV Capital here in Houston, and IFG Asset Management in the Northeast. Both groups are very integral in helping us to come into existence as a company. Both groups have a strong interest in ESG and are helping us make sure that we are looking at things as clearly and managing our company as well as we can to be a good community participant, to be a good employer of choice, as well as to be a producer of products and participate in the supply chain for renewable chemicals to the maximum extent that we can.

Getting back to government policy, how are evolving ESG standards defining the scope for how steep they can get on an international level?

Patel: We’re headquartered in Hamburg, Germany, so we’re very European-centric in that regard where a lot of the policies are designed to meet the strict standards in Europe. You look at Europe with a lot of the bans on single-use plastics, right? They trickled on into some of the raw materials we make in the automotive industry. They’ve also looked at decarbonizing internal combustion engines, for example. What does that mean for our company? However, we do it via our stewardship, which is number one, and where we invest, number two.

Long: I think the reality is that there are a lot of companies that are making this evolution. I mean, we’re talking with two that are very much on the forefront of it, but others are slowly coming along and they’re doing their part with it as well. I bet that the winners will be those that adopt early and ESG just becomes a natural part. It’s no longer a goal. It’s just something that’s just a core value.

Whitaker: We do a lot of work with a group called the Alternative Fuels & Chemicals Coalition, which is a trade group out of Washington D.C. that has some members that are producers of alternative fuels and renewable chemicals. It’s an advocacy group that’s trying to advance the ball on the production of renewable products and bio-based products. Areas of interest for us that they’re working on is trying to get legislation passed that looks at the production of renewable chemicals and provides investment tax credits at the federal level for renewable chemicals, similar to how those are made available for producers of renewable fuels.

I think at the state level, and at the federal level, subsidies assistance, those types of support networks are needed to attract more producers to be able to take the risk of developing products like what we’re doing and some of the other producers that are supplying HELM for those customers that are interested in renewable chemicals.

How is the dynamic of employees having a voice and a say a guiding power in shaping ESG strategies?

Whitaker: It’s very important. I think they’re asking questions to hold their prospective employers or their current employers accountable to make sure that the decisions that they’re going to make on where they’re going to work or where they have decided to go to work.

Long: I think there are almost two different vantage points. The first is a pure bio-based solution such as Randy’s offering. For some of the clients that I deal with, which are more fossil-based, the executives are walking a bit of a fine line. While they may want to embrace sustainability and understand the importance and be true to investors, their businesses are rooted in an industry that has traditionally been based on the processes of just a certain way and those values aren’t going to change overnight. So, I think it’s a bit more of a journey. I find that fascinating that there isn’t just one way in which ESG gets implemented.

Where are you seeing some powerful decisions in the market today around re-working the chemical supply chain to be ESG compliant? What stands out as the most effective and influential for the market today?

Patel: From our perspective at HELM of having the global footprint, COVID surfaced a lot of the supply chain issues for a lot of folks, but especially for us being a distributor. What we saw is that the long supply chains are becoming a problem and they continue to be a problem because of the availability of products, raw materials, and final goods, and the shipping back and forth is not good. It’s not good for the asset itself and it’s not good for the consumer. So, that creates a big problem in the world economies.

Now, forward-thinking, how do we as a company participate in that? We like to reduce the complexity, so we want to optimize our roles. We want to reduce those long times if we can in many ways and then provide, on a longer-term basis, provide that benefit from a CO2 impact standpoint, measuring that on our supply chain and then giving that data back to the producer or the consumer or the final goods producer to let them take that and promote it if they need to. At the end of the day, this is what we’re trying to do: optimize our supply chain and reduce the downtime on both ends of the chemical sector.

Long: What we’re seeing is a renewed interest in really digitizing supply chains because companies want to know upstream and downstream, what’s going on with suppliers and customers, and how they either are or aren’t participating. If they’re not, how can they shift so that they can and what options are out there? Or just even around transparency, which is so critical for the mandates for some of these companies because of investors, because of employees, because of some of those aspects that we talked about.

Let’s get some insight into your specific three- to five-year horizon. What are the goals and targets for HELM’s portfolio diversification now that you’ve alluded to the fact that you’re hoping to go fully renewable in the future?

Patel: We mentioned a little bit about the vision of the company in terms of when it comes to ESG. Providing a better life for the next generation is extremely important and it’s deep-rooted in some of the decisions for the future. By 2035 is where we want to have that carbon neutrality in place. How do we get there? There are three main pillars, which we talked about a little bit ago. Number one is the decarbonization of our portfolio and we’re actively doing that. Not just saying it but actively doing that. That includes working with our existing partners to find ways to improve their carbon footprint, but also help them get what’s coming out of those plants.

Number two is a circular economy element. That ties into a lot of just awareness and consumer behavior where we can see, or we can enable, potentially, technologies to recycle better. We want to bring those molecules back to the same partners we’re working with and help the overall system work better.

The last piece is really what the Viridis partnership enables, and continues to enable, and that is to produce and distribute biochemicals.

When does ESG graduate from being a focus of needing to make sure goals are hit to just being an inherently core metric of success for companies involved in the chemical supply chain?

Long: I think it has to do with, first, is the company private or public? If a company is private, there’s more latitude that they have. They’re still trying to attract investment and they have a bit more flexibility. I’ve seen many articles that speak to the same kind of terms and how investment is fleeing more of the fossil-based sector. I think that will push and accelerate it. If a company is public, I think that it will increase the transition so long as they have activist board members. I think that’s one of the biggest factors right now in this space.

Patel: I think it’s a strategy. I think we’ll always have an internal rate of return (IRR). You’ll have your net present values (NPVs), and all the other financial metrics. But on top of that, I think layering that ESG metric on top of the financial metrics will not go away.

Whitaker: I agree that I don’t think the concepts or the fundamentals of ESG are going to ever go away. They may take on a slightly different name, or they may take a slightly different shape over time as the expectations evolve and the requirements evolve, and the regulations become more pronounced, but I think ESG is here to stay, and it’s being driven by those who have ideas and core values that align with the principles of ESG.

About The Experts

Patrick Long is a Director in Opportune LLP’s Process & Technology practice. He leads the logistics and supply community focusing on supply chain planning and optimization, inventory management, logistics tracking and tracing integration, and data analytics to support asset management. Patrick focuses his time on studying supply chain issues and implementing digital twins. He has over 20 years of experience in providing clients with energy trading and risk management, packaged software implementation, trading and risk processes, and business process automation. Patrick helps transform capabilities from non-existent to best-of-breed solutions. He enjoys thinking of ways to thwart irrational human behavior and its effects on optimization. Before Opportune, Patrick worked in the energy consulting trading and risk systems practice at Accenture where he managed project teams through the entire process of software selection to the successful implementation of trading and risk management systems for energy trading entities. 

Bhavesh Patel is the Head of Business Development – Americas at HELM Group, a global chemical marketing and sales company headquartered in Hamburg, Germany. Bhavesh is part of a global team that is responsible for the development, financing, and execution of chemical sector investments via strategic partnerships. Bhavesh is also the QIRA Brand Ambassador for the Americas. He works to educate companies and brand owners on the next generation of 1,4-butanediol (BDO), a bio-based BDO made from renewable feedstocks that vastly reduces CO2 emissions. Before HELM, Bhavesh was a Senior Strategy Consultant with S&P Platts (formerly IHS Markit), supporting a broad base of commercial, strategy, and technology assessments as needed to grow the overall business. He earned his B.S. in Chemical Engineering from the University of Wisconsin-Madison. Additionally, he holds an MBA from the Quinlan School of Business at Loyola University Chicago. At Quinlan School of Business, Bhavesh focused on international business, business intelligence, global supply chain, and strategy.

Randy Whitaker is Co-Founder and Chief Financial Officer at Viridis Chemical. Over the last decade, Randy has been involved as founder and CFO of several businesses, including the ethyl alcohol industry and Continuus Materials LLC, a company that converts waste materials to high-value construction products. In 2014, Randy joined International Alliance Group (IAG), an engineering and construction services firm that serves chemical manufacturing, refining, and other capital-intensive businesses, as a Director of Business Development. Previously, Randy was Managing Director of Waste Management’s (WM) venture investment and a new business group from 2007–2012, Finance Director of WM’s Business Development and Strategy group from 2005–2007 and served in Director level roles in WM’s Corporate Accounting and Finance Departments from 1997–2005. Before joining WM, Randy was with an international accounting firm for four years. Randy is a Certified Public Accountant with an MBA from Rice University and M.S. and B.S. degrees in Accounting from Oklahoma State University.

 

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