EPCA talks green finance

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CONFERENCE REPORT • ACCESS TO FINANCE WILL BE CRUCIAL FOR THE TRANSITION TO NET ZERO, EPCA’S 2021 ANNUAL MEETING HEARD. LEADERSHIP WILL BE VITAL TO SEE THE PROCESS THROUGH

THE EUROPEAN PETROCHEMICAL Association’s (EPCA) 55th Annual Meeting, held this past October in virtual form, took the theme of ‘Future Reimagined’, taking advantage of the pause occasioned by the Covid pandemic to think about how the industry will look in a future after the energy transition, when decarbonisation and the circular economy will be the norm. The first part of HCB’s report on the meeting (HCB November 2021, page 7) highlighted the main learnings to be taken from the discussions, featuring executives from the highest levels in the European (and broader) petrochemical manufacturing sector, their logistics service

ARKEMA IS FUNDING ITS NEW SINGAPORE BIO-PLANT partners and, for the first time at the EPCA event, those with experience in the downstream industries.

Those learnings included the firm belief that there is no longer any question about the need to change manufacturing practices, to reduce carbon emissions and to minimise the environmental footprint of the wider chemical industry. The question now is: how is that future to be realised? There are many pathways and not all will be suitable for each player in the value chain. There will be inevitable mistakes along the way but there is no going back now.

Fundamentally, though, the industry needs to be able to invest in the new systems and processes that will be needed, at the same time as remaining competitive. There is, as many speakers stressed, no value in legislating the sector out of business, especially as it is the petrochemical industry that will be the source of many products that will be vital to reducing the carbon intensity of other industrial, commercial and domestic activities. Who will pay for it all, especially at a time when the petrochemical industry is targeting much of its investment in the growth markets in Asia?

WHO’S GOT THE MONEY? There are ways to tap into investors with the appetite for sustainable projects, as MarieJosé Donsion, CFO of Arkema explained in a panel session on ‘Finance Reimagined’. In October 2020 Arkema successfully placed its first ever ‘Green Bond’, raising €300m to fund its new bio-based Singapore plant. The issue was more than ten times oversubscribed, investors being keen to improve the sustainability of their activities in just the same way as petrochemical manufacturers. “Such issues are becoming increasingly important to investors,” Donsion noted.

The aim of the Green Bond was to create a link between the company’s corporate strategy and its financial strategy, Donsion explained. But achieving that link took effort. “Internally, it requires more work, with additional reporting and a different framework,” she added. “We have to be able to track our sustainability performance,

since the return on the bond is linked.” And that means independent verification of environmental performance.

There are now a lot of agencies claiming to be able to track performance against environmental and social governance (ESG) metrics. That is a brand new service and it is still bedding in but Donsion noted that some of them are becoming more sophisticated, asking for more information to be able to provide reliable audits. But that is good for the company, she said: the organisation is required to focus on the substance of what it is doing in the realm of sustainability.

Prof Dr Andreas Barckow, chair of the International Accounting Standards Board (IASB), agreed, saying that there are more than 800 initiatives in the market that claim to be setting standards and giving ratings for sustainability performance. The aim now must be to get to a single standard, along the lines of those provided by the International Financial Reporting Standards (IFRS) Foundation and the Financial Accounting Standards Board’s Generally Accepted Accounting Principles (GAAP). Perhaps, Dr Barckow said, there is a need for an international body like IASB – indeed, perhaps this is something IASB should take on.

The IFRS Foundation, which manages the standards set by IASB, is the only example of a private organisation that has set a standard that has been accepted around the world, Dr Barckow said. It is now being asked to do the same thing for sustainability and ESG reporting. [In fact, subsequent to the EPCA Annual Meeting, the COP-26 conference in Glasgow agreed to establish an International Sustainability Standards Board (ISSB), which will set sustainability disclosure standards, similarly managed by the IFRS Foundation.]

