Finding Fusion with Chemical Consultants

In a climate of growing complexity businesses are calling on expertise from outside their operations to provide an important overview. The chemical sector, already a complex industry in itself, is no stranger to drawing in evidence and advice from a range of outside parties. Muriel Axford speaks to the chemical consultants.


Be it regulatory, geopolitical or changing consumer behaviour, businesses are calling on expertise from outside their operations to provide an important overview on changing trends. With accountability, sustainability and environmental impact becoming increasingly important for the business community as a whole, it could be argued that these issues represent some of the new challenges where chemicals companies are seeking better understanding.

It is in these areas that many of the major global consultants are playing an important role, using their wide networks to pull together the overall picture. Indeed when it comes to these wider issues, there seems to be a consensus that there is much to be done.

Keeping an environmental eye out

A United Nations study, The Economics of Ecosystems and Biodiversity, indicated that scrutiny of big business and its impact on the world's resources is set to intensify as improved evaluation and assessment become more common place. But according to PricewaterhouseCoopers which contributed to the study relatively few businesses currently see biodiversity as an important business issue.

"When estimates in the study put economic impact of biodiversity loss at between $2tn-$4.5tn annually, you realise that this is not just about environmentalists and scientists, but economically rational conservation that protects the long term prospects for business," comments Malcolm Preston global leader, sustainability and climate change, PricewaterhouseCoopers LLP.

Consultant AT Kearney makes the case that while conditions for the businesses in the chemical sector have improved, maintaining a positive growth trajectory requires not only keeping an eye on the economics but also taking into account the environmental and sustainability issues.

"Companies focused on pursuing these "megatrends" will generate growth in new markets."

In its report: "Chemical Company Targets: Agility, Risk, Sustainability" the consultant says: "Sustainability is on the rise and plays an increasingly important role for chemical companies and their customers. While social sustainability and corporate governance are rated nearly of equal importance, a company's environmental track record is considered more important by customers."

Indeed the report's authors indicate that a company's commitment to corporate sustainability practices achieved above average performance in the financial markets during the last economic slowdown.

Included in the reasons for this finding, the report cited that "Investors tend to reward companies that focus on their long-term health rather than just short term profits."

Transparency

Of course the only way investors can know about a business's long term health is through adequate reporting. Again there is a consensus among leading consultants and stakeholders that transparency in a company's reporting provides accountability. And on this point the consultant KPMG believes that there is a need for ongoing transformation of corporate reporting from a financial focus to include wider measures of business performance.

Based on a meeting with a number of leading businesses and organisations KPMG concluded that by having a more transparent approach to reporting, (i.e. including environmental and social factors), a company could improve its  reputation as well as bind stakeholders such as employees to the company's objectives. Pulling together a range of views, KPMG concludes that Integrated Reporting is the way forward. In its report "Integrated Reporting: Closing the loop of strategy," the consultant said "Clearly regulations require companies to exercise transparency.

However a more fundamental reason for reporting lies in accountability, a company needs to account for the impact it has on the stakeholders it relates to. Not exercising such transparency would impose serious risks, including high finance costs to compensate for a lack of transparency or governance or ultimately, losing the license to operate. By contrast, a transparent approach would not only improve reputation, but would also bind stakeholders such as employees to the company's objectives."

Quantum change

With accountability and sustainability being among a number of trends that many chemicals businesses are seeking guidance on, consultant Deloitte Touche Tohmatsu has termed these major cultural and market changes "megatrends". These "megatrends" argues the consultant, offer "tremendous opportunities for chemical companies".

"We need to start thinking about ecosystems as an extension of our asset base."

A report from Deloitte Touche Tohmatsu "The chemical multiverse: Preparing for quantum changes in the global chemical industry," argues that issues such as climate change, globalisation, resource scarcity, to mention just a few, are triggering "unprecedented shifts in industry."

Companies focused on pursuing these so called "megatrends" will generate growth in new markets, the report argues.

"With traditional industry segmentation - commodity, integrated and speciality - proving to be inadequate, a new way of analysing or assessing companies in the [chemical] industry is needed to understand the challenges to performance. Deloitte developed five distinctive categories for industry using a proprietary comprehensive analysis," said Duane Dickson, Principal, Consulting, Deloitte US. Dickson added "This method of reclassifying a company better identifies a company's current position within the industry and provides insight into both its future options and the implicit strategic actions." Dickson added.

Indeed Deloitte Touche Tohmatsu's outlook for the chemical sector is one of optimism if it can embrace the fundamental changes. Tim Hanley Deloitte Touche Tohmatsu Limited Global Chemical Industry group leaders says "Chemical companies that acknowledge their current position and adopt flexible strategic approaches to a variety of scenarios stand the best chance of successfully reshaping the industry over the next decade. If new strategies and solutions are employed, the chemical industry could very well be characterised in 2020 as one that is largely self funded, has profitable and globally balanced supply and lives by the survival of the fittest."

"A more fundamental reason for reporting lies in accountability."

As businesses look to the future and assess their accountability, sustainability and environmental impact, it may be that dealing with the ups and downs of a business cycle will seem relatively straight forward.

As Jon William, partner for biodiversity and climate change, PricewaterhouseCoopers LLP notes: "We need to start thinking about ecosystems as an extension of our asset base, part of the plant and machinery, and accounting for the value they deliver. We are effectively in an environmental recession for which few businesses appear to have a real accounts or recovery plan for."