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GHG Emissions

Greenhouse Gas Emissions

Chemical manufacturing generates direct (Scope 1) greenhouse gas (GHG) emissions from the combustion of fossil fuels in manufacturing and cogeneration processes, as well as process emissions from the chemical transformation of feedstocks. GHG emissions can create regulatory compliance costs or penalties and operating risks for chemicals companies. However, resulting financial impacts will vary depending on the magnitude of emissions and the prevailing emissions regulations. The industry may be subject to increasingly stringent regulations as nations seek to limit or reduce emissions. Companies that cost-effectively manage GHG emissions through greater energy efficiency, the use of alternative fuels, or manufacturing process advances may benefit from improved operating efficiency and reduced regulatory risk, among other financial benefits.

Air Quality

Air Quality

In addition to greenhouse gases (GHGs), chemical manufacturing may produce air emissions including, sulfur dioxides (SOx), nitrogen oxides (NOx), and Hazardous Air Pollutants (HAPs). As with GHGs, these emissions typically stem from the combustion of fuels and the processing of feedstocks. Relative to other industries, the Chemicals industry is a more significant source of some of these emissions. Companies face operating costs, regulatory compliance costs, regulatory penalties in the event of non-compliance, and capital expenditures related to emissions management, while related financial impacts will vary depending on the magnitude of emissions and the prevailing regulations. As such, active management of the issue through technological process improvements or other strategies may mitigate such impacts, improving financial performance and enhancing brand value.

Energy Management

Energy Management

Chemical manufacturing is typically energy-intensive, with energy used to power processing units, cogeneration plants, machinery, and non-manufacturing facilities. The type of energy used, magnitude of consumption, and energy management strategies depends on the type of products manufactured. Typically, fossil fuels including natural gas and natural gas liquids are the predominant form of non-feedstock energy used, while purchased electricity may also represent a significant share. Therefore, energy purchases can represent a significant share of production costs. A company’s energy mix may include energy generated onsite, purchased grid electricity and fossil fuels, and renewable and alternative energy. Tradeoffs in the use of such energy sources include cost, reliability of supply, related water use and air emissions, and regulatory compliance and risk. As such, a company’s energy intensity and energy sourcing decisions may affect its operating efficiency and risk profile over time.

Water & Wastewater Management

Water Management

Water is a critical input in chemicals production and is used primarily for cooling, steam generation, and feedstock processing. Long-term historic increases in water scarcity and cost, and expectations of continued increases—due to overconsumption and constrained supplies, resulting from population growth and shifts, pollution, and climate change—indicate the heightened importance of water management. Water scarcity can result in a higher risk of operational disruption for companies with water-intensive operations and can also increase water procurement costs and capital expenditures. Meanwhile, chemical manufacturing can generate process wastewater that must be treated before disposal. Non-compliance with water quality regulations may result in regulatory compliance and mitigation costs or legal expenses stemming from litigation. Reducing water use and consumption through increased efficiency and other water management strategies may lead to lower operating costs over time and may mitigate financial impacts of regulations, water supply shortages, and community-related disruptions of operations.

Waste & Hazardous Materials Management

Hazardous Waste Management

Chemical manufacturing may generate hazardous process waste, including but not limited to heavy metals, spent acids, catalysts, and wastewater treatment sludge. Companies face regulatory and operational challenges in managing waste, as some wastes are subject to regulations pertaining to their transport, treatment, storage, and disposal. Waste management strategies include reduced generation, effective treatment and disposal, and recycling and recovery, where possible. Such activities, while requiring initial investment or operating costs, may lower companies’ long-term cost structure and mitigate the risk of remediation liabilities or regulatory penalties.

Human Rights & Community Relations

Community Relations

Chemical companies are important economic contributors to many communities, providing employment opportunities and community development through taxes and capital generation. Meanwhile, issues including environmental policy, community health, and process safety are key issues with important regulatory, operational, financial, and reputational implications for companies. Environmental externalities including air emissions and water use can affect human health of those living near chemical facilities over the long term. Meanwhile, process safety incidents can endanger community health and safety, leading to regulatory penalties, legal action, and mitigation costs. Consequently, chemicals companies can benefit from building strong relationships with communities in order to mitigate potential operating disruption, reduce regulatory risk, retain top employees, lower the risk of litigation expenses in the event of process safety incidents, and ensure a strong social license to operate. Companies can adopt various community engagement strategies, such as developing community engagement plans, establishing codes and guidelines to ensure alignment of the organization’s interests with those of their surrounding communities, or conducting impact assessments to evaluate projects and mitigate potential adverse impacts.

