Sustainability by the Numbers

11 April

The blog post explores the evolving sustainability landscape, highlighting the need for materials executives to critically reassess growth assumptions and strategies amid changing economic and policy environments.

a Roundup -

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In a follow up to a recent article on Sustainability’s Uncertain Future, we provide our position on key sectors, and a roundup of supporting evidence.

Financing Sustainability - Outsized Returns?

The enthusiasm for ESG investing gained momentum following Blackrock CEO Larry Fink's 2018 statement asserting that profit and purpose can coexist and that neglecting social responsibility results in subpar investor returns. This narrative inspired the creation of numerous ESG funds and prompted corporate shifts towards sustainability. However, the anticipated outsized returns have not materialized as expected, leading many investors and companies to temper their initial excitement.

Advocates of alternative energy often claim that technologies like solar and batteries are ready to outperform fossil fuels due to lower operating costs. However, these technologies involve significantly higher initial capital expenses. This discrepancy is often obscured by focusing on operating costs, ignoring subsidies, and assuming consistently low financing costs. In reality, when considering total costs without subsidies, these technologies struggle to compete outside niche markets.

Policy - Unanticipated Effects and Risks

Mandating low-carbon energy options aims to facilitate transitions but can inadvertently outsource energy and industrial policy to third parties. Europe's net-zero mandates, for example, resulted in reliance on Russian natural gas and Chinese manufacturing, compromising local competitiveness. European chemical industry leaders warn of the detrimental effects on their sector as they face increased pressure to relocate or close operations.

Britain’s Chemical Industry Dying Out says [INEOS CEO] Jim Ratcliffe
Europe has a huge ‘risk of deindustrialization’ Solvay CEO says

Subsidies, though initially beneficial, pose risks as governments may retract support due to escalating costs. We advise clients to consider baseline business scenarios without subsidies as these incentives may be unreliable. Historical examples across sustainable energy sectors confirm the prudence of this cautious approach.

WSJ: Germany Gets Mugged by Climate Change Reality - “It’s now impossible to avoid awkward questions about what Germany must really pay to achieve net zero and whether the benefits of doing so are really worth the cost.”
How Trump is Targeting Wind and Solar Energy - The Guardian

Circular Economy - Smaller Circles are Better Circles

Circular economy initiatives aim to repurpose waste into raw materials, necessitating new value chain processes. While promising, these steps impose costs on the perceived "free" waste materials, challenging the viability of such initiatives. Smaller, more localized recycling loops often prove more economically viable. Technologies like pyrolysis and mechanical plastics recycling struggle under financial constraints, highlighting the importance of economic feasibility.

The Real Challenge in Plastics Recycling is Economics
Pyrolysis is Dead
Small Circle: UBQ
Small Circle: Eastman Renew™

Energy Transition - Struggling Economics

Energy Transition initiatives, including solar, wind, and electric vehicles, face economic challenges due to higher costs compared to fossil fuels. These technologies often require subsidies to become scalable. Historically, energy transitions have resulted in the coexistence of multiple energy sources rather than complete replacement, questioning the notion of a seamless transition away from fossil fuels.

The Troubled Energy Transition - S&P Global (and video spot)
EV: McKinsey - 50% of US EV Owners Likely to Switch Back (and 44% of potential buyers are delaying purchase)
H2: The Great Hydrogen Reset
Solar: Analysis of Unsubsidized Solar Cost and Reliability - Energy Point Reserach

The Materials Industry’s Bread and Butter

Despite the focus on newer sustainability initiatives, ongoing advancements in the materials industry remain promising. Efforts to enhance efficiency, reduce material usage, and improve safety have been consistent throughout the industry's history. Innovations like lightweight packaging, stronger composites, and safer alternatives, such as PFAS replacements, demonstrate this trend. However, recent investments have favored high-profile sustainability projects, potentially diverting resources from these inherently lower-risk opportunities.

Actioning the Insights

We refer readers to the details of our previous post, Sustainability’s Uncertain Future, we suggest a re-examination of growth assumptions tied to sustainability investments using 3 lenses: