International CSR in the Dutch Chemical Sector, by CSR Netherlands

INTERNATIONAL CSR IN THE DUTCH CHEMICAL SECTOR QUICKSCAN

INTERNATIONAL CSR IN THE DUTCH CHEMICAL SECTOR PUBLICATION DATE November 2015

AUTHORS CSR Netherlands Elsbeth Roelofs Sector Manager Chemical Sector Marjolein van Gendt Project Manager & Research Rowena Achterkamp Project Manager & Communications

ANNEXES: Annex Annex Annex Annex Annex

I: List of PSD and BIC countries II: List of consulted parties III: Definitions of Sustainable Chemistry IV: Relevant policies and regulation V: Future outlooks for a sustainable chemical sector

INTERNATIONAL CSR IN THE DUTCH CHEMICAL SECTOR QUICKSCAN

INTERNATIONAL CSR IN THE DUTCH CHEMICAL SECTOR QUICKSCAN

READERS’ GUIDE THIS QUICKSCAN PRESENTS AN EXTENSIVE OVERVIEW OF THE CURRENT STATUS OF INTERNATIONAL CORPORATE SOCIAL RESPONSIBILITY (CSR) IN THE DUTCH CHEMICAL SECTOR. THE REPORT CONTAINS FINDINGS BASED ON DESK RESEARCH AND INTERVIEWS CONDUCTED WITH OVER 60 ENTREPRENEURS AND OTHER STAKEHOLDERS IN THE CHEMICAL SECTOR. THIS RESEARCH IS PART OF AN INTERNATIONAL CSR PROGRAMME FINANCED BY THE MINISTRY OF FOREIGN AFFAIRS, WHICH AIMS TO FURTHER ENHANCE SUSTAINABILITY IN THE DUTCH CHEMICAL SECTOR AND TO STRENGTHEN TRADE RELATIONS WITH DEVELOPING COUNTRIES AND EMERGING ECONOMIES. IN THIS QUICKSCAN SOME OF THE RESULTS HAVE BEEN SUMMARIZED. FOR MORE INFORMATION, PLEASE CONTACT ELSBETH ROELOFS (E.ROELOFS@MVONEDERLAND.NL)

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TABLE OF CONTENTS

READERS’ GUIDE

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ABSTRACT 6

01

DEFINING THE CHEMICAL SECTOR

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02

HISTORICAL OVERVIEW: DEVELOPMENT OF AN

INTERNATIONAL INDUSTRY

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03

CULTURE AND STRUCTURE OF THE CHEMICAL

INDUSTRY: CONSERVATIVE AND COMPLEX

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04

ADOPTING CORPORATE SOCIAL RESPONSIBILITY 22 05

CSR ISSUES IN THE CHEMICAL INDUSTRY

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TOWARDS A SUSTAINABLE CHEMISTRY:

TRENDS AND BARRIERS

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OPPORTUNITIES FOR INTERNATIONAL CSR

IN THE CHEMICAL INDUSTRY

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CONSTRUCTING A SECTOR PROGRAMME:

PRIMARY FOCUS

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REFERENCES 54

ANNEXES

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INTERNATIONAL CSR IN THE DUTCH CHEMICAL SECTOR QUICKSCAN

ABSTRACT DUTCH CHEMICALS CONTRIBUTE SUBSTANTIALLY TO WEALTH CREATION ALONG NEARLY ALL VALUE CHAINS AND ACROSS INDUSTRIAL SECTORS WORLDWIDE, RANGING FROM PHARMACEUTICALS AND CROP PROTECTION TO THE AUTOMOTIVE SECTOR, TEXTILES AND CONSUMER GOODS. HOWEVER, LARGE SOCIETAL CHALLENGES SUCH AS THE GROWING EXPANSION OF CHINA AND THE SHALE GAS REVOLUTION IN THE UNITED STATES HAVE PUT SUBSTANTIAL PRESSURE ON THE SECTOR IN EUROPE. SOCIETAL AWARENESS OF POTENTIAL RISKS THE SECTOR POSES INTERNATIONALLY, IN TERMS OF POLLUTION AND WORKING CONDITIONS, HAS GROWN. INNOVATIVE SOLUTIONS AND NEW WAYS OF WORKING BASED ON SUSTAINABILITY OFFER A WIDE RANGE OF OPPORTUNITIES FOR THE SECTOR TO REPOSITION ITSELF. Value chain responsibility is required of companies through the OECD Guidelines of Multinational Companies and also demanded by clients and society at large. Chemical companies are optimistic about, and sometimes even underestimate, the risks that international CSR issues can pose in their supply chains. When confronted with international CSR risks while doing business, 58% of the sector feels powerless. These issues, like biodiversity loss, forced and child labour, and extensive pollution, are therefore the sector’s blind spot. This research provides an overview of the complete array of CSR issues relevant to the chemical sector. See also figure A.1

The chemical sector as defined in this research covers the chemical sector in its full diversity: producers of bulk chemicals and intermediates, producers and convertors of polymers, industrial biotechnology companies, producers of fine chemicals and specialties, formulators of chemicals products. The culture in the chemical sector tends to vary depending on the segment, but in general the sector can be defined as rather conservative. Substantial investments in current technology cause the sector to be hesitant to change. This is especially the case for bulk companies. Other segments like industrial biotechnology, polymers, specialities and fine chemicals tend to be much more innovative and flexible.

Looking at the trends that shape the landscape for the chemical sector, it is clear that a large number of trends directly and indirectly influence the sustainable development of the chemical industry. Most of the trends are robust for the coming years, such as the growth of the world population and major environmental trends like climate change, the depletion of fossil resources, loss of biodiversity, scarcity of water of good quality. For Europe and the Netherlands the importance of multilateral, open trade will become increasingly important, because of our dependence on raw materials and the search for new markets to sell our products. Awareness in terms of resource efficiency, recycling of waste streams, biobased and circular economy will grow as well. Consumers are becoming more environmentally conscious. The relevant legislation for the chemical industry is increasingly determined by the EU and generally tends to become stricter. It thus supports the sustainable development of the sector.

Sustainability is a major topic in the Dutch chemical sector.

Companies need to adhere to strict environmental, health and safety regulations. Many of the Corporate Social Responsibility (CSR) activities in the sector are therefore compliance driven. In many companies CSR is strategically embedded: an inquiry in 2014 pointed out that half of the respondents from the chemical sector have a CSR policy. In discussions on CSR topics with chemical companies, cost savings or business continuity feature most prominently. Efforts to tackle other sustainability aspects are often considered to be beyond their means.

Although survival is essential to ensure a company can prolong its positive impact, CSR does also entail being aware of the potential negative or positive impact a company can have on social or environmental aspects of society – locally as well as throughout the international value chain.

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ABSTRACT

FIGURE A.1 OVERVIEW OF CSR ISSUES IN THE VALUE CHAIN OF THE CHEMICAL SECTOR

However, setting up new sustainable business models in order to cope with these trends can be a challenge, because they lack initial economies of scale, require infrastructure investments and there is a need to convince clients as well as regulators. The following concepts and opportunities offer starting points for the chemical sector to not only tackle CSR issues but also develop innovative solutions:

The chemical industry has the potential to develop solutions to societal problems and as such has contributed and will contribute to sustainability. For the international CSR sector trajectory we have identified the following challenges and opportunities specifying how we, as a Dutch sector, can contribute to sustainable chemistry. These are: • Transparency in the value chain on CSR risks;

• Circular economy

• Sustainable production throughout the value chain;

• Biobased economy and chemistry

• Sustainable sourcing;

• Small scale chemistry

• Development of sustainable products aimed at developing countries;

• Smart, functional materials • CO2 economy

• A trust-based relationship between chemical companies and the government/society;

• Sustainable products for developing countries

• Circular products and services;

• Valorization of side streams and invasive species

• Diversity in scale.

• Modernization of existing industries in developing countries.

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INTERNATIONAL CSR IN THE DUTCH CHEMICAL SECTOR 8

DUTCH CHEMICALS CONTRIBUTE SUBSTANTIALLY TO WEALTH CREATION ALONG NEARLY ALL VALUE CHAINS AND ACROSS INDUSTRIAL SECTORS WORLDWIDE, RANGING FROM PHARMACEUTICALS AND CROP PROTECTION TO THE AUTOMOTIVE SECTOR, TEXTILES AND CONSUMER GOODS. HOWEVER, LARGE SOCIETAL CHALLENGES SUCH AS THE GROWING EXPANSION OF CHINA AND THE SHALE GAS REVOLUTION IN THE UNITED STATES HAVE PUT SUBSTANTIAL PRESSURE ON THE SECTOR IN EUROPE. SOCIETAL AWARENESS OF POTENTIAL RISKS THE SECTOR POSES INTERNATIONALLY, IN TERMS OF POLLUTION AND WORKING CONDITIONS, HAS GROWN. INNOVATIVE SOLUTIONS AND NEW WAYS OF WORKING BASED ON SUSTAINABILITY OFFER A WIDE RANGE OF OPPORTUNITIES FOR THE SECTOR TO REPOSITION ITSELF.1

FOR A DEFINITION OF SUSTAINABLE CHEMISTRY WE REFER TO THE DEFINITIONS OF THE OECD AND SUSCHEM, SEE ANNEX III.

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01. DEFINING THE CHEMICAL SECTOR THE CHEMICAL SECTOR AS DEFINED IN THIS RESEARCH COVERS THE CHEMICAL INDUSTRY IN ITS FULL DIVERSITY: PRODUCERS OF BULK CHEMICALS AND INTERMEDIATES, PRODUCERS AND CONVERTORS OF POLYMERS, INDUSTRIAL BIOTECHNOLOGY COMPANIES, PRODUCERS OF FINE CHEMICALS AND SPECIALTIES, FORMULATORS OF CHEMICALS PRODUCTS, THE COMPANIES THAT PRODUCE OR MIX CHEMICAL PRODUCTS (I.E. DUTCH SBI CODES 20, 201-206).

FIGURE 1 (AT PAGE 11) PROVIDES AN OVERVIEW OF THE CHEMICAL SECTOR. THE AREA WITHIN THE DOTTED LINE IS HOW WE DEFINE THE CHEMICAL SECTOR IN THE SECTOR PROGRAMME.

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DEFINING THE CHEMICAL SECTOR

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FIGURE 1: SCHEMATIC OVERVIEW OF THE VALUE CHAINS OF BIOBASED AND FOSSIL BASED CHEMICAL INDUSTRY (BASED ON WOLFS, TNO, 2014)

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A MULTIMILLION INDUSTRY

SMALL COMPANIES, HIGHLY SPECIALIZED

The Netherlands is the third largest chemical producer in Europe, after Germany and France. In 2012 the sectoral turnover was €60 billion. The chemical industry employs 64,000 people (including 14,000 in the pharmaceutical industry), distributed among more than 400 companies. With the exception of food, beverages and the tobacco industry, the chemical industry is the largest business sector in the Netherlands. The Dutch chemical industry has a strong international character.

In areas such as basic chemistry, biotechnology, food ingredients, coatings and high performance materials, the Netherlands is among the world’s top players. This can also be seen in the export figures. The chemical industry accounts for nearly 20% of all Dutch exports. This is a positive contribution of €14 billion to the Dutch national trade balance. 75% of Dutch produced chemicals are exported. Of this number 80% is exported within the EU and 20% to outside countries (Source: www.vnci.nl, Vlaams Nederlandse Denkgroep Toekomstverkenning, 2013).

The Dutch chemical industry consists of both large multinational firms as well as specialized Small and Medium Enterprises (SMEs). Some of the multinationals have been at the top of the Dow Jones Sustainability Index for years. Famous examples include AkzoNobel and DSM. Both companies are active in over 50 countries, with the largest number of foreign locations being in China, India and Brazil. About 20% of the total workforce in the chemical sector is employed by SMEs. An overview for each segment (categorized by Dutch SBI codes) is provided in Table 1. Zooming in on biotechnology companies in the Netherlands, there are at least 600 companies providing almost 35,000 jobs (Van der Giessen et al, 2014).

“ THE NETHERLANDS STANDS OUT IN INDUSTRIAL BIOTECHNOLOGY. WE SHOULD TAKE ADVANTAGE OF THIS. IN DELFT ALONE AT LEAST 400 BIO-TECHNOLOGICAL ENGINEERS CAN BE FOUND, IN ADDITION TO THE ENGINEERS SITUATED IN LEIDEN, GRONINGEN AND WAGENINGEN.”

– CEO, BIOTECH COMPANY 11

INTERNATIONAL CSR IN THE DUTCH CHEMICAL SECTOR QUICKSCAN

TABLE 1: SHARE OF SMES IN THE CHEMICAL INDUSTRY IN TERMS NUMBER OF ENTERPRISES, EMPLOYMENT AND EXPORT & IMPORT TO BIC AND PSD COUNTRIES (CSR NETHERLANDS, 2015A)

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DEFINING THE CHEMICAL SECTOR

TRADE RELATIONS WITH DEVELOPING AND EMERGING MARKETS

Other observations regarding SMEs in the chemical industry from the Thermometer International CSR (CSR Netherlands, 2015a) but not included in table 2 are: “On average chemical companies have higher trade flows with developing countries.

31% of the respondents are directly involved in developing countries. 18% have indirect trade relations. The main drivers for doing business in developing countries are new opportunities and further continuation of current activities. Furthermore, 32% say they expect an increase in business activities with developing countries in the years to come.”

The proportion of imports and exports of Dutch chemical SMEs to developing countries2 and emerging markets3 is relatively high as compared to the total amount of trade in terms of EUR. SMEs account for 39% of export revenues and 38% of imports to PSD and BIC countries (OECD, 2012)4.

Table 2, derived from the International CSR Thermometer 2015 of CSR Netherlands, provides an overview of the import and export breakdown. In terms of exports, China, India, Brazil, South Africa and Egypt are in the Top 5 of export destinations. Imported products mostly come from China, Brazil, Indonesia, India and Thailand, which make up the Top 5.

TABLE 2: RELATIVE BREAKDOWN OF EXPORTS AND IMPORTS OF DUTCH SMES IN THE CHEMICAL INDUSTRY TO AND FROM PSD AND BIC COUNTRIES (CSR NETHERLANDS, 2015A)

AS DEFINED AS PRIVATE SECTOR DEVELOPMENT COUNTRIES BY THE DUTCH MINISTRY OF FOREIGN AFFAIRS. SEE ALSO ANNEX I BIC COUNTRIES BEING BRAZIL, INDIA AND CHINA 4 SOURCE: SUSTAINALIZE, 2014. THE PERCENTAGES ARE BASED ON THE STATISTICS OF THE OECD (2012). THE CATEGORIES OF CHEMICAL COMPANIES TAKEN INTO ACCOUNT FOR THESE IMPORT AND EXPORT FIGURES ARE THE SAME AS IN TABLE 1 ABOVE, SBI CODES 201-206, SBI CODE 20).

