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It is one of the essential conundrums facing chemicals and materials industry leaders today: How can companies achieve ambitious new environmental targets while remaining profitable?
Mounting pressure from consumers, regulators and investors is driving chemical companies to seek ways to improve sustainability without harming the bottom line. Higher energy costs and rising carbon emissions associated with growing supply chain complexity also add to the urgency for companies to streamline ecologically wasteful processes and meet sustainability targets.
How EY-Parthenon can help
EY-Parthenon professionals recognize that CEOs and business leaders are tasked with achieving maximum value for their organizations’ stakeholders in this transformative age. We challenge assumptions to design and deliver strategies that help improve profitability and long-term value.
Read moreCompanies are taking the demands seriously, and more organizations are making real investments — including venture capital initiatives, joint ventures and acquisitions — that are at least partly motivated by sustainability concerns. Both the dollar value and number of global transactions related to sustainability in the chemicals industry have significantly increased in recent years (Figure 1). Some manufacturers are even selling off carbon-intensive businesses to meet emission-reduction goals and free up cash for investment in more eco-friendly businesses.
As sustainability takes a larger role in society and in the economy, opportunities to provide environmentally friendly conscious offerings, like digital manufacturing and carbon recycling, are growing. Companies that bet previously on such offerings at an early stage are now building on the leadership positions they established, and companies with relevant technologies are finding niches into which they can expand by adapting or augmenting existing capabilities.
Companies still face significant challenges to achieve environmental goals, however, including technological obstacles, high costs and regulatory hurdles. With so much at stake, it is reasonable to understand the useful lessons learned from their experiences so far.
Rather than tackle the challenges separately, chemical companies can handle them collectively by analyzing their market positions, identifying opportunities and adapting their business models to integrate sustainability into the organization’s backbone.
EY-Parthenon professionals’ experience working with companies in this area reveals several ways companies can update their business models to realize financial as well as sustainability goals. Each of the following case studies represents a different type of sustainable business model, and each demonstrates a combination of essential practices — the things companies must get right to successfully support the business model and its goals. These include focusing on their core customers, acquiring capabilities, creating business ecosystems, and designing and employing a supportive operating model.
Companies can create a lasting, competitive advantage by building sustainability into the governance, policy and investment choices that define the business model. The result is a virtuous cycle of mutually reinforcing benefits — for example, company culture or customer loyalty — that can become embedded in the organization as lasting consequences that are difficult to imitate and resistant to short-term changes.
Described below are examples of financially viable, sustainability-oriented business models developed by leading manufacturers in chemicals and adjacent sectors, based on EY-Parthenon research, websites and media reports.
Companies seeking to transform their business model based on sustainability can start by identifying existing opportunities — based on the company’s existing technology and capabilities — to help corporate and "end-use" customers reach their own sustainability goals. Key steps include the following:
While the case studies highlight different approaches — for example, acquiring new technologies or creating partnerships — companies typically pursue a blend of leading approaches. These can include focusing on the core business, creating supportive business ecosystems, acquiring appropriate capabilities, and creating an operating model that supports the business model.
McKay Rytting, Krista Su, Paige Hagen, Olivia Shaw also contributed to the article.
By embedding sustainability into each component of the business model, firms can build virtuous cycles of company and stakeholder benefits that can lead to long-term competitive advantage. Several companies in chemicals and adjacent sectors have set examples by developing new business models that achieve financial gains while making progress towards their sustainability goals. Successful approaches include creating sustainable products, services and supply chains, monetizing data, and developing strategic partnerships that promote sustainability.
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