SAME SONG SHEET The development of common standards is becoming urgent, if investors are to have confidence in the sorts of bonds that Arkema has used. “The world is at different speeds on ESG,” Dr Barckow said. “Global convergence cannot wait for the last one to join the process.”

IASB had already looked at the subject and identified the main issues that need to be addressed and reached out to those organisations that are already active in the field; most have agreed to come onboard, Dr Barckow added. ISSB will start with climate reporting, where it is easy to get agreement as the scope is clearer; other ESG areas may prove more problematic, he noted.

The panel session also heard from Yair Reem, a partner at Extantia Capital and also a member of EPCA’s Digital Advisory Body. “ESG reporting does not lead change,” he began. “A lot more companies are doing it – but emissions have continued.”

From the point of view of an investor, Reem said his role is to help find those technologies that will make a change. Those technologies that will take the world to meet the 2030 emissions reduction targets are out there, he said, and they need to be deployed. The 2050 targets will be harder: the technology is either not there or is too expensive. Capital needs to select those startups that show promise in being able to address carbon problems.

Access to capital will be vital to fund the transformation of the petrochemical sector but, as was repeated several times during the course of the EPCA Annual Meeting, effective and clear leadership will be required to steer corporations in the right direction. One of those leaders who will need to be up to the job is Jim Fitterling, chairman/CEO of Dow, who was given a slot to explain how he is personally reimagining the future.

FIVE PILLARS OF WISDOM Fitterling identified five priorities that need to come into focus to secure a future for the industry. Firstly, industry must transition to net-zero and demonstrate to others that petrochemicals can help them do the same. “Unless we act now, we will have actions forced upon us,” he warned. “We need to show the world that we are the solution – and need to be transparent about it. We must accelerate across the board.”

Dow has committed to be carbon-neutral by 2050, Fitterling stressed; but it will also need to continue on its growth strategy. This will spur the development of new products and processes. “Companies that make this transition will have a competitive advantage,” he predicted.

Secondly, the sector must commit to a circular economy, especially when it comes to plastics. “Plastics are universal and will be

THE PORT OF ANTWERP IS TAKING THE INITIATIVE IN

FOSTERING A CULTURE OF SUSTAINABILITY ACROSS

OPERATIONS IN THE PORT AREA, INCLUDING THE

PROVISION OF SHORESIDE ELECTRIC POWER

crucial in the move to net-zero,” Fitterling said, adding that “global recycling has a long and expensive development future”. He felt that taxes on plastics are regressive so industry has to act first. “We need to be bold, both in our laboratories and with consumers and politicians,” he said. “This will not appear magically: it needs the workforce to fuel the journey.”

Thirdly, people will be key. Organisations have to become more diverse and inclusive. “We need fresh thinkers,” Fitterling said. “We can’t succeed by doing things the same old way.” The Covid pandemic has increased the urgency of this change, he noted, saying that Dow is working with all stakeholders – in top-down and peer-to-peer relationships – to increase diversity.

ESG participation goes a long way to fostering inclusion, Fitterling said. “Industry can take a leading position – indeed, it must!”

Fitterling’s fourth priority follows on from the third: attracting new talent to the industry. That will involve more diversity to generate better ideas, that will lead to better sustainability and economic performance. “The pandemic has hampered the process, reducing the access to higher education for women and disadvantaged communities,” he added. Dow is stepping up to address this, committing to invest $10m to fund science, technology, engineering and mathematics (STEM) education in a number of traditionally Black colleges in the US.

Finally, corporations need to engage with their stakeholders, more than ever. Industry needs their support to press ahead with change and, Fitterling said, “We have to remind the public what the petrochemical industry is doing.” Individual companies do not have all the answers so they must reach out and listen to others.

“We must accelerate across the board on all fronts,” Fitterling concluded. “You may think you’re already doing a lot but we all need to do more – and do it faster. Time is not on our side!”