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02. HISTORICAL OVERVIEW: DEVELOPMENT OF AN INTERNATIONAL INDUSTRY DURING THE 20TH CENTURY THE CHEMICAL INDUSTRY AND CHEMICAL TECHNOLOGY IN THE NETHERLANDS TRANSFORMED DRAMATICALLY. THE MANUFACTURING OF END PRODUCTS EVOLVED FROM SMALL SCALE, CRAFT LIKE PROCESSES TO ADVANCED BULK CHEMICAL PROCESSES. MEANWHILE A LARGE NUMBER OF NEW PRODUCTS ENTERED THE MARKET, MAINLY COMPRISING PLASTICS. THE CHEMICAL PROCESS TECHNOLOGY OF THE TWENTIETH CENTURY ENABLED THE REALIZATION OF LARGE SCALE PRODUCTION PROCESSES, AS WELL AS SPECIALIZED ROUTES FOR FINE CHEMICALS AND SPECIALTIES. THROUGH THIS DEVELOPMENT NEWLY DISCOVERED PRODUCTS CREATED IN LABORATORIES ENTERED SOCIETY AT AFFORDABLE PRICES.

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HISTORICAL OVERVIEW: DEVELOPMENT OF AN INTERNATIONAL INDUSTRY

At the same time it became clear that the large expansion of the chemical industry led to overcapacity in Europe and America, severely impacting profits of bulk chemical companies.

This meant companies had to shift their focus towards other production strategies. Due to societal discussions addressing the limits of growth, such as in the Club of Rome, scaling up and large production facilities were seriously questioned. This led to extensive pressure on the Dutch chemical sector during the seventies and eighties. In general, it was assumed the industry should make a shift towards knowledge intensive fine chemicals and specialties. Even though this was not an easy process, companies such as DSM and AKZO Nobel successfully broadened their product portfolio with fine chemicals and specialties. Within bulk chemicals, methane and its derivatives grew in importance. However, propane and butadiene became less significant.

products. This was the case particularly for chlorine, organic solvents in coatings, plastics and pesticides. Currently the chemical industry in the Netherlands and Europe is facing major challenges. In 2013 profits of the Dutch sector fell by 50% (from €6 billion to €3 billion) due to the production of cheap shale gas in the USA, leading to reduced profits in the chemical industry and the Netherlands and the EU becoming less attractive for investments in new commercial plants and in the installed base of the chemical multinationals. In 2014, however, a slight increase in profits was seen following a decrease in oil prices.

Even so, the European chemical sector still faces fierce competition from emerging economies in Asia and South America, where production costs are relatively low. The same applies to North America, where production of shale gas is reducing energy costs. In response, one of the best strategies for Europe seems to be to continue its transition from bulk chemicals towards products with higher added value, resulting in a reduced dependence on feedstock and energy prices. The Dutch Chemistry Key Sector (Chemistry is one of nine sectors selected by the Dutch government in its ‘Topsectorenbeleid’ industrial policy) has developed an outlook for 2050 supporting this strategy: In 2050 the Netherlands will be known worldwide for its sustainable chemical industry using biobased resources and its clean and sustainable production. For 2030 the vision is that the chemical sector will have a turnover of €97 billion, will invest about €3.5 million and employ 76,000 people. The sector will use 75% virgin fossils, 10% recycled fossils and 15% biobased raw materials (source: Topsector Chemie, 2015). See also Annex V for the visions of the Chemistry Key Sector and the Biobased Industries PPP.

Internationally, the chemical industry laid the foundation for chemical technological developments, further strengthened by research institutes and universities. Occasionally, the Netherlands took the lead, but most of the time remained in the background observing developments in other countries. Meanwhile the structure of the chemical industry had changed profoundly: the chemical sector had now mostly become a fossil based industry producing bulk chemicals. As most of these companies are internationally oriented, this led to further domination by multinationals. A similiar development took place in Germany (source: Schot et al, 2000).

CHEMICAL ‘GREENIFICATION’

Aside from a changing structure, the Dutch chemical industry also became more environmentally aware. This was further enhanced by societal debates between the industry and environmental NGOs in the seventies and eighties. As a consequence, chemical companies invested more in developing environmentally benign (or environmental friendly) processes and 15

03. CULTURE AND STRUCTURE OF THE CHEMICAL INDUSTRY: CONSERVATIVE AND COMPLEX THE CULTURE IN THE CHEMICAL INDUSTRY TENDS TO VARY DEPENDING ON THE SEGMENT, BUT IN GENERAL THE CHEMICAL INDUSTRY CAN BE DEFINED AS RATHER CONSERVATIVE. NEW PRODUCTS AND NEW PROCESSES HAVE TO BE THOROUGHLY RESEARCHED AND TESTED BEFORE BEING WIDELY ADOPTED. CHEMICAL PLANTS REQUIRE LARGE INVESTMENTS, MAKING IT DIFFICULT TO IMPLEMENT MODIFICATIONS. THIS IS ESPECIALLY THE CASE FOR BULK COMPANIES. OTHER SEGMENTS LIKE INDUSTRIAL BIOTECHNOLOGY, POLYMERS, SPECIALITIES AND FINE CHEMICALS TEND TO BE MUCH MORE INNOVATIVE AND FLEXIBLE.

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CULTURE AND STRUCTURE OF THE CHEMICAL INDUSTRY: CONSERVATIVE AND COMPLEX

TABLE 3: IMVO THERMOMETER 2015 (CSR NETHERLANDS, 2015A)

SHAREHOLDER VALUE AND STRATEGIC INDEPENDENCE

TRADE ASSOCIATIONS

The Dutch chemical industry is well organized (Table 3).

There is a great variety of trade associations representing different subsectors and, as a sign of unity, many even share an office location in The Hague. Within the trade associations, political trends and developments are often discussed with their members one or two years prior to implementation. Membership can therefore be of advantage. However, membership fees tend to be high and especially small companies struggle to meet their payments.

Most Dutch chemical companies strongly value their independence and place great importance on constructing a solid business case. By doing so they are no longer in need of subsidies or preferential rules and regulations, as subsidies and the policy framework can easily be retracted, possibly undermining the foundation a company is built on. Strategic decisions for Dutch chemical companies also rely heavily on their ownership structure. Family companies are very much future-oriented – and often value-oriented – and therefore have a stronger tendency to incorporate CSR. Shareholders or venture capitalists can steer companies in certain directions as well.

Avantium, for example, started developing its own technology due to a push by venture capitalists. This has led Avantium to focus on developing biobased products and molecules with high added value. CEOs who are also majority shareholders have the power to single-handedly determine a company’s strategy. Some choose innovation, some local opportunities and some focus on sustainability.

EFFICIENCY

The chemical industry is operating as efficiently as possible, fully maximizing revenues gained from feedstock and other resources. The fossil polymer market is moving towards recycling and more efficient resource use.

“ LARGE SUPPLIERS SOMETIMES DISPLAY A CERTAIN ARROGANCE REGARDING QUESTIONS FROM CLIENT SMES. SOMETIMES THEY HAVE A MONOPOLY ON CERTAIN PRODUCTS.” – CEO, USER OF CONSTRUCTION CHEMICALS

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INTERNATIONAL CSR IN THE DUTCH CHEMICAL SECTOR QUICKSCAN

BEST PRACTICE: AKZO NOBEL EXAMPLE

SUPPLY CHAINS

Chemicals can be found in all types of end-products. Some are produced for direct consumer use, others serve B2Bs. Chemical companies are often first-tier suppliers within longer supply chains. Most chemical supply chains incorporate one or more multinational companies supplying all or part of a product. SMEs, or wholesalers, often experience difficulty when approaching these multinationals with questions about the origins of their products. A strong example can be found in cleaning products. These contain at most derivatives of palm oil. Suppliers of chemicals cannot provide accurate information as to how much palm oil is used in which ingredients.

As long as this lack of transparency exists, it is very hard for SMEs to obtain more sustainably sourced products. Multinationals usually create their CSR policy from an international perspective. The Dutch market is only a small part in this equation.

“ I AM SURPRISED FROM WHAT CORNERS OF THE WORLD OUR RAW MATERIALS COME. WE ARE OFTEN BRUSHED OFF BY MULTINATIONALS WHEN WE TRY TO RETRACE OUR RESOURCES OR ASK QUESTIONS ABOUT THE ORIGINS. AS AN SME IT IS HARD TO EXERT INFLUENCE OVER MY SUPPLIER.”

– MEO/OWNER, CLEANING AGENT MANUFACTURER Wholesale and agents or resellers make up a large portion of the Dutch chemical industry and its (international) buyers and suppliers. For these parties low pricing has priority over sustainability. When a cleaning products company decided to move forward with more concentrated products, they received no support from resellers as they feared it would diminish their business. To provide a positive incentive, the company offered higher margins and training of cleaning personnel in order to successfully push through their new product. This worked for some resellers and established closer relationships.

Instead of auditing its suppliers, in 2005 Akzo Nobel shifted to ‘supportive supplier visits’. By conducting these visits, Akzo Nobel put forward the message that they wanted to assist with making their suppliers’ business conduct more sustainable.

Access to the international market is the ‘carrot’, withdrawal as a client the ‘stick’. 350 suppliers in emerging economies and developing countries were identified. Of these 350 suppliers roughly 200 were performing well, 130 companies needed to make serious changes and Akzo Nobel had to sever ties with the remaining 20 due to excessively poor circumstances. Improvements were quite swift, sometimes aided by the government.

‘Supportive supplier visits’ always involve two Akzo Nobel employees: one from the Sustainability office, the other from the Sales department.

This combination works well. A mentality shift was also needed at Akzo Nobel: if you require your suppliers to invest and change, you will also sometimes have to accept higher prices. The result? Long term sustainable business relations.

In general, resellers are less prone to respond to a client’s wish regarding product improvement. Even though such feedback would eventually help chemical producers, such as the cleaning products company mentioned previously, to improve their products. Even so, the reason why many producers still want to work with resellers is because they are able to offer products in a wider array with other products, providing distribution efficiency as well as an easier purchasing experience for clients.

“ RESELLERS WOULD PREFER TO JUST SUPPLY THE GOODS, SEND AN INVOICE, AND BE DONE WITH IT.”

– MEO/OWNER, CLEANING AGENT MANUFACTURER 18

CULTURE AND STRUCTURE OF THE CHEMICAL INDUSTRY: CONSERVATIVE AND COMPLEX

INNOVATION

OERLEMANS PLASTICS

Innovation is essential for the Dutch chemical sector. Annually the chemical companies spend over €1 billion on R&D (2013).

This is 25% of the entire R&D budget of Dutch industry (www.vnci.nl). In total, the public and private funding for R&D in the Netherlands amounted to €12.9 billion in 2012 (TNO/HCSS, 2014). Although the large companies have considerable R&D budgets and foster and implement innovation continuously, this mostly concerns incremental change – partly because of the vested interests they have and the focus on shareholder value and thus on the short term profit. Radical innovation is more the domain of the innovative SMEs within the Dutch chemical sector. In some rare cases, innovations and research coming from SMEs even trump credible research institutes, because the latter lack the required knowledge. It often takes decades for chemical innovations to develop and impact the industry. Research itself takes time, as does constructing a pilot and demonstration plant. These last phases also require large investments, which are not always easy to secure in the Netherlands and Europe. Business cases must be solid, whereas companies often struggle to define them. The Netherlands has a high cost of labour and international competition has caused many non-innovative companies to slowly disappear over the past twenty years. Some argue that most innovation is incremental and should be more disruptive.

has state-of-the-art technology and often receives requests to perform tests for companies, sometimes even for research institutes. The company’s experience is that the R&D manager at Oerlemans Plastics seems to know more about plastics than some of the research institutes. Oerlemans Plastics likes to innovate and develop products in collaboration with the client.

“ YOU CAN’T JUST PRODUCE COMMODITIES, THAT WOULD LEAVE YOU BANKRUPT.”

Innovations are often kept in exclusive property. Collaboration between companies is often pre-competitive. Innovation Labs (iLABs) and Centres for Open Chemical Innovation (COCI) aim to offer a space where young companies are provided with utilities, infrastructure and collaboration opportunities to enhance their chances of success.

– CEO, PLASTICS AND PACKAGING MANUFACTURER -

POLITICS, POLICY AND INSTITUTIONS

The legislative framework for the chemical industry is very much determined by the European Commission and to a lesser extent by the Dutch government. The Dutch government is heavily criticized in the chemical sector for the amount of rules and regulations and more specifically their enforcement. Companies are often visited by government officers who try to adhere strictly to the regulatory framework, but lose sight of the ‘idea’ behind such legislation and are unnecessarily strict according to the companies. Governments can play a positive role by acting as a launching customer through sustainable procurement, by creating a level playing field (reducing and eventually eliminating fossil subsidies) and by enabling international partnerships through consulates and embassies. Annex IV provides an overview of the relevant legislation at European and national level.

“ THE DUTCH AND EUROPEAN GOVERNMENTS SHOULD LESSEN THE REGULATORY BURDEN. IRONICALLY, TOGETHER WITH OUR EUROPEAN TRADE ASSOCIATION, THE EUROPEAN COMMISSION ISSUED A QUESTIONNAIRE CONCERNING RED TAPE, WHICH WAS ELABORATE TO THE EXTENT THAT FILLING IT OUT WOULD TAKE A WEEK...”

– MEO/OWNER, CLEANING AGENTS COMPANY 19

INTERNATIONAL CSR IN THE DUTCH CHEMICAL SECTOR QUICKSCAN

RESEARCH

NGOS

The Netherlands features a large number of research institutes and universities which perform research that is relevant to CSR in the chemical industry. Companies in the chemistry sector often also hold extensive knowledge and expertise.

Changing financial structures of the knowledge institutions and universities have caused a shift from fundamental research to more demand driven, applied research. Subsidies often require them to partner with companies. Differentiation between these institutions and consultancies has become slightly blurred and companies do not always have a clear understanding of the current position of these organizations.

NGOs usually do not target the chemical industry as such, but focus on specific CSR issues like mitigating climate change (energy efficiency, renewable energy, protests against oil extraction), substitution of hazardous and toxic substances, GMO crops, resource efficiency, recycling, biodiversity or working conditions on farms or in mines. Action Aid, for example, focuses on less use of chemicals for farming. Oxfam Novib is active in the food versus fuel debate, whereas WWF focuses more on the impact of indirect land use change on biodiversity. NGOs all address societal issues, some in a more activist manner, but increasingly acknowledge the importance of business models and collaborate with businesses to solve issues.

INDUSTRY STRUCTURE

INTERNATIONAL BUSINESS CONDUCT

All trade associations in the sector (VNCI, NRK, VVVF, HollandBio, NCV, NVZ) have sustainability topics on their agenda, mostly oriented towards environmental impact reduction, safety and resource efficiency. People aspects of international CSR do not feature as prominently. VNCI, for example, carries out the Responsible Care programme, the chemical industry’s global initiative that drives continuous improvement in health, safety and environmental performance together with an open and transparent communication with stakeholders.

NRK, the Dutch Federation of Rubber and Plastics Industry, encourages its members to conduct the ISO 26000 self assessment. In Europe nine chemical multinationals have joined forces in the Together For Sustainability initiative to stimulate sustainable supply chains. The companies voluntary jointly audit their suppliers and share the costs. Regarding sustainability issues, numerous networks are active in the Netherlands, especially linked to the development of a biobased economy, like the Biorenewables Business Platform, Biobased Delta, Dutch Biorefinery Cluster5.

Cultural differences and physical distance have impacted the ability of entrepreneurs in the Dutch chemical industry to build trustworthy business relations outside of Europe. Some products, in order to be able to penetrate local markets, need to be adapted. This most certainly applies to cosmetics with regard to differences in skin and in scent preferences.

ROB ROELOFS OF PLEXALGROUP has worked internationally

for many years and indicates that hierarchy is a major topic, as are work ethics and corruption. Being in charge, he will occasionally deliberately tell his people he does not know how to address a certain issue. This is perceived by the local staff as very odd, but after a while they will come back with potential solutions. Dutch entrepreneurs working abroad also need to understand things might happen differently and at a slower pace than expected. There can be cultural differences as to how solid a deal or agreement is perceived. In the case of Rob Roelofs, he begins every presentation to clients by discussing ethics and honest business conduct. This is to prevent corruptive practices. Furthermore, he states that it is essential to be physically present in a country.

Globally, the newly defined 17 UN Sustainable Development Goals are another framework that could support the sustainable development of the chemical sector. According to the European sector association Cefic, the European chemical industry is committed to help meet the UN Sustainable Development Goals target and will play an essential role as one of the largest and most diversified industries shaping economic activities, in both traditional and technologically advanced industries, and acting as an important engine for innovation in other sectors.

See also Annex IV for more information on the UN SD goals and the role of the European Chemical Industry.

FOR MORE INFORMATION ON VARIOUS NATIONAL BIOBASED NETWORKS, SEE ALSO: HTTP://WWW.BIOBASEDECONOMY.NL/NETWERK/BBE-OP-DE-KAART/

5

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CULTURE AND STRUCTURE OF THE CHEMICAL INDUSTRY: CONSERVATIVE AND COMPLEX

ORIENTATION FOR THE FUTURE

As stated previously, chemical companies place particular emphasis on developing solid business cases. This requires predictable markets with stable prices for raw materials and energy. Policies, rules and regulations also need to remain onsistent for a substantial amount of time. However, especially in the last few decades, technology and market developments have increased rapidly. The long-term plans multinationals work with usually look too far ahead, on average 15 years, while SMEs constantly struggle to even define five-year plans.

21

04. ADOPTING CORPORATE SOCIAL RESPONSIBILITY

22

ADOPTING CORPORATE SOCIAL RESPONSIBILITY

“ IT IS CLEAR THAT THE INNOVATION PRIORITIES FOR THE CHEMICAL INDUSTRY ARE: 1.SUSTAINABILITY; 2.SUSTAINABILITY; 3.SUSTAINABILITY. IN COMBINATION WITH GLOBAL COMPETITIVENESS”

– CHAIRMAN, DUTCH BIOBASED NETWORK

Sustainability is a major topic in the Dutch chemical industry.6 Table 4 below (CSR Netherlands, 2015a) indicates that out of six focus sectors only those working in the chemical industry had all heard of or encountered the concept of CSR. A relatively large percentage of these companies also took concrete action to implement CSR. This increasing awareness, however, does not solve everything. The industry also has the largest share of companies that show no CSR activity: 25% (CSR Netherlands, 2015a), compared to 3% in the horticulture sector and 15% in the maritime industry (second highest percentage).

Chemical companies which do work on CSR often do so more thoroughly and strategically. 51% have a CSR policy vs an average of 26% in 12 other sectors. Chemical companies view CSR as an investment: 68% see CSR as a business case and 40% consider CSR to be interesting from a cost savings perspective (all data CSR Netherlands, 2015b).

Chemical companies directly doing business in developing countries or BIC countries can be divided into two categories when applying CSR: 58% feel powerless because of a perceived lack of influence or a lack of ideas on how to act; 42% are CSR frontrunners also in relation to their international trade partners (Table 5, CSR Netherlands, 2015a).

Powerless 58% (no influence 44% or don’t know what action can be taken 14%)

INTERNATIONAL CSR ATTITUDE (WHEN DOING BUSINESS DIRECTLY IN DEVELOPING/BIC COUNTRIES) Refuse 0%

Sustainability frontrunners 42% Social entrepreneurs 0% TABLE 5: IMVO THERMOMETER 2015 (CSR NETHERLANDS)

TABLE 4: IMVO THERMOMETER (CSR NETHERLANDS 2015A) SUSTAINABILITY OR CORPORATE SOCIAL RESPONSIBILITY (CSR) ARE USED INTERCHANGEABLY THROUGHOUT THIS REPORT. CORPORATE SOCIAL RESPONSIBILITY REFERS TO COMPANIES TAKING RESPONSIBILITY FOR THEIR IMPACT ON SOCIETY. THEY CONSIDER THE SOCIAL, ENVIRONMENTAL AND ECONOMIC (PEOPLE, PLANET AND PROFIT) IMPACT OF ALL THEIR DECISIONS, WHILE TAKING INTO ACCOUNT THE INTERESTS OF STAKEHOLDERS.

6

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INTERNATIONAL CSR IN THE DUTCH CHEMICAL SECTOR QUICKSCAN

“ DOING WELL BY DOING GOOD.” WHEN YOU HAVE PRODUCTS THAT ARE TECHNICALLY ACCEPTED AND YOU TREAT YOUR EMPLOYEES AND STAKEHOLDERS WELL, PROFIT WILL COME. HOWEVER, THIS DOES REQUIRE BEING IN IT FOR THE LONG HAUL.”

– CEO, COATINGS MANUFACTURER Our in-depth interviews have shown that all interviewees associate planet issues with CSR, whereas only two-thirds mentioned people issues, and out of these 60% limit their interpretation to health, safety and labour conditions.

According to CSR Netherlands’ CSR monitor (CSR Netherlands, 2015b), the following CSR topics were the first that came to mind: energy savings, safe working conditions, climate and environment.

Chemical companies are optimistic about, and sometimes even underestimate, the risks that international CSR issues can pose to their supply chains. Only 41% think scarcity of resources is an issue, 39% are aware of human rights issues and 27% consider poverty to be of relevance to the sector, even though extraction of chemical resources often happens in mines where wages are extremely low and labour conditions unsafe (CSR Netherlands, 2015b). In addition to potential reputational risk, these are human rights issues for which companies can be held accountable under the OECD Guidelines for Multinational Enterprises. In interviews with KPMG, stakeholders indicated social impact should receive more attention from the sector (KPMG, Sector Risico Analyse, 2014).

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ADOPTING CORPORATE SOCIAL RESPONSIBILITY

“ BIOBASED SMES OFTEN DO NOT HAVE A CLUE ABOUT THE SOCIETAL DEBATES SURROUNDING THE BIOBASED ECONOMY LIKE GMO, ILUC AND FOOD VERSUS FUEL.”

– SENIOR RESEARCHER, RESEARCH INSTITUTE

Supply chain issues like those mentioned earlier above are the industry’s blind spot. Once aware, companies think they cannot exert influence to improve the situation. Table 6 shows all CSR topics that came up in our in-depth interviews. Considering the strict environmental and health and safety regulations chemical companies need to adhere to, their perception is that additional efforts to tackle other sustainability aspects are beyond their means. Many of the CSR activities in the sector are therefore compliance driven (The Rock Group, 2014).

1. Improve phase - risk oriented, the aim being to maintain and secure a licence to operate. In this phase it is all about process & product safety and vendor policies.

2. Manage phase - focus on cost reduction and optimization of processes. In this phase Akzo Nobel has started its ‘Supportive supplier visits’.

3. The Invent phase - this phase incorporates key supplier agreements and product development, with the aim of creating sustainability throughout the value chain. This includes development of sustainable products and evaluating the complete portfolio of products. CSR is integrated throughout the company (also in strategy and reporting).

As a multinational company, Akzo Nobel identifies three phases in CSR development, applicable to all chemical companies:

Most Dutch companies in the Chemical industry still operate in phase 1 or 2. BASF for instance, is currently looking into its complete product portfolio and has therefore reached phase 3.

the

TABLE 6: CSR TOPICS MENTIONED IN IN-DEPTH INTERVIEWS (CSR NETHERLANDS, 2015)

25

05. CSR ISSUES IN THE CHEMICAL INDUSTRY IT IS IMPORTANT TO NOTE THAT THE CHEMICAL INDUSTRY HAS THE POTENTIAL TO DEVELOP SOLUTIONS TO SOCIETAL PROBLEMS AND AS SUCH HAS CONTRIBUTED AND WILL CONTRIBUTE TO SUSTAINABILITY. IN DISCUSSIONS ON CSR TOPICS WITH CHEMICAL COMPANIES, PROFIT OR BUSINESS CONTINUITY FEATURES MOST PROMINENTLY. ALTHOUGH SURVIVAL IS ESSENTIAL TO ENSURE A COMPANY CAN PROLONG ITS POSITIVE IMPACT, CSR DOES, HOWEVER, ALSO ENTAIL BEING AWARE OF THE POTENTIAL NEGATIVE OR POSITIVE IMPACT A COMPANY CAN HAVE ON SOCIAL OR ENVIRONMENTAL ASPECTS OF SOCIETY. THIS CAN BE SEEN BOTH FROM A NATIONAL PERSPECTIVE, FOR EXAMPLE BY LOOKING AT THE IMPACT ON THE COMMUNITY AND ITS SURROUNDING ENVIRONMENT, AND FROM AN INTERNATIONAL ASPECT, BY TAKING INTO ACCOUNT A COMPANY’S VALUE CHAIN, WHICH IS OFTEN CROSS-BORDER. THIS CHAPTER PROVIDES FURTHER DETAILS ON CSR RISKS THAT ARE SPECIFICALLY APPLICABLE TO THE CHEMICAL INDUSTRY. FIGURE 2 PROVIDES AN OVERVIEW OF THE CSR ISSUES ALONG THE VALUE CHAIN THAT HAVE BEEN IDENTIFIED DURING THIS RESEARCH. IN THIS CHAPTER WE WILL FIRST DISCUSS THE PEOPLE ASPECTS AND THEN THE PLANET ASPECTS OF CSR ALONG THE VALUE CHAIN.

26

CSR ISSUES IN THE CHEMICAL INDUSTRY

FIGURE 2: GENERAL OVERVIEW OF CSR ISSUES IN THE VALUE CHAIN OF THE CHEMICAL INDUSTRY

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INTERNATIONAL CSR IN THE DUTCH CHEMICAL SECTOR QUICKSCAN

PEOPLE

IMPROVEMENTS

Inspection Social Affairs and Employment has developed a self inspection tool concerning hazardous substances.

HEALTH & SAFETY OF WORKERS Health & Safety is an integral part of the sector: most companies are aware of the applicable rules and regulations and act with care. Some measure days without injury, are very strict about the use of PPE (Personal Protection Equipment) or start each meeting by indicating where the emergency exits are. Still the health and safety of workers in the chemical industry remains a concern, even more so in countries with less than ideal rules and regulations or lax enforcement.

‘Veiligheid voorop’ (Safety first) aims to improve the culture concerning safety at (chemical) companies and their value chain. ‘Veiligheid Voorop’ is an initiative by VNO-NCW, the chemical industry (VNCI), the petrol industry (VNPI), tank storage companies (VOTOB) and traders in chemical products (VHCP). Since its initiation other organizations have joined, such as trade associations of maintenance companies (VOMI, NVDO and Profion) and paint and printing ink (VVVF).

Hazardous substances Around 95% of Dutch chemical companies work with hazardous substances. The main occupational risks in the oil and chemical industries are exposure to such substances. They involve both acute risks (fire, explosion, irritation / burns, poisoning and suffocation) and chronic risks. The accident in Tianjin, China, on 12 August 2015, where more than 100 people died and hundreds were injured, was caused by an explosion at a warehouse storing chemicals (CNN, 2015).

New safety deals applicable to BRZO companies (companies working with hazardous substances) were concluded on 1 June 2015, one being the Safety Self Assessment Questionnaire, another dealing with knowledge exchange concerning Best Practices and another concerning the way Safety as a topic is integrated in schooling (Petrochem, 2015).

According to inspections conducted by SZW, 40% of Dutch chemical companies working with hazardous substances did not fully comply with the law and at more than 50% of these companies deficiencies were identified relating to exposure to hazardous substances (Inspectie SZW, 2012). Research by Marieke Kluin of TU Delft indicates that about one-third of the chemical companies in the Rotterdam area act in a reckless manner concerning safety: very compliance driven and some even act only when inspectors show up on the doorstep (Petrochem, 2014). Larger companies are usually able to prove that they control the risks for most of their substances. SMEs, on the other hand, have usually put in place measures to protect their employees, but do not have an inventory of substances, exposure limits or assessments of exposure (KPMG, 2014).

Clients who use chemicals or chemical products do not always fully understand the product’s accompanying Safety Data Sheets or Material Safety Data Sheets. Partly due to REACH, these sheets might comprise 150 pages. The NVZ (Dutch association for soap manufactures) has started a project to create Generic Exposure Information Sheets, which can be used by clients to create simple workplace instructions.

Physical strain Physical strain can occur in the rubber and plastics industry when labourers lift, push or pull, for instance when cleaning the machines, when changing machine components and in the supply and delivery of materials. Other risks are poor posture and repetitive activities, such as placing raw materials into machines, auditing tasks and packing products (Arbeidsinspectie, 2008).

“ WE NEVER EXPERIENCE PROBLEMS WITH PUBLIC OFFICIALS: WE MAKE SURE EVERYTHING IS IN GOOD ORDER AND WE ARE VERY OPEN IN COMMUNICATING WHAT IS HAPPENING AT OUR COMPANY. LIFE IS JUST SO MUCH EASIER IF YOU HAVE YOUR ACT TOGETHER. ALSO IT IS VERY HELPFUL TO ARRANGE THINGS WELL RIGHT FROM THE START: IT IS EASIER TO MAINTAIN A HIGH STANDARD THAN TO STRUGGLE AT A LOW LEVEL. 12 OR 13 YEARS AGO A LABOUR INSPECTOR CAME TO SEE ME. THIS PERSON HAD NO CLUE ABOUT THE INDUSTRY. I THEN ARRANGED A GUIDED TOUR OF THE PREMISES AND SOME EDUCATION. I ALSO ASKED THE INSPECTOR: ‘DON’T YOU UNDERSTAND THAT MY INTEREST IN MAKING SURE MY WORKERS ARE HEALTHY IS STRONGER THAN YOUR INTEREST IN THIS MATTER?’”

– CEO, PLASTIC PACKAGING MANUFACTURER -

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CSR ISSUES IN THE CHEMICAL INDUSTRY

Noise In some subsectors of the chemical industry, such as the plastics and rubber industry, high noise levels can occur. The noise level is determined by the way the machines were constructed, the number of machines in the workspace, the layout of the space and the nature of the products manufactured. Prolonged exposure to noise above 80 decibels may cause hearing damage. This hearing loss is permanent. Additional effects may be: elevated blood pressure, fatigue and loss of concentration (Arbeidsinspectie, 2008).

PRODUCT HEALTH AND SAFETY, INCLUDING SAFE USE OF CHEMICALS BY CLIENTS Stakeholders of the Dutch chemical industry mainly worry about potential negative effects of chemical products on people and planet (KPMG, Sector 2014). Chemicals are all around us and chemical alteration of processes or products scares people, but effects remain elusive and it is therefore hard to draw solid conclusions as to how serious the effects can be. Examples of such worries concern endocrine disrupting chemicals such as Bisphenol A (BPA) that are found in food, furniture, clothing, etc. These chemicals are proven to impact development in children (WHO, 2013). In cosmetics nano-particles are used. The effect of these on the body is currently unknown (RIVM, 2014). In the US the Center for Environmental Health is of the opinion that cocamide DEA is a known carcinogenic (cancer-causing) chemical and the organization is surprised that it is still used in shampoos and soaps (Center for Environmental Health, 2014). The FDA, on the other hand, believes there is currently no reason for consumers to be alarmed and that the cosmetics can be safely used (FDA, 2006). People also worry about all additives put in food (for instance Joanna Blythman’s book ‘Swallow this’), the consequences of which are unclear.

One should note, though, that natural products also contain a multitude of completely natural chemicals, see figure 3 (Kennedy, 2014). Greenpeace has been running a Detox campaign since 2011. They focus on textiles and water. In the textile sector, companies like Nike, Adidas, Puma, H&M, M&S, C&A, Li-Ning, Zara, Mango and Esprit have committed to eliminating all releases of hazardous chemicals from their supply chains and products.

FIGURE 3: CHEMICAL INGREDIENTS OF AN ALL-NATURAL BANANA. (KENNEDY , 2014)

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INTERNATIONAL CSR IN THE DUTCH CHEMICAL SECTOR QUICKSCAN

SMALL SCALE CHEMISTRY

HEALTH AND SAFETY COMMUNITIES When risks at chemical plants are not properly managed, local communities might suffer the consequences. The risk of environmentally damaging incidents is largest with chemical installations (including firework factories). Storage and transport of hazardous materials may also pose risks for local communities if inadequate standards are applied. See figure 4 for a comparison between transport modalities and the number of incidents each caused in transporting chemicals in the Netherlands (VNCI, 2014). Intentional or unintentional releases of hazardous materials can lead to contamination of natural resources from waste disposal and pollution, and to contamination of the food chain or of water supplies. The risks associated with transportation of hazardous substances include major fire (gasoline), large clouds of gas burning (LPG), toxic clouds of gas (chlorine) and evaporating toxic liquid (ammonia). The consequences can be very serious for both humans and the environment (UNEP Finance Initiative, 2011).

“ CURRENTLY ONLY ECONOMIC FACTORS DETERMINE THE AMOUNT OF TRANSPORT KILOncidents per transport modality at VNCI member companies METRES. FUEL PRICES ARE OF MAJOR CONCERN.”

Flowid focuses on continuous processes rather than batch processes through a specially developed reactor (Spinning Disk Reactor) and a specially developed dosing system. In the development of specialty and fine chemicals, batch processing is still the norm. There is much to be gained in terms of the size of the installation, start-up and stop speed of the reactions, energy use and, last but not least, control over the process and therefore safety. Jeoffrey van den Berg gives the example of a process that was carried out under high pressure and in which a toxic gas was needed. By using the spinning disc reactor, there is no need for high pressure, and the toxic gas is no longer required. “The process has become as dangerous as making lemonade.” Simplifying the process is one element; another element that enhances safety is the fact that the reactor can be turned off at any given time.

– BUSINESS DEVELOPER, FEED COMPANY -

20

FIGURE 4: NUMBER OF INCIDENTS PER TRANSPORT MODALITY (VNCI, 2013)

number of occurrences

15

10

5

0 Air

Rail

Road

2010

2011

2012

Sea

30

Inland waterways

Pipelines

Source: VNCI RC questionnaire (for an explanation of this indicator, see appendix C)

CSR ISSUES IN THE CHEMICAL INDUSTRY

LAND GRABBING Land grabbing in relation to the chemical industry can occur in mining, shale gas fracking and the production of biomass (e.g. cane sugar and palm oil) (KPMG, 2014). Moving people away from their land for product or site development for chemical production may lead to loss of livelihood, resources or assets, resulting in local tensions if inadequate compensation arrangements are made (UNEP Finance Initiative, 2011).

Oil palm tree plantations can mainly be found in Malaysia and Indonesia, but can also be found in countries like Guatemala, Colombia, Ecuador, Brazil, Ghana, Liberia, Cameroon and Nigeria (The Guardian, 2015b).

CHILD LABOUR In relation to the chemical industry, it is important to note that child labour has been extensively reported for agriculture (biomass source), mining (extracting chemicals) and in the production of fireworks.

Child labour is frequently reported to occur in agriculture, including on farms where biomass is grown that can be used in the chemical industry. In addition to depriving children of their opportunities to obtain an education, children working in the agriculture sector are often exposed to harmful pesticides, use dangerous tools, carry heavy loads and work long hours (US Department of Labor, 2013; DIHR, 2014). Oil palm tree plantations are an example. Sugarcane is another problematic crop.

DEFINITION OF LAND GRABBING

Child labour also occurs in mines. Take Mica, a mineral used as glitter in a wide array of cosmetics, pigments and food colouring, as insulator in electronics and as filler in cement, rubber and plastics (WIRED, 2015). There are strong signals that a significant quantity of mica is extracted in illegal mines in the Indian provinces of Jharkhand and Bihar. According to DanWatch, child labour is widespread here and about 5,000 children as young as five years old are working in mines to collect the mica. They are exposed to dangerous and unhealthy situations (DanWatch, 2014). Child labour also occurs in mines in Tanzania (DIHR, 2014; Human Rights Watch, 2013d; LHRC & ZLSC, 2012).

In ILC’s Tirana declaration, the following, commonly accepted, definition of land grabbing was drawn up: Land grabbing is acquisitions or concessions that are one or more of the following:

(i) in violation of human rights, particularly the equal rights of women; (ii) not based on free, prior and informed consent of the affected land-users; (iii) not based on a thorough assessment, or are in disregard of social, economic and environmental impacts, including the way they are gendered; (iv) not based on transparent contracts that specify clear and binding commitments about activities, employment and benefits sharing, and; (v) not based on effective democratic planning, independent oversight and meaningful participation. (ILC, 2011)

As for the production of fireworks, matches and pyrotechnics, child labour has been reported for Argentina, El Salvador, India, the Philippines and China. This work exposes the children to the physical risks linked to working with heavy machinery and hazardous substances (US Department of Labor, 2012; US Department of Labor, 2014).

FORCED LABOUR Like child labour, forced labour is known to occur relatively frequently in agriculture, for example on palm oil plantations in Guatemala and sugar cane plantations in Brazil (Oxfam America, 2013; VeritĂŠ, 2013; US Department of Labor, 2014; DIHR, 2014). According to a 2012 UN study, the sugarcane agribusiness in Brazil has been implicated in using seasonal migrant workers who were forced to work under harsh and insecure conditions (UN RISD, 2012).

The extractive industries are also known for making use of forced labour. For example, there are strong indications of forced labour taking place in the oil sector of Equatorial Guinea and in the mining sector of Eritrea and Congo, especially in unlicensed artisanal mines (Human Rights Watch, 2013a; US Department of State, 2015).

The International Commission of Jurists noted in 2011 that in the ethanol industry in Brazil over a thousand workers had been found working in conditions analogous to slavery. These distilleries have continued to use forced labour despite having several orders to pay the damages and penalties issued against them. Additionally, distilleries have refused to comply with a 31

INTERNATIONAL CSR IN THE DUTCH CHEMICAL SECTOR QUICKSCAN

NAGOYA PROTOCOL

variety of judicial mechanisms, demonstrating the lack of efficacy in judicial enforcement (International Commission of Jurists, 2011; DIHR, 2014).

The ‘Nagoya Protocol on Access to Genetic Resources and the Fair and Equitable Sharing of Benefits Arising from their Utilization’ (ABS) is aimed at the preservation and sustainable use of biological diversity and the fair and equitable distribution of the benefits flowing from the use of genetic resources. The protocol was adopted on 29 October 2010 in Nagoya, Japan, and came into force on 12 October 2014.

UNFAIR COMPENSATION FOR INDIGENOUS KNOWLEDGE It is important to have clearly defined procedures and payment for the use of indigenous peoples’ knowledge and resources.

The access to essential natural ingredients to produce pharmaceutical or cosmetic products may create tensions with indigenous peoples (UNEP Finance Initiative, 2011).

CORRUPTION Encountering corruption is common when doing business abroad. Involvement in corruption is usually considered an offence, even if the activities occurred abroad (for instance under Dutch law). Corruption is widespread in securing the raw materials used in the chemical industry: extractive industries (mining, oil, gas), tree-logging and distribution of land deeds to erect plantations. Sometimes the enforcement of rules and regulations, for instance concerning environmental or labour hazards, is affected by corrupt officials. Corruptive practices are also found in waste processing.

RECOMMENDATIONS FOR ADDRESSING CORRUPTION

(OECD, 2012; World Economic Forum, 2014; Rijksoverheid, 2012; Transparency International, 2013a; ICCWBO, 2014; Business Anti-Corruption Portal, 2012; OECD, 2014):

Corruption in obtaining land is a widespread risk. International surveys conducted by Transparency International show that 10-20% of respondents paid bribes to the government in connection with the acquisition of land (Transparency International, 2013b; FAO, 2011).

• Do not offer, promise, give, request, agree to or accept undue pecuniary or other advantages to or from public officials or the employees of business partners.

• Arrange for appropriate and regular oversight of third parties such as agents and other intermediaries, and ensure that remuneration is appropriate and for legitimate services only.

• Keep a list of agents engaged in connection with transactions with public bodies and State-owned enterprises and if relevant make this available to competent authorities, in accordance with applicable public disclosure requirements. Any small payments needed should be registered as well.

• Publicly commit to fighting bribery, create an anticorruption policy, and inform your employees of such.

Also arrange for schooling.

• Using disciplinary measures like suspension or even firing, you can enforce policy adherence.

• Controls on accounting can prevent bribery.

• Furthermore, you can adopt the Whisteblowing Guidelines outlined by the ICC to create a new policy for reporting fraud. Under an established whistleblowing policy, employees will feel comfortable reporting concerns without fear of repercussions.

• You can add the ICC Anti-Corruption Clause to contracts and agreements.

• You might like to join the Partnering Against Corruption Initiative (PACI).

• The Business Anti Corruption Portal provides several guidelines, country profiles and tools such as compliance systems.

Organized illegal logging and systematic corruption in forestry happens mainly in Indonesia, China, Brazil, Congo, the Baltic States, the Balkans, Gabon, Cameroon, Namibia, Belarus and Ukraine. Common abuses include: the falsification of permits, bribery to obtain permits, allowing more logging than regulations should permit and hacking of government websites to obtain permits for larger transport volumes (UNEP, 2012; U4 Anti-Corruption Resource Centre, 2013; Business anticorruption portal, 2012; Human Rights Watch, 2013c; The Guardian, 2015a).

Examples of affected countries concerning the extractive industries (Business anti-corruption portal, 2012; Business anti-corruption portal, 2014; DIHR, 2014; Revenue Watch, 2014; Amnesty International, 2013; World Bank, 2013; Human Rights Watch, 2013c): • Burkina Faso - mining; • Myanmar - extractive industries; • Uganda - extractive industries; • Nigeria - oil; • Angola - oil.

The chemical, pharmaceutical, biotech and energy sectors all are prominent in the extent to which they set up anti-corruption policies (Cools, 2012).

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CSR ISSUES IN THE CHEMICAL INDUSTRY

FREEDOM OF ASSOCIATION Freedom of association and the right to organize and bargain collectively are fundamental human rights, the exercise of which has a major impact on work and living conditions (ILO, 2012). In the oil and gas sector employees often lack the opportunity to join a legitimate trade union. Also, the management refuses to engage with trade union representatives who are justly elected by workers (Shift & IHRB, 2013). An example of the way in which freedom of association is limited in this sector: Ghana, oil - The members of the General Transport, Petroleum and Chemical Workers Union (GTPCWU) in the Western Region of Ghana have been harassed and mistreated by foreign oil service companies. These companies do not want their workers to unionize and are trying to prevent them from joining a trade union using intimidation and even dismissal.

Some companies have refused to sign a verification form to enable the workers in that company to join a trade union (ITUC-CSI, 2015).

FREEDOM OF ASSOCIATION

TAXATION Tax is often regarded as an obligatory burden for a company’s profits. Developing countries lose around $160 billion annually through tax avoidance by multinational companies, revenues which could have been used for, e.g., infrastructure, education and health care. Research by the International Bar Association establishes a direct link between tax avoidance and poverty (International Bar Association, 2013). Tax evasion in the Democratic Republic of Congo has been explicitly reported for the logging and mining industries (Reuters, 2014; Global Witness, 2013).

THE FAIR TAX

In countries where unions are banned, or (as in China) where the government only allows an official state union, FNV recommends companies to inform employees of their rights (potentially by inviting NGOs to speak on the topic), allow alternative forms of employee organization and make explicit that participants will not be disadvantaged in any way. (FNV Mondiaal, 2010)

The Fair Tax Mark is a label for companies that want to show that they are open and transparent about their tax affairs and pay the right amount of taxes at the right time in the right place. (Fair Tax Mark, 2015)

“ SCARCITY IS OFTEN ARTIFICIALLY CAUSED

BY MULTINATIONALS. AND SWITCHING TO BIOBASED ALTERNATIVES ALSO STILL CARRIES THE RISK OF SCARCITY: WHAT IF THE HARVEST IS POOR?”

PLANET RESOURCE SCARCITY Resource scarcity is not always caused by physical resource depletion; other potential causes are that extraction is no longer geographically or economically feasible. Geopolitical factors can contribute to such scarcity. Uncertainties concerning resource availability has led governments to secure resources, which leads to a distortion of the previous market dynamics. Proactive acquisition of resources by (semi) state-owned enterprises, creation of commodity stocks, the introduction of trade restrictions and ‘land-grabbing’ are examples of actions taken by governments (The Hague Centre for Strategic Studies, 2011).