Employee Health & Safety

Workforce Health & Safety

Employees in chemicals manufacturing facilities face health and safety risks from exposure to heavy machinery, harmful substances, high temperatures and pressure, and electrical hazards, among others. Creating an effective safety culture is critical to proactively mitigate safety impacts, which could result in financial consequences, including higher healthcare costs, litigation, and work disruption. By maintaining a safe work environment and promoting a culture of safety, companies can minimize safety-related expenses and potentially improve productivity.

Product Design & Lifecycle Management

Product Design for Use-phase Efficiency

As increasing resource scarcity and regulations drive the need for greater materials efficiency and lower energy consumption and emissions, the Chemicals industry stands to benefit from developing products that enhance customer efficiency. From reducing automobile emissions through materials optimization to improving the performance of building insulation, chemical industry products can enhance efficiency across a multitude of applications. Companies that develop cost-effective solutions to address customers’ needs for improved efficiency can therefore benefit from increased revenues and market share, stronger competitive positioning, and enhanced brand value.

Safety & Environmental Stewardship of Chemicals

Product safety and stewardship is a critical issue for companies in the Chemicals industry. The potential for human health or environmental impacts of chemicals during the use-phase can influence product demand and regulatory risk, which in turn can affect revenues and result in higher operating expenses, regulatory compliance costs, and mitigation. The industry can therefore mitigate regulatory risk and grow market share by developing innovative approaches to manage the potential impacts of products during the use phase, including developing alternative products with reduced toxicity. This could contribute to shareholder value through improved competitive positioning, greater market share, reduced regulatory risks, and higher brand value.

Genetically Modified Organisms

Some chemical companies produce crop seeds developed using genetically modified organism (GMO) technology. GMO technology has improved the yields of certain crops, including corn and soy, by altering the crop’s resistance to pesticides and herbicides and improving drought tolerance, among other factors. At the same time, consumers and regulators in some areas have expressed concern over the use of GMO technology due to perceived health, environmental, and social impacts of GMO cultivation and consumption. Thus, companies that employ such technology face both market opportunities and risks related to its use. The adoption of GMO crop technology is significant in the U.S., while in other regions, including in the European Union and China, regulators have implemented bans, quotas, or labeling requirements on GMO-based products. Such product bans or labeling requirements may lower revenues or increase costs for manufacturers, while regulatory and public perception can affect reputational risk. As such, companies that effectively respond to market drivers related to GMO products can mitigate risks and capitalize on opportunities.

Management of the Legal & Regulatory Environment

Management of the Legal & Regulatory Environment

The Chemicals industry faces strict regulation governing air emissions, water discharge, chemical safety, and process safety, among other issues. Anticipating and adapting to regulatory developments, both in the short and long term, is a critical issue for the industry, as regulatory developments can significantly affect product demand, manufacturing costs, and brand value. Therefore, companies with a clear strategy for managing the regulatory environment that aligns corporate performance with sustainable environmental outcomes and accounts for societal externalities could benefit from reduced regulatory uncertainty, stronger brand value, and improved competitive positioning.

Critical Incident Risk Management

Operational Safety, Emergency Preparedness & Response

Health, safety, and emergency management is a critical issue for companies in the Chemicals industry. Technical failure, human error, or external factors such as weather can lead to accidental releases of chemical substances into the environment at processing facilities or during storage and transportation. Furthermore, the combustible nature of chemical substances, combined with the high operating temperatures and pressures involved in manufacturing, elevates the risk of explosions, hazardous spills, or other emergency situations. Such events can harm workers or people in nearby communities through the release of harmful air emissions and chemical substances, and may also adversely impact the environment. Companies may face operational disruptions, damage to facilities, reputational harm, and increased regulatory compliance and remediation costs in the event of a process incident. As such, strong management of process safety can reduce operational downtime, mitigate costs and regulatory risk, and ensure workforce productivity.

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