DOW’S CEO, JIM FITTERLING (ABOVE) STRESSED

THAT THE PETROCHEMICAL INDUSTRY MUST BE LEADER OF THE PACK EPCA had, as it had promised, brought in some views from outside the mainstream of the petrochemical industry. One completely alternative view was provided by Emmanuel Faber who, in his time as CEO of French dairy food company Danone, had implemented some very far-reaching changes that demonstrated the level of leadership that will be needed to make the transformation happen.

“Governance of the transition is crucial,” Faber began. But there may also be surprises: shareholders may already be onboard with the ideas proposed – and are probably ahead of the board on this! The food industry was, he said, as much a part of the problem as part of the solution and he had to work hard to reposition Danone as an environmental leader. “This took leadership and transparency,” he said. “We explained where the cost of carbon was found in the P&L accounts.” He felt that he could not be defensive about this strategy: it might look bad at first but, over time, can demonstrate progress. But going alone on this journey is not viable: “we have to move together as an industry,” he advised.

Faber picked up on Jim Fitterling’s comments, predicting that it will be very hard to get the right talent. Bright new people out there are not looking at the food or petrochemical sectors. Companies need to show good ESG performance if they want to be attractive.

Another viewpoint was offered by Jacques Vandermeiren, CEO of the Port of Antwerp, who gave an illustration of how his organisation has also been transformed. “Ports were once passive landlords, not really connected with the world,” he began. “That seemed like a lost opportunity. Antwerp has

the largest integrated chemical cluster – and lots of brains.”

All of those companies operating within the port area were faced with societal challenges so the Port of Antwerp decided to act as a community builder and facilitator or, as Vandermeiren put it: “the glue that forges partnerships”. Once this approach was taken, it suddenly started making a difference. There are now lots of new sustainability projects underway in Antwerp, not only involving carbon capture and usage/storage (CCUS) and hydrogen. “We can show the world that this is feasible,” he added.

Again, it is not possible to do this alone and, as others had remarked, northern Europe is short of renewable power. Antwerp is therefore talking with partners in places such as Oman, Egypt and Chile, where renewable electricity is more easily available, on the import of ‘green’ molecules to enable the energy transition. “We need to have the whole community ‘Fit for 55’,” Vandermeiren insisted. “And it will take a lot of human resources.”

Wherever there is a challenge there is an opportunity too and Jean-Marc Durand, senior vice-president of refining and base chemicals at TotalEnergies, stressed that industry has to identify those opportunities and action them when it is appropriate. He cited the example of the planned transformation of TotalEnergies’ Grandpuits refinery, located south-east of Paris, from a traditional oil refinery to a zero-oil platform by 2024, to produce renewable diesel for the aviation industry and bio-plastics, and to carry out plastics recycling. The plan raised a lot of concerns among employees, the local community, contractors and others. It is vital, Durand said, to work with those people, not against them.

Wrapping up the EPCA Annual Meeting, EPCA president Hartwig Michels, also president of BASF, said it had been an exciting three days. “I have been truly impressed by the progress and collaboration. Change is not only possible, it’s happening!”

EUROPE’S PETROCHEMICAL INDUSTRY NEEDS TO BE A

FRONTRUNNER IN THE TRANSITION TO NET ZERO AND

TO LET THE PUBLIC KNOW ABOUT ITS SUCCESSES

Michels echoed others in saying that the transition cannot happen if the petrochemical industry in Europe cannot remain competitive on the global stage. That needs regulatory support – not in restricting industry’s response but in providing an open framework within which the transition can be managed, in whatever form it comes.

Michels admitted that the industry has not always been its own best friend. “We need to create a new narrative,” he added. “The petrochemical industry is a frontrunner in the transition and we need to highlight that.”

That will also help with the other fundamental problem facing the industry: attracting new talent. “The key to success is our people,” Michels concluded. “Industry has to be much more attractive to get and to keep people.”

EPCA is hoping that its 56th Annual Meeting, which is scheduled to take place in the first week of October 2022, will be able to be an in-person event. Details of that meeting have not yet been finalised but will be announced on the EPCA website, epca.eu, in due course.