In addition, changes in legislation potentially affect the use of resources. Examples are environmental legislation that aims to reduce CO2 emissions or stricter safety requirements for the extraction of shale gas (CSR Netherlands, 2015). Figure 5 below shows the rate of depletion for all elements in the periodic table. Figure 6 shows to what extent these elements are currently being recycled (Renewable Matter, 2015). For multiple pigments, such as titanium oxide, prices have risen sharply over recent years. Because of this coatings have become more expensive to produce. 80% of Dutch chemical production is still fossil based. This large dependency on oil, its forecast scarcity, inherent finite availability, unsustainable sourcing of the remaining reserves and consequent price fluctuation make biobased alternatives attractive.

– MEO/OWNER, CLEANING AGENTS MANUFACTURER

BIOBASED WRAPPER

Rodenburg Biopolymers from Oosterhout supplies the bioplastic for a new biobased wrapper Mars is testing in Germany. If this pilot turns out a success, the wrapper will be introduced in more Western European countries. (BOM, 2015) 33

INTERNATIONAL CSR IN THE DUTCH CHEMICAL SECTOR QUICKSCAN

FIGURE 5: ELEMENTAL UNSUSTAINABILITY – HOW WE ARE RUNNING OUT OF TRADITIONAL MINERAL RESOURCES AS SEEN

BY DIMINISHING RESERVES THROUGH INCREASED AND DIFFERENT USE PATTERNS

FIGURE 6: RECYCLING RATES OF ELEMENTS

34

CSR ISSUES IN THE CHEMICAL INDUSTRY

USE OF RENEWABLE ENERGY

CONSUMPTION OF RESOURCES AND UTILITIES The chemical industry makes intensive use of raw materials and energy. A lot of fossil fuels (oil, gas, coal) are used, as well as water, air, metals, palm oil and minerals (including phosphorus) (Compendium voor de leefomgeving, 2013). Figure 7 shows the EU chemical industry consumed 56.6 million tonnes of oil equivalent in 2012. In all OECD countries the chemical manufacturing industry is the largest single consumer of water by sector. These large amounts of water provide many opportunities for contamination through effluent water (Blacksmith Institute & Green Cross Switzerland, 2012).

At a FrieslandCampina (dairy manufacturer) plant in Borculo the chemical industry is showing it can also be part of the solution and provide renewable energy to other industries.

FrieslandCampina fuels its production site in Borculo using certified renewable pyrolysis oil. The oil is extracted from biomass (wood chips)

by Hengelo-based firm Empyro, which uses pyrolysis. Pyrolysis is a thermochemical decomposition of organic material at elevated temperatures in the absence of oxygen. This technology was developed at the University of Twente in the Netherlands and refined by BTG-BTL, Empyro’s parent company.

AIR POLLUTION According to KPMG, greenhouse gas emissions resulting from the production of chemicals and the use of energy by the chemical sector are high in absolute and relative terms (approximately 12% of national emissions per year). This is one of the most eye-catching environmental themes in the sector. Over the period 1990-2011, the chemical industry in the Netherlands succeeded in reducing greenhouse gas emissions by roughly 40%. In the period 2005-2012 the sector achieved an approximately 11% reduction in greenhouse gases per tonne of product. This makes the Dutch chemical industry one of Europe’s leaders in terms of energy efficiency (KPMG, 2014).

FIGURE 7: EU CHEMICAL INDUSTRY FUEL AND POWER CONSUMPTION (CEFIC, 2014)

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INTERNATIONAL CSR IN THE DUTCH CHEMICAL SECTOR QUICKSCAN

CO2 UTILISATION FOR CHEMICALS

Specific applications of chemicals can also cause air pollution.

Excessive use of nitrogen fertilizers, for example, causes reactive nitrogen to be released in the air. This leads to higher levels of ozone in the lower atmosphere, causing respiratory ailments and damaging vegetation. Acidic precipitation (acid rain) is another consequence, and leads to corrosion of buildings, bridges and other human-made structures, acidification of soils and inadvertent fertilization of trees and grasslands, creating unnatural growth rates, nutrient imbalances, and ultimately decreasing ecosystem health and biodiversity (UNEP, 2007). Volatile organic compounds are used in gasoline, paint, detergents, cleaning products and cosmetics. These substances contribute to the creation of smog and may lead to health problems, such as respiratory problems, headaches and irritation of the eyes and nose. In addition, there is a risk of problems with the organs and the nervous system (Milieucentraal, Kernenergie, 2014; Kenniscentrum InfoMil, 2015).

Biotechnology company Photanol made a business case of greenhouse gas emissions: the company developed a breakthrough technology to convert CO2 into valuable organic compounds. The company intends to apply this technology in a number of markets, ranging from food ingredients to chemical bio-blocks and bio-fuels.

cro plastics’ – are being observed in ocean gyres, sediments, and on beaches, as well as being found in marine organisms.

In marine protection, plastic particles with a diameter of less than 5mm are referred to as micro plastics. These can be fragments created by the breaking up of larger pieces of plastic such as packaging, or as fibres are washed out of textiles. They can also be primary plastic particles, produced in microscopic sizes. These include granulates used in cosmetics (scrub, toothpaste and shampoo), washing powders, cleaning agents and in other applications. These are very small, especially designed pieces of plastic that contain toxins. It can take centuries for plastic to be broken down in the oceans by physical, chemical, and biological decomposition processes. It is impossible to remove the micro-plastics once they enter the oceans. Fish consider these micro-plastics food. Research has shown that micro-plastics cause harm to water resources, marine life and ecosystems (Bio-based News, 2014; The Guardian, 2014b; Frankfurter Allgemeine, 2015; P+, 2014). According to the NCV (Dutch trade association for cosmetics) cosmetics companies are working to eliminate the micro-plastics from their products (NCV, 2015).

WATER POLLUTION Industrial water pollution in the global chemicals sector is considered to be very serious. Wastewater treatment often does not remove all pollutants. Chemicals may be toxic to human beings, animal and plant species. The origin of these chemical wastes varies greatly and depends on the local situation, but typically discarded chemicals, manufacturing by-products and waste solvents contribute to the waste stream (WWF, 2014).

Examples where water pollution has links to the chemical industry are the chemicals-filled effluent from leather tanneries, the use of fertilizers, extraction of minerals and metals and plastics polluting the oceans.

Plastics Scientific studies have shown that plastics make a huge contribution to the ‘littering’ of the seas. Along with larger waste items such as plastic bottles or bags, steadily increasing amounts of plastic micro particles – commonly known as ‘mi-

“ IN ITALY PLASTIC BAGS ARE NOW BANNED. LCA RESEARCH HAS SHOWN THAT PLASTIC BAGS ARE A VERY SUSTAINABLE OPTION. OF COURSE ONE SHOULD NOT THROW THE BAG ON THE STREET AFTER USE. THE PLASTIC SOUP IS MAINLY CAUSED BY CONSUMER BEHAVIOUR. ALSO IT RECEIVES A LOT OF ATTENTION BECAUSE PLASTIC WASTE IS PERSISTENT AND IT FLOATS. IF YOU DREDGE THE OCEANS, YOU WILL PROBABLY ALSO FIND A LOT OF METAL.”

– CEO, PLASTIC MANUFACTURER AND CONVERTER

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CSR ISSUES IN THE CHEMICAL INDUSTRY

Fertilizer If improperly managed, elements of fertilizer can move into surface water through field runoff or leach into ground water.

The two main components of fertilizer that are of greatest concern to source water quality (ground water and surface water used as public drinking water supplies) are nitrogen (N) and phosphorus (P). As a rule of thumb (reactive) nitrogen pollution leads to eutrophication of salt/brackish water and phosphorus pollution to eutrophication of fresh water. Eutrophic water contains an excess of mineral and organic nutrients, which causes a proliferation of plant life, especially algae, which reduces oxygen levels and causes toxicity and the death/ extinction of other organisms. This pollution also often renders the water unfit for human consumption. In babies nitrate based pollution has caused the Blue Baby Syndrome (can result in death) and it has been linked to a several types of cancer, like colon cancer (US-EPA, 2010; UNEP, 2007).

BIODIVERSITY Insecticides Species such as honey bees, bumble bees, solitary bees, hoverflies, butterflies and moths are affected by neonicotinoids (insecticides that affect the central nervous system of insects).

These species provide the ecosystem services of pollination, natural pest control and soil productivity and are the underpinning of biodiversity. Most pollinators have declined across Europe; honey bee colony numbers have fluctuated. Some intensive agriculture has become reliant on neonicotinoids, with proponents arguing that their withdrawal would have serious economic and food security implications. However, EASAC notes that some recent research has questioned the benefits of routine use as seed dressing against occasional or secondary pests. In some cases, neonicotinoid use has even made pest problems worse by eliminating insects which provided natural pest control. All pesticides involve a balancing act between the desired effect on food production and the inevitable risk of collateral damage to non-target species and the environment.

In the case of the neonicotinoids, the increase in scientific knowledge over the last two years suggests that the current balance requires reassessment (EASAC, 2015).

Mining The process to extract minerals and metals from ores requires a varying amount of chemicals, creating large amounts of waste contaminated with chemicals. In less technologically advanced or older plants, some of the minerals mined, tailings and the toxic chemicals used are released into the environment causing severe pollution and negatively impacting human health. At abandoned or poorly closed mining sites, mine tailings and improperly stored waste can pollute groundwater, surface water and agricultural activities. According to the Blacksmith Institute the most dangerous pollutants at mining and ore processing sites are lead, chromium, asbestos, arsenic, cadmium and mercury (Blacksmith Institute & Green Cross Switzerland, 2012).

Biomass plantations Deforestation due to plantations being erected for biomass production has an impact on local biodiversity. This might happen through ILUC (Indirect Land Use Change). ILUC applies to the situation where agricultural land is converted into biomass plantations, and non-crop land such as grasslands or forests is used for agricultural production. In this case the plantations are very likely to indirectly cause deforestation (European Commission, 2015). There are strong signals that the deforestation caused by palm oil production in Indonesia threatens to render extinct endangered species such as the Bornean orangutan and the Sumatran tiger (Rainforest Action Network, 2014).

SOIL CONTAMINATION The production and processing of chemicals contributes to soil contamination (European Commission, 2013). Mining also contributes to soil pollution. Hunan province in China, for instance, is rich in non-ferrous metals, which makes it a leading polluter of cadmium, chromium, lead and non-metal arsenic. This has caused pollution of agricultural grounds and questions have arisen as to whether the area can still be used for agricultural practices (The New York Times, 2013).

CHEMICAL WASTE Internationally, discarded products increasingly contain toxic chemicals such as mercury or PBDEs (flame retardant chemicals). This waste and direct waste of the chemical industry constitutes potentially hazardous waste. Neither landfills nor incineration eliminate toxic chemicals in waste. Landfills might eventually leak and affect groundwater and also give off potentially harmful gasses. Incinerating waste releases toxic chemicals, such as lead and mercury, and might even produce additional by-products (dioxins and furans). The process produces toxic ash when the toxic chemicals and heavy metals in the waste concentrate in the left over waste. This waste then has to be disposed of in a landfill. The areas where waste is collected prior to processing leaves room for waste to decompose and release toxic chemicals into the open air, threatening worker health and safety and impacting nearby neighbourhoods (Toxics Action Center, 2015; National Geographic; 2015).

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INTERNATIONAL CSR IN THE DUTCH CHEMICAL SECTOR QUICKSCAN

CHEMICAL LEASING OR TAKE BACK CHEMICALS

UNSUSTAINABLE ASPECTS OF BIOMASS PLANTATIONS In earlier paragraphs loss of biodiversity was mentioned in relation to biomass plantations, as well as land-grabbing, child and forced labour. These issues mainly concern palm oil and raw materials used for the production of bioplastics (like sugarcane and corn). Other unsustainable aspects of these plantations are the food versus fuel debate, decreased soil fertility, flood risks and energy use for crop growth.

Traditionally, suppliers sell large quantities of chemicals to end-users; it is therefore in their interest to sell as much as possible. De facto, the inefficient use of chemicals is being “rewarded”. The sustainable solution is Chemical Leasing (ChL), whereby users only pay for the services rendered by the chemicals (e.g. volume of water treated, number of parts painted, lengths of pipes cleaned, etc.) and not for the volume of chemicals consumed. By de-coupling the payment from the consumption of chemicals, ChL encourages better chemicals management. This results in clear environmental advantages as well as consequent economic benefits for both suppliers and users of chemicals.

UNIDO strongly supports the establishment of Chemical Leasing business models. In 2005 a working group on chemical leasing was set up, and bi-annually since 2010 a Global Chemical Leasing Award has been awarded to the best initiatives in this field. The Dutch Ministry of Infrastructure and the Environment supports chemical leasing in its Green Deal Take Back Chemicals, which was signed in November 2014 (Chemie Magazine, 2015; Chemical Leasing, 2014).

In food versus fuel, the discussion is whether biomass production is in competition with food production. Definitions of several ‘generations’ of biomass have been introduced to be able to distinguish different types of biomass. The European Biofuels Technology Platform defines the generations based on the carbon source: • 1st Generation - the source of carbon for the biofuel (or biochemical) is sugar, lipid or starch directly extracted from a plant. The crop is actually or potentially considered to be in competition with food.

• 2nd Generation - the biofuel (or biochemical) carbon is derived from cellulose, hemicellulose, lignin or pectin. For example this may include agricultural, forestry wastes or residues, or purpose-grown non-food feedstocks (e.g.

Short Rotation Coppice, Energy Grasses).

• 3rd Generation - the biofuel (or biochemical) carbon is derived from aquatic autotrophic organisms (e.g. algae). Light, carbon dioxide and nutrients are used to produce the feedstock “extending” the carbon resource available for biofuel production. This means, however, that a heterotrophic organism (using sugar or cellulose to produce biofuels) would not be considered as 3G.

“ CIRCULARITY OF PRODUCT AND PROCESS IS A WAY TO GUARANTEE QUALITY OF RESOURCES AND TO BE CERTAIN OF THE AVAILABILITY OF SUPPLY.”

The technology platform emphasizes that this does not necessarily imply that 2G is always more sustainable than 1G and 3G is always more sustainable than 2G or 1G. Factors relating to land use, the efficiency of the production process and other factors need to be taken into account for each specific value chain.

When biomass is used for further processing, less crop residues are left on the land. This means less residues return directly to the soil and less biomass is available for composting, leaving soil fertility at risk (Zwart, 2015).

In some instances a change of land use might leave the land more vulnerable, for instance to floods. There are strong indications that the conversion of peatlands in Indonesia and Malaysia for palm oil and pulp wood plantations causes severe flood risks in extensive areas of low lying peatlands. Deforestation and draining peatlands in order to plant these valuable crops leads to peat oxidation and soil subsidence. These are low lying areas where the soil surface can subside below river or sea levels, leading to frequent and prolonged flooding (One World, 2015).

– SENIOR POLICY ADVISOR, MINISTRY OF INFRASTRUCTURE AND THE ENVIRONMENT

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CSR ISSUES IN THE CHEMICAL INDUSTRY

“ THE BIOECONOMY IS A NEW SYSTEM THAT BRINGS ALONG NEW CHALLENGES LIKE INDIRECT LAND USE, FOOD VERSUS FUEL QUESTIONS, GMOS. YOU HAVE TO DEAL WITH THESE ISSUES. SOME PEOPLE SHY AWAY IF THEY GET AWARE OF SIDE EFFECTS AND DISADVANTAGES OF THE BIOECONOMY. BUT THAT DOES NOT MEAN THE BIOECONOMY IS A NOT A GOOD DEVELOPMENT.”

– SENIOR RESEARCHERS, RESEARCH INSTITUTE

In the Corbey Commission (Commission on Sustainability Issues regarding Biomass, commissie Duurzaamheidsvraagstukken Biomassa), science, companies and NGOs join forces to advise the Dutch government on the sustainability of biomass.

A number of certifications exist to ensure sustainable biomass is used: NTA8080, RED and ISCC. RVO has developed a tool, Biograce II, which can be used to calculate emissions due to biomass production.

ANIMAL WELFARE NGOs and the major Dutch chemical companies agree that these three Rs form the basis of how animal testing should be dealt with: replace, reduce and refine (KPMG, 2014). REACH only requires animal testing if no other options exist. PETA (People for the Ethical Treatment of Animals), however, does claim animals are unnecessarily used for testing because companies are insufficiently aware of REACH. According to PETA, REACH’s rules are misinterpreted and applied too strictly: this causes unnecessary pain (PETA, 2015).

UNCERTAINTY EFFECTS OF GMOS GMOs are also used to grow biomass which is then used for the biobased industry. Biotech companies are held responsible for the promotion of GM crops as an answer to world hunger.

There is a tension between NGOs and the industry. EuropaBio (2013), for instance, states: “For 17 years GM crops have been increasingly cultivated and consumed worldwide. Concerns about possible negative effects on health and the environment have proved to be unfounded. The commercialization of biotech crops started in 1996. In 2012, 17.3 million farmers planted GM crops on 170.3 million hectares around the world. Scientists, political leaders and farmers have become increasingly vocal in calling for a rational debate based on scientific data and years of practice in the field.” NGOs like ActionAid argue that GMOs make farmers dependent on the biotech companies, creating a market for their seeds and chemicals, and others have concerns about their effects on health.

Harmful effects on wildlife are mostly due to chemicals being released into the environment, for example in terms of the effects of pesticides, micro-plastics that are swallowed and animals living in water becoming entangled in plastic (KPMG, 2014).

In the Netherlands there is an information platform on Green Biotechnology (IGB Platform), focussed on the facilitation of a structural dialogue for sustainable agriculture, healthy food and the role of new technology in these developments.

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06. TOWARDS A SUSTAINABLE CHEMISTRY: TRENDS AND BARRIERS A LARGE NUMBER OF TRENDS SHAPE THE LANDSCAPE OF THE DUTCH CHEMICAL INDUSTRY. THEY CAN EITHER ENABLE OR HINDER A TRANSITION TOWARDS A SUSTAINABLE CHEMISTRY. THE FOLLOWING CHAPTER IDENTIFIES TRENDS CONCERNING ECONOMY, SOCIETY, DEMOGRAPHY, TECHNOLOGICAL DEVELOPMENT, ENVIRONMENT AND POLITICS. BASED ON THESE DEVELOPMENTS, CHEMICAL COMPANIES MAY HAVE TO ADAPT THEIR BUSINESS STRATEGIES. WHAT ARE THE MAIN BARRIERS FOR CHEMICAL COMPANIES TO FOREGO SUSTAINABLE CHOICES?7

7

COMPLETE OVERVIEW OF ALL TRENDS, BARRIERS AND DRIVERS IS PROVIDED IN THE SYSTEM ANALYSIS: A INTERNATIONAL CSR IN THE CHEMICAL SECTOR (CSR NETHERLANDS, 2015)

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TOWARDS A SUSTAINABLE CHEMISTRY: TRENDS AND BARRIERS

TRENDS

CO2 economy: this concept can also be considered to be a part of the circular economy. Some argue the CO2 economy will eventually even replace the biobased economy, given that renewable energy is abundant and cheap. In a circular CO2 economy the sustainable supply of raw materials is the key element. A combination of sunlight/renewable energy and CO2 could be the basis of this future economy. There are several research institutes and companies worldwide currently developing chemicals with CO2 as feedstock. This can be seen as a positive development, because it uses a raw material that would otherwise enhance climate change (carbon capture and usage), and is widely available. Furthermore, it will decrease dependency on fossil resources and hence on the providing countries.

MOVING TOWARDS A NEW ECONOMY AND NEW INDUSTRY Socio-technological trends such as the circular economy or the bioeconomy are interesting for a number of reasons: they offer solutions to one or more societal challenges, strengthen the Dutch economy and take advantage of its knowledge position.

Such trends can eventually transform the current economy and chemical industry. Each socio technological trend is described briefly below.

Circular economy: a circular economy is an economic and industrial system that takes the reuse of products, raw materials and the recovery of natural resources as a starting point, minimizing value reduction throughout the system and striving for value creation in every part of the system (‘Towards a Circular Economy’, EMF, 2012). Further arguments in favour of this development are the decrease of environmental impact, dependency on other countries for raw materials and the growing awareness among consumers of resource efficiency and climate change. As for most sectors, the concept of a circular economy is still being explored.

“ A LOT IS HAPPENING IN THE SEARCH FOR RENEWABLE RAW MATERIALS, BUT ONLY ON A SMALL SCALE. I EXPECT THIS TO BE DIFFERENT IN THE FUTURE, AS THE AWARENESS OF CHEMICAL COMPANIES IS STARTING TO GROW. HOW LONG THIS EVENTUALLY MIGHT TAKE, I DON’T KNOW.”

A bioeconomy can be defined as an economy in which biobased raw materials and waste streams are used on a large scale for food and non-food applications in a broad range of sectors. For the Netherlands a further uptake of sugar beets as feedstock is expected since the EU has abolished its sugar quotas (Deloitte, 2014). Alternatively, algae will be modified to contain more valuable components. They will be produced in greenhouses and used to produce food supplements. Because of the development of pre-treatment of biomass, separation technologies in continuous processes, scaling up of bioconversion processes and better valorization of side streams, more bio refineries will be developed and established. This will affect mostly those industries (feed industry) which currently use side streams as raw materials.

– BUSINESS DEVELOPER, ENGINEERING COMPANY

“ A LARGE BARRIER IN THE SIDE STREAM SECTOR OF THE DUTCH FEED INDUSTRY IS THAT SUPPLIERS ARE STARTING TO VALORIZE THEIR SIDE STREAMS MUCH MORE. IN THE FUTURE THIS COULD LEAVE US WITH SIDE STREAMS THAT ARE DIFFICULT TO USE OR TRANSPORT FOR FURTHER APPLICATION. THE BUSINESS CASE WILL NO LONGER BE APPROPRIATE.”

– BUSINESS DEVELOPER, FEED INDUSTRY -

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INTERNATIONAL CSR IN THE DUTCH CHEMICAL SECTOR QUICKSCAN

Furthermore, increasing awareness regarding the scarcity of raw materials and the need for recycling, reuse and design for circularity is noticeable amongst consumers and companies. Even though chemical companies hardly feel directly pressured to adjust, several stakeholders are witnessing a pseudo-scientific, emotional debate in the media for certain issues that are not or only partly based on scientific facts. These issues concern GMOs, E-number ingredients in food and the production of biofuels. A debate like this can hinder sustainable developments, while present unsustainable practices are continued.

Because innovative companies would like to be rewarded for progressive activities at environmental and safety level. This reward does not, however, occur at societal level.

Small scale chemistry: decentralized, modular, local, continuous chemicals production. This development is interesting for a number of reasons. It will make investments and thus the threshold for establishing innovative commercial plants lower and better accessible to SMEs. Furthermore, resource efficiency will increase and the environmental impact of the plant and logistics will become smaller. The external safety profile of the plant will be lower. Taking small scale chemistry as one of the possibilities when innovating will enlarge the possibilities for innovation.

Smart Industry is about the rise of the ‘internet of things’, big data and new sensor and production technologies. The Smart Industry agenda in the Netherlands intends to fully use the latest ICT developments in order to make the industry more efficient, flexible, qualitatively better and tailor made (www. smartindustry.nl). 3D printing is one of the main examples which highlights how products can be designed, or how components no longer need to be delivered from elsewhere but can be printed on location.

INCREASING DEMAND FOR CSR WITHIN SUPPLY CHAINS With regard to business-to-business activities, companies in the Dutch chemical industry are faced more often with questions about CSR and sustainability from their clients. These questions mostly relate to closed loops, circularity, energy efficiency, regionally produced products and the use of biobased resources.

The growing interest in sustainability is also apparent in the fact that sustainable development is part of the long term visions of Dutch sector associations, the Dutch Chemistry Key Sector and EU policies. This offers a good starting point for initiatives aimed at encouraging sustainable development within the sector. The number of companies considering CSR to be a business case, instead of a marketing tool (greenwashing) is also increasing.

INCREASING PUBLIC PRESSURE AND DISTRUST Aside from socio-technological trends, society itself is changing. There is an increasing public interest in safety, and transparency. Citizens are less accepting of industrial incidents, despite efforts being made by a lot of companies to comply with legislation or even go beyond it. The demand for transparency on the part of companies and authorities is increasing.

More openness in the chemical industry in the Netherlands. In the last four years transparency and openness in the chemical industry has increased. This can be witnessed in a growing amount of companies reporting on sustainability according to GRI guidelines and third parties being allowed to develop activities on site (Green Chemistry Campus at SABIC).

Inspection authorities have also become more transparent in reporting incidents through the BRZO legislation on safety.

Summarized safety reports are now available through an online database.

“ CITIZENS AND NGOS ARE BECOMING MORE VOCAL WHEN IT COMES TO CLIMATE CHANGE AND SUSTAINABLE DEVELOPMENT. THE CLIMATE CASE STARTED BY URGENDA PERFECTLY ILLUSTRATES THIS.”

CREATING A SENSE OF URGENCY: A SMALLER PORTION FOR EUROPE New innovations and technologies aside, recent developments have also created a sense of urgency for the chemical sector to redefine itself. Although EU chemical sales have doubled since 1993, the global market share of the EU chemical industry has declined since 2013. This is mainly due to the enormous expansion of the Chinese market (Suschem, 2015). Due to changing geopolitical relations, the growth in Dutch and EU chemical sales is slowing further; the European market is becoming saturated. Traditional refineries are closing and there are plenty of mergers and acquisitions. The port of Rotterdam appears to become a last resort for the refineries in Europe for future existence. At the same time the chemical industry is very much focussed on resource and energy efficiency: using every last ounce of fossil raw materials.

– S ENIOR POLICY MAKER, MINISTRY OF ECONOMIC AFFAIRS

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Fast growth of bio-based polymer production is expected, mainly in Asia. Production capacity of biopolymers is expected to triple from 5.1 million tonnes in 2013 to 17 million tonnes in 2020, representing a 2% share of polymer production in 2013 and 4% in 2020. In light of these developments, the world market shares are expected to shift dramatically. Asia is predicted to experience the highest development in the field of bio-based building blocks and polymer production, while Europe and North America are slated to lose more than half and three-quarters of their shares respectively (Aeschelmann et al, 2015).

TESTING THE LIMITS OF THE ENVIRONMENT Obviously, climate change is one of the most prominent environmental trends currently under scrunity. The rapid decline of biodiversity worldwide is also a matter of concern. The increase in the world population to 9 billion in 2050 will increase environmental pollution and depletion of resources.

Also, scarcity of non-renewable raw materials in the long run (oil, gas, metals, other elements) will become tangible if nothing is done. With the growth of the population and urbanization, the scarcity of fresh water reserves for growing crops, industrial activities and human consumption will increase.

Decrease in multilateral trade due to protectionist measures and bilateral trade agreements.

A number of important raw material producing and consuming countries have a mercantile and protectionist raw material policy (HCSS, 2011). Both Indonesia and Malaysia charge an export tariff for palm oil and wood in order to support the local valorization of raw materials. Besides that, the increase in bilateral trade agreements and regional trade communities is another example of a long term strategy to guarantee the supply of raw materials for the domestic market and industry. These developments are worrisome, as for a sustainable chemical industry multilateral trade and likewise institutions (WTO) are a necessity.

EUROPE IS MOVING FORWARD: POSSIBILITIES STEMMING FROM LEGISLATION In general the European Commission is much more ambitious in terms of innovation policy for a biobased economy and sustainable chemical industry than the Dutch government.

The Dutch government tends to take a facilitating role instead of a leading role.

The termination of sugar quotas by the EU as of 30 September 2017 will stimulate the production of sugar beets for the biobased chemical industry. EU sugar policy today concerns three main areas: quota management, a reference price and a minimum guaranteed price to growers, and trade measures.

It is expected that the chemical industry will invest €1 billion in plants that refine sugar beets into biobased chemicals in the three to five years to come (Deloitte, 2014). This means that feedstock for biobased plants in Europe will become more accessible at a lower price.

The Netherlands and the EU have a less attractive investment climate for (biobased) chemical plants compared to the USA, parts of Asia and South America. Consequently, the profits of the chemical industry will decline and the Netherlands and the EU will become less attractive for investments in new commercial plants and the installed base of the chemical multinationals. Although the Netherlands and Europe have invested hugely in R&D, the benefits of this knowledge position are being implemented elsewhere.

Active EU energy policy to stimulate reduction of greenhouse gases, energy consumption and increase in renewable energy. This is supported by the Emission Trade System for CO2, Renewable Energy Directive Targets, Framework Support Carbon Capture and Storage. Companies have indicated that the ETS system will only provide fair business conditions if it is implemented globally. This will be a topic on the agenda of the climate summit in Paris this year. The European Renewable Energy Directive (RED) gives negative impulses (adding biomass in waste incinerators) to the development of biobased products (in supply of biomass and in investing direction).

“ I HAVE SEEN THIS HAPPEN A COUPLE OF TIMES. FOR INSTANCE IN FRANCE, WHERE THE PLANTS WERE EVENTUALLY REALISED IN CANADA AND KOREA.”

– CEO, BIOTECH COMPANY

More transparency and requirements for the impact of chemicals on people and the environment. This trend is visible in the implementation of REACH (Registration, Evaluation, Authorization and restriction of Chemicals), which has been in force since 2007. The REACH Regulation requires companies to provide information on the hazards, risks and safe use of chemical substances that they manufacture or import.[1] Companies register this information with the ECHA agency and it is then freely available on their website. This also gives European consumers the right to ask retailers whether the goods they buy contain dangerous substances.

A GROWING AND AGEING POPULATION Demographic trends will also put pressure on the chemical industry. In 2050 the world population is expected to grow to 9 billion people. Furthermore, 80% of the global population will be living in cities. This will have huge consequences for the chemical industry in terms of market demand. Aside from these developments, the world population also continues to age.

Particularly in Western-Europe, China and Japan, leading to an increase in demand for medicine. Worldwide a growing wealthy middle class is arising both in developed countries and in developing countries, increasing the need for a larger diversity of produce. Another trend related to ageing is the shortage of qualified technical personnel in the Netherlands. This is also addressed in the Human Capital agenda of the Chemistry Key Sector.

The standards for fuels (Fuel Quality Directive) will become stricter, especially for biofuels to ensure a fuel quality that can be handled by ICE. Biofuels will probably become less interesting for road transport in the future, apart from HDV 43

INTERNATIONAL CSR IN THE DUTCH CHEMICAL SECTOR QUICKSCAN

(Heavy Duty Vehicles), although the development of the production of biofuels in Europe is heavily influenced by the Renewable Energy Directive. Major application is expected in marine fuels, since biofuels contain little or no sulphur and legislation for sulphur reduction in marine fuels is being implemented. In the USA a lot of investments have been made in biofuels originating from algae. But this does not seem to be a very efficient conversion.

Feedstock prices are high and fluctuate, because of the limited amount of feedstock (biomass) available in Europe and the legislation stimulating biomass for bioenergy (through the RED) for use in biochemicals and biomaterials. Energy companies can afford to buy feedstock as they are supported by subsidies.

When building a business case the hidden costs of environmental impact are generally neglected. The costs of environmental impact are not taken into account when making investments.

Stricter legislation regarding corruption worldwide. Legislation regarding corruption has become stricter in recent decades.

Since the last century the USA has had the Foreign Corrupt Practices Act, which entails that the USA can prosecute American and foreign companies for corruption. Besides fines and exclusion from the US market, CEOs of companies can be held personally responsible and taken into custody. Other OECD countries including the Netherlands have followed, resulting in a convention in 1999 on fighting and preventing corruption. For international companies it resulted in more attention for signalling and prevention of corruption (FD, 27 August 2015).

“ IT WILL COST €4,000 PER TON TO COLLECT PLASTIC SOUP FROM THE OCEAN AND BRING IT TO SHORE, WHILE CLEAN, VIRGIN PLASTIC IS WORTH €1,000 PER TON. THAT IS WAY TOO EXPENSIVE.”

There is a trend towards the use of certification to ban unsustainable practices instead of legislation. For this you need a stable and reliable political system. However, this is still no guarantee of success, since implementation is crucial.

The investment climate for biobased companies in the Netherlands concerning biobased demonstration and commercial plants is fairly unattractive compared to the USA and Asia. For biobased R&D it is fairly good. Compared to other countries within the EU there does not seem to be much difference (Suurs, Roelofs, 2014, nova Institut, 2014).

BARRIERS FOR INTERNATIONAL CSR IN THE CHEMICAL INDUSTRY

In light of these trends, it will be inevitable for companies to rethink their current strategies and change course. One of the options would be to move towards a more sustainable business strategy. However, there are certain barriers that can obstruct sustainable development. From the in-depth interviews we derived the following:

TOO BIG A COMPANY, TOO SMALL AN INNOVATION Existing production facilities of the bulk chemical industry have had overcapacity for years. This is a threat to sustainable development, as the existence of overcapacity provides no incentive to invest in innovation. Furthermore, the dominant innovation paradigm in the chemical industry is ‘to innovate on a large scale’, making the threshold to innovate even larger. Another factor is the focus on short term ROI and shareholder value by multinationals.

DEFINING A SUSTAINABLE BUSINESS CASE The market for biobased products is undeveloped. Logistics and sourcing have yet to be streamlined. The market value of biobased products is not price competitive. Initially, it was assumed the consumer would be willing to pay a biopremium as in the case of biobased polyethylene. However, this is not the case. Biobased products simply have to compete with fossil products on price and functionality. A higher price is only accepted with better functionality.

“ WHEN WE DEVELOP A BIOBASED PRODUCT, OUR CLIENTS EXPECT A HIGHER PERFORMANCE. IF PERFORMANCE IS EQUAL TO OUR FOSSIL BASED PRODUCTS, THERE IS NO INCENTIVE TO CHANGE.”

– OWNER, BIOENERGY TECHNOLOGY PROVIDER

– R&D MANAGER, SPECIALITY CHEMICALS COMPANY

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“ PURCHASES OUTSIDE EUROPE ARE COMPLICATED BECAUSE OF REACH. BUT REACH HAS MADE A LOT OF COMPANIES MORE AWARE OF THEIR VALUE CHAIN.”

Large chemical companies dominate the speed of innovation and direction of the chemical industry. Most large chemical companies seem to be rather reactive in response to a transition to a biobased economy. One of the common strategies is to look for innovative SMEs to incorporate. This is, however, also a barrier for innovation, as it can easily slow down the speed of innovation of the incorporated SME and thus slow down the innovation in the value chain. At the same time, innovative SMEs feel they do not have much influence over larger companies and the semi-finished products being supplied to them. This is because they possess less market power and because of the lack of transparency and information being distributed to them.

- SENIOR ADVISOR, SECTOR ASSOCIATION -

Another issue related to transparency concerns the sustainability risks in producing renewable raw materials, such as bad labour conditions, child labour, ILUC or the decrease in biodiversity. To mitigate risks, certification is a means of banning unsustainable practices. But certification requires auditing.

In BIC and developing countries reliable audits are difficult.

Legislation is another possibility, but this requires a politically stable and reliable system.

LACK OF COOPERATION FOR VALUE CHAIN INNOVATION Another barrier to innovation is that companies in the chemical industry usually do not (or only partially) design and develop the end product, and are therefore dependent on the B2B client sector (leather, food, etc.) for implementing changes.

Furthermore, innovation possibilities are limited when they are not collaborating with the rest of the value chain.

SOCIAL RESISTANCE Sustainable development is seen as neo-imperialistic politics. In developing countries the sustainability drive of the Western world is sometimes seen as neo-imperialism, since the Western countries are again trying to influence the behaviour of developing countries, despite having had unsustainable industries for more than a century themselves. This is often explicitly or implicitly heard in global negotiations on mitigating climate change.

“ THE CSR AWARENESS OF PEOPLE WHO WORK WITH MATERIALS IS STILL UNDERDEVELOPED. THEY COULD EXERT MORE INFLUENCE ON THE SUSTAINABILITY OF THE VALUE CHAIN BY DETERMINING HOW A CERTAIN MATERIAL SHOULD BE OBTAINED AND WHERE IT SHOULD COME FROM.”

“ IN DEVELOPING COUNTRIES THEY OFTEN USE SIDE STREAMS MUCH MORE EFFICIENTLY THAN WE DO. TAKE FOR INSTANCE FOOD; THEY USE EVERYTHING! WE HAVE A LOT TO LEARN FROM THIS APPROACH, STARTING BY GETTING RID OF OUR MISGUIDED ARROGANCE.”

– CORPORATE COMMUNICATION OFFICER, SPECIALTY CHEMICALS COMPANY -

Companies are reluctant to try something new, even when product functionality is similar to the current standard. Working more sustainably might require switching to alternative chemicals and/or new processes and installations, which can be very expensive or difficult to implement. Companies also experience resistance to change, to new processes as well as to new chemical products. It took the metal industry 20 years to accept water based coatings.

Transparency about CSR issues throughout the value chain is lacking. Foreign labels are not always transparent about environmental impact. Even though REACH requirements have helped companies gather more information about their value chain, the origin of the raw materials and the impact on people and the environment remain unknown.

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–R &D MANAGER, SPECIALTY CHEMICALS COMPANY

INTERNATIONAL CSR IN THE DUTCH CHEMICAL SECTOR QUICKSCAN

In Europe societal resistance against green biotechnology (genetic modification of plants) and synthetic biology still exists. At the same time the EU is the world’s biggest importer of agricultural commodities like soy. And a substantial and increasing part of these imports is based on GM crops. Societal resistance against genetic modification of micro-organisms in industrial biotechnology is much less present.

Lack of support for companies in the Valley of Death (transition from pilot- to demonstration phase): currently we are losing the battle for the bioeconomy in Europe. Other countries invest much more in biobased consortia. This is because of limited government budgets, and because investors in Europe are more risk-adverse and have less financial means.

“ EMOTIONS PLAY A LARGE ROLE IN THE POLITICAL DEBATE ON GMOS AND SYNTHETIC BIOLOGY. CONSEQUENTLY LEADING TO A PSEUDO SCIENTIFIC DEBATE, WITHOUT ANY SCIENTIFIC EVIDENCE. THE NEGATIVE IMAGE THAT IS BEING CREATED IN SOCIETY CAN HARM THE BIOTECH SECTOR.”

“ EUROPE LACKS A LEVEL PLAYING FIELD FOR PLASTIC PRODUCERS. THE NORMS FOR PLASTIC PRODUCTS IN MEDICAL APPLICATIONS OR PACKAGING DIFFER EVEN AMONG EU COUNTRIES.”

UNDERMINING LEGISLATION AND POLICIES

Lack of Level of Playing Field: there is no level playing field between biobased and fossil resources and biobased and fossil raw materials. This is caused by trade barriers, and the strong and almost invisible support for fossil resources8 and little support for biobased fuels and chemicals. Biobased alternatives still need research. Regulations refer to BAT (Best Available Technologies) or LCAs (Life Cycle Analyses) which might be outdated. Usually there is a special provision allowing for innovation, but in practice this might be hard to apply. Apart from that, there is a lack of a level playing field between the use of biomass for chemicals and materials and for energy. The use of biomass for energy is strongly stimulated by the RED. Another example concerns the large differences in requirements for waste management and energy efficiency between China and Europe. Building a new plant in China can be more cost-efficient than maintaining an existing plant in Europe.

– ADVISOR, SECTOR ASSOCIATION

Finding skilled and qualified technical personnel is a problem in the Netherlands, but also when establishing a business abroad.

Human capital is therefore one of the topics on the agenda of the Chemistry Key Sector.

BUREAUCRACY AND LACK OF GOVERNMENT SUPPORT Requiring environmental permits for (pilot) plants costs time and money: chemical plants are often assigned to the highest environmental category for environmental permits. For SMEs this may cause a barrier when it comes to getting their (pilot) plants financed, since they often do not take into account that getting a permit requires time and thus money as well. Besides that they have only little capacity and cannot afford to spend too much time and money on the application process. Permit processes are also not very streamlined, and civil servants are not always well informed about the characteristics of individual companies, in spite of incentive measures taken by the regional and local governments. In spite of this, interviewed companies still consider rules and regulations to be the driving force towards a more sustainable chemical industry.

8

– CEO, PLASTICS MANUFACTURER AND CONVERTOR

Legislation regarding waste streams hinders valorization and reuse. The use and valorization of (biobased) waste streams can be complicated as a result of labelling these streams as ‘waste’.

For instance, waste water rich in nitrates and phosphate could be used as feed for algae. But this is not allowed. Besides that, waste and waste processing make AVI laws and regulations applicable. This makes treatment and valorization of waste complicated because of the legislative burden. Transporting waste across borders is also difficult due to strict rules and regulations. Governments decide what is waste and when and where it can be used as a resource.

S OURCE: IEA WORLD ENERGY OUTLOOK, 2011. THE CURRENT EU SUBSIDY SYSTEM IS STILL MORE ORIENTED TOWARDS FOSSIL FUELS THAN RENEWABLE ENERGY. SUBSIDIES THAT ARTIFICIALLY REDUCE END-USER PRICES FOR FOSSIL FUELS AMOUNTED TO $409 BILLION IN 2010, WHILE SUBSIDIES GIVEN TO RENEWABLE ENERGY AMOUNTED TO $66 BILLION (NOMINAL). INVISIBLE SUPPORT OF FOSSILS ENTAILS, FOR INSTANCE, THE LACK OF ENERGY AND IMPORT TAX FOR FOSSIL BASED CHEMICALS AND UNDERPRICING OF FOSSIL BASED ELECTRICITY.

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PAS legislation hinders expansion of chemical companies. The Programmatic Approach for Nitrogen (in Dutch, PAS) is meant to reduce the amount of nitrogen in the environment in order to preserve Dutch nature and at the same time economic activities. However, the PAS legislation is interfering with the expansion of chemical companies in North Brabant and Zeeland because the norms restrict industrial activity.

Barriers for the circular economy. The infrastructure for collecting used products, products to be refurbished and side streams to feed into a developing circular economy is poorly developed in the chemical sector and changes occur at a slow pace. Similarly, most financial institutions are not ready to finance business models based on lease concepts. End of life solutions for many products, like composite materials, are simply not available.

REACH hinders innovation by making the market introduction of new (biobased) products more costly and time consuming. New products in Europe have to be registered, evaluated in terms of their risks to man and the environment and authorized. In every business plan a REACH paragraph is obligatory. This causes an administrative burden, which is very demanding especially for SMEs.

“ AWARENESS OF SUSTAINABILITY IN CHEMICAL COMPANIES IS COMPLICATED, SINCE ROI AND SHORT TERM PREVAIL. THE SHALE GAS REVOLUTION AND THE LOW OIL PRICE ARE NOT HELPING EITHER. THE PRICE OF CO2 SHOULD INCREASE AND THE ENVIRONMENTAL IMPACT SHOULD BE CHARGED.”

GMO legislation is rather strict in the Netherlands compared to neighbouring countries. This hinders innovation in the industrial biotechnology sector. It is, however, important to take potential adverse effects on people and planet into consideration when advocating looser regulation. There is a serious scientific as well as societal discussion ongoing on this issue.

“ WE PERFORM PART OF OUR RESEARCH IN BELGIUM, SINCE THEY ARE LESS STRICT ON GMO RULES”

The Dutch government is unreliable and inconsistent when it comes to sustainability. Businesses think government policies change too swiftly with each establishment of a new Cabinet.

This increases risk when making long term investments with subsidies. Several representatives of companies stated during the interviews that they therefore try to construct an independent business case.

– CSR OFFICER, BIOPLASTICS MANUFACTURER

WHAT IS SUSTAINABILITY? It can be unclear how to define sustainability. There is no uniform method for measuring the sustainability of (biobased) products in spite of several existing measurement methods. Also the numerous existing certificates for sustainable products are causing confusion about what the certification entails and what it does not. A biobased origin, for instance, is no guarantee of a sustainable product. An LCA is often required to determine whether one solution is really sustainable.

“ AT THE MOMENT, THERE SEEMS TO BE SOME SORT OF ‘TITANIC POLITICS’: EVERY FOUR YEARS POLITICIANS HAVE TO SCORE.”

“ YOUR INTUITION CAN BE DECEIVING. YOU TEND TO THINK ‘NATURAL IS MORE SUSTAINABLE’. BUT PAPER COFFEE CUPS OFTEN REQUIRE MORE MATERIAL THAN PLASTIC ONES, WHICH MAKES PAPER CUPS EVENTUALLY LESS SUSTAINABLE

– VP PARTNERING & COMMERCIALISATION, BIOPLASTICS MANUFACTURER

– SENIOR RESEARCHER, RESEARCH INSTITUTE

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– CEO, PLASTIC PACKAGING MANUFACTURER

07. OPPORTUNITIES FOR INTERNATIONAL CSR IN THE CHEMICAL INDUSTRY

“ WHILE TALKING TO (LARGE) CHEMICAL COMPANIES, I NOTICE THEY ARE IN TRANSITION. THESE COMPANIES ARE INCREASINGLY AWARE OF SOCIETAL DEMANDS REGARDING SUSTAINABLE PROCESSES AND PRODUCTS. BIOTECHNOLOGY CAN BE AN OPTION, BUT COMPANIES ARE NOT ALWAYS FAMILIAR WITH THE APPLICATION OF THIS TECHNOLOGY. COMPANIES TOO OFTEN STILL THINK IN TERMS OF PRODUCING SUBSTITUTES FOR CHEMICAL PRODUCTS (DROP-INS) INSTEAD OF USING NEW TECHNOLOGY. COMPANIES ARE HESITANT TO INTRODUCE NEW PROCESS ROUTES OR PRODUCE NEW PRODUCTS.”

– CEO, BIOTECH COMPANY

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FIGURE 8: OVERVIEW OF CIRCULAR ECONOMY, ELLEN MACARTHUR FOUNDATION, 2015

leads to a lot of waste streams that are not collected or treated afterwards. Plastic producers, amongst others, could help and find solutions for this problem.

EIGHT STARTING POINTS FOR SYSTEM INNOVATION. The following eight starting points for (system) innovation offer companies in the chemical sector opportunities to tackle CSR issues and for further sustainable development in the sector:

Development of a bioeconomy and a biobased chemistry. Opportunities for this concept lie in the strong position of the Dutch agrifood sector, including the sugar beet quota abolition in 2017, the strong position of transport and logistics, and Dutch expertise in biochemistry, life sciences and biotechnology. The Dutch government itself is quite active in stimulating and coordinating the bioeconomy. The valorization of agricultural residues and invasive plants and trees in developing countries also offers opportunities. Attractive biobased policies and regulations can be found in Malaysia (attractive incentive policies), Singapore (active acquisition of foreign investments, especially for biobased industries), Thailand / Indonesia (attractive fiscal arrangements). The USA also has an attractive investment climate (low energy price, many investors and government support, infrastructure, market access), as do Brazil and South America (TNO, 2014, Nova, 2014).

• Circular economy; • Biobased economy and chemistry; • Small scale chemistry; • Smart, functional materials; • CO2 economy; • Valorization of side streams and invasive species; • Sustainable product development for developing countries; • Modernization of existing industries in developing countries.

Circularity as a starting point for a system innovation offers resource efficiency, sustainable sourcing and production, altering the production, use and end of life phase. The Chemistry Key Sector has implemented circularity as a concept into its vision for 2030 by setting an ambition of 15% biobased chemicals, 10% recycled fossil based and 75% traditional fossil based.

Small scale chemistry as an alternative innovation paradigm. The chemical industry generally tends to think in terms of innovation on a large scale. Small scale chemistry can literally bring producers closer to their resources and the (regional) market, which might specifically be relevant to developing countries that grow feedstock. The concept can be seen as enabling for the circular and biobased economy. Small scale chemistry makes new products and continuous processes possible due to a higher degree of control of process variables and selectivity, which can also contribute to safer production conditions.

Companies are actively developing circular fossil and mineral products. Mechanical and chemical PE recycling is becoming more mainstream and phosphate and (mechanical) PET recycling are already well established, as is recycling of biodegrabales via composting. Leasing chemicals is a concept still to be further explored. Interesting opportunities lie in the development of circular humanitarian aid goods. Humanitarian aid 49

INTERNATIONAL CSR IN THE DUTCH CHEMICAL SECTOR QUICKSCAN

Small scale solutions potentially help solve investment barriers experienced by SMEs and larger companies. Of course, small scale chemistry is not the ‘holy grail’, the solution for every process development. Nevertheless, it might offer new innovation possibilities for traditional products, and thus modernization of industrial complexes.

Another valorization possibility for fossil based waste streams is developing incorporating circularity for plastics in developing countries: plastic litter, plastic humanitarian aid products and other waste in general are causing huge environmental problems in most developing countries. Most of the time in most countries there is little or no infrastructure for collecting waste, nor a proper recycling facility. New business opportunities may arise in collecting, sorting and recycling plastics, since the costs of collecting and sorting are lower than in the Netherlands, and proper recycling increases the resource efficiency and reduces litter.

Opportunities for smart, functional materials. Smart materials compete on added value in terms of product performance instead of resource price. The development is supported by the trend of a smart industry development and the strong position of the Dutch high-tech industry. Furthermore, these smart new materials encourage a new way of collaborative innovation. If designed well, these new materials can be more resource efficient and circular than conventional materials.

Sustainable product development specifically for developing countries in the downstream value chain. The chemical industry has the capacity to produce societally beneficial products.

Starting from the demand side (in developing countries) and looking from a client’s perspective, the products will be better attuned to the local situation and to local knowledge.

Opportunities for a CO2 economy. The Netherlands has a unique position and opportunities for the development of a CO2 economy, because of a strong position in the chemical industry, process technology, 3D-printing technology, CO2 capture and storage and transport. Mediagenic examples are Roosegaarde studio’s projects involving carbon capture: a smog-free tower that filters CO2 from the air and smog-free rings made with the captured CO2 (Studio Roosegaarde, 2015). CO2 as a resource is abundantly available around the world (emitted by industry, part of the atmosphere) and integrating its capture in products or services solves an environmental issue as well. Abundance of renewable energy at a low price is a success factor for this development. In developing countries this could be easily provided by solar energy.

Modernization of existing industries in developing countries.

Developing countries and emerging economies often have industries that are ill maintained and old fashioned in terms of processes. This could offer a market for Dutch companies in terms of exports of knowledge and technology and offers developing countries the opportunity to ‘leapfrog’ to the current state-of-the-art technology. Success factors are reliable local contacts, government support in terms of HSE legislation/policy and multinational clients seeking a reduction in the social and environmental impact of the industry.

PROVIDING A NEW LEVEL OF CHEMICAL PRODUCTION IN EUROPE BY IMPLEMENTING CSR: TRACEABLE PRODUCTS, HIGH QUALITY, AND SAFE PRODUCTION WITHOUT PROBLEMS.

Further valorization of agricultural residues and invasive species (plants, trees) in developing countries. Agricultural residues in developing countries are often not used to their full extent.

To gain insight into the potential valorization of agricultural waste streams, we need to look at the consumption trends in emerging and developing countries. Residues and biomass waste streams can potentially be used for biorefining. The same goes for invasive plants and trees. Valorizing these is creating value while solving a problem.

– CEO, PLASTICS AND PACKAGING MANUFACTURER

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SUPPORTIVE LEGISLATIVE FRAMEWORKS FOR NEW WAYS OF BUSINESS Allow frontrunners to innovate. For early innovators and frontrunners, the government could install a legislative area with more flexible regulations. This will create more room for frontrunners to experiment. Current regulations function as a ‘barrier to entry’ for more sustainable alternatives.

Simplify legislation including REACH. Simplification of REACH by registration of groups of substances instead of single substances will lift a burden for companies, especially for SMEs. Another form of simplification could be to use requirements for products instead of import conditions, and to search for raw materials and products that are already registered by the EFSA, FDA and do not need to be registered within REACH. Support or strengthen initiatives that support the ICSR agenda.

Together for Sustainability is an initiative by chemical multinationals to ensure ecologically and socially sustainable sourcing. Other initiatives include the call of the Minister of Development Cooperation to develop mega or icon projects for developing countries and to develop an ICSR sector based approach (covenant) for Dutch sectors. Furthermore, UNEP and ICCE have an MoU regarding knowledge transfer to developing countries with respect to clean production centres.

Besides that, there is the Responsible Care Programme of ICCE, which contains some basic aspects of CSR, and the so-called ELAN programme, which is an EU initiative that seeks to increase and diversify the EU economic presence in Latin America. All these initiatives can help advance the CSR ambitions of SMEs. Finally, the 17 UN Sustainable Development Goals can help.

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08. CONSTRUCTING A SECTOR PROGRAMME: PRIMARY FOCUS THE CHEMICAL INDUSTRY IS HIGHLY DIVERSE AND PLAYS AN ESSENTIAL ROLE IN THE DELIVERY OF ALL SORTS OF INGREDIENTS AND PRODUCTS IN SOCIETY. BECAUSE OF THIS THE SECTOR CAN MAKE A LARGE SUSTAINABLE IMPACT. AS A RESEARCHER STATED IN ONE OF THE INTERVIEWS: “THE CHEMICAL INDUSTRY CAN DO A LOT OF GOOD, BUT CAN ALSO CAUSE A LOT OF HARM.” GOOD IN MAKING SURE THAT SUSTAINABLE PRODUCTS ARE AVAILABLE AROUND THE WORLD. HARM IN THAT IT CAN CAUSE DAMAGE TO PEOPLE AND THE ENVIRONMENT. FOR THE INTERNATIONAL CSR SECTOR TRAJECTORY WE HAVE IDENTIFIED THE FOLLOWING CHALLENGES AND OPPORTUNITIES SPECIFYING HOW WE, AS A DUTCH SECTOR, CAN CONTRIBUTE TO SUSTAINABLE CHEMISTRY INTERNATIONALLY.

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CONSTRUCTING A SECTOR PROGRAMME: PRIMARY FOCUS

households and valorization of invasive plants and trees. Other barriers impairing the growth of sustainable biobased chemistry, like discussions concerning Indirect Land Use Change, can also be addressed. For both cases, the role of SMEs could be to export knowledge and technology or set up alternative business models that include the use of such waste streams and residues for further processing.

TOWARDS TRANSPARENCY IN THE VALUE CHAIN ON CSR RISKS If we look at the ICSR risks in the chemical industry, they concern both people and planet issues along the entire value chain.

For Dutch companies the most severe CSR risks do not occur in the Netherlands itself, but within the international supply chain and in the use and end of life phase of products. Addressing these issues requires substantial insight into the supply chain and occurrence of issues. Through REACH, companies are forced to gain more knowledge of the risks chemicals pose to human health and the environment, which requires information on the source of the chemicals. However, REACH does not require insight into the entire value chain. Furthermore, the impact on people beyond health (human rights issues) is not addressed. Gaining insight into where international CSR issues might occur will help to prevent or remedy risks for which companies feel or are held responsible. Chemical multinationals are increasingly aware of their supply chain and often work with first tier suppliers to produce more sustainably. Beyond the first tier much remains to be gained. SMEs face additional challenges. Most of them do not know what their international value chain looks like and are unaware of the CSR risks that occur along the chain. Working points therefore are value chain mapping and the identification of CSR risks.

TOWARDS DEVELOPMENT OF SUSTAINABLE PRODUCTS AIMED AT DEVELOPING COUNTRIES Instead of just exporting products, we could develop sustainable products in cooperation with local entrepreneurs in developing countries, while using indigenous knowledge where possible.

Along with technological innovation this can also lead to social innovation. An example is the development of biodegradable sanitary napkins in cooperation with local entrepreneurs.

During the entire production phase CSR risks concerning production, usage and end of life should be incorporated.

Dutch SMEs can co-develop and co-produce these products or export knowledge and technology.

TOWARDS MORE DIVERSITY IN SCALE The chemical industry usually thinks in terms of large-scale processes and bulk processing, but a shift in thinking is taking place. This is done by moving away from fossil to biobased, by developing small scale and modular process installations. Small scale chemistry can offer the advantage of a continuous process that is easier to manage and thus safer for workers and surrounding communities. It also requires less energy. Considering Dutch added value that lies in specialties and fine chemicals, a more conscious choice concerning scale when innovating might prove very relevant. In order for this to gain further ground, a cultural shift is required. Proof of robust technology, skilled personnel, trustworthy relationships internationally, a supportive government, and multinational counterparts putting pressure on existing industries to reduce their social and environmental impact can all speed up change.

TOWARDS SUSTAINABLE PRODUCTION THROUGHOUT THE VALUE CHAIN A significant part of the Dutch chemical industry has subsidiaries or production locations in developing countries or emerging economies or finds such parties in their supply chain. Even when aware of CSR risks, tackling these issues often seems daunting and SMEs in particular lack the knowledge and leverage to undertake effective and efficient action. Prioritizing between identified CSR risks must involve stakeholder consultation. More cooperation in value chains would help encourage sustainable development, create leverage and address CSR risks.

This ICSR sector trajectory offers the opportunity to develop a sector based approach to how to deal with these risks. In that way, SMEs benefit from combining forces and sharing insights.

TOWARDS CIRCULAR PRODUCTS AND SERVICES A circular chemical industry can entail circular fossil chemicals, thinking and working in value circles instead of value chains, chemical leasing (i.e. product-service systems), designing chemical products that are easy to reuse, refurbish and recycle.

The ICSR sector trajectory could stimulate collaboration on innovation in business models and product offering.

TOWARDS SUSTAINABLE SOURCING A lot of CSR risks occur at the beginning of the value chain, where biomass, minerals, oil and gas are sourced. In the sector programme we would like to focus on value chains starting from secondary fossil raw materials and renewable raw materials. Since all visions towards a sustainable chemical industry indicate that the chemical sector will remain largely fossil based for the next decade, enhancing the circularity of fossil based chemicals offers an opportunity for sustainable development.

Considering the amount of plastics that is used and disposed off in developing and BIC countries and the discussion on plastic soup and microplastics currently taking place, this value chain offers a lot of potential.

TOWARDS A TRUST BASED RELATIONSHIP BETWEEN CHEMICAL COMPANIES AND THE GOVERNMENT/ SOCIETY It is evident from several studies and interviews that the relationship between chemical companies and the government and society is characterized by distrust. Governments seek to control companies in terms of impact, while companies do not feel rewarded for sustainability efforts and innovative activities are strained.

Businesses think government policies change too swiftly with each establishment of a new Cabinet. Additionally, it would be interesting to compare certification pressure on biobased chemicals versus fossil chemicals. A key element in the projects of the sector trajectory could be to invest in an improved relationship between industry and government and to attain a better (and more realistic) perception of the chemical industry in society.

Furthermore, an opportunity lies in further encouraging the sustainable sourcing of biobased resources, since the market for biobased chemicals is still in development,. Of course one should keep in mind the advice of Commision Corbey. However, looking at the source this could be done through valorization models for agricultural residues, biotic waste streams of urban 53

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ANNEXES

ANNEXES ANNEX ANNEX ANNEX ANNEX

I: LIST OF PSD AND BIC COUNTRIES II: LIST OF CONSULTED PARTIES III: DEFINITIONS OF SUSTAINABLE CHEMISTRY IV: RELEVANT POLICIES AND LEGISLATION AT EUROPEAN AND NATIONAL LEVEL ANNEX V: OUTLOOKS FOR A SUSTAINABLE CHEMICAL SECTOR

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