Insight

ESG: Value creation for both investors and companies

Companies find a correlation between ESG performance, risk, and organizational value

Gillian Morris

Gillian Morris

Principal, Strategy, KPMG LLP

+1 612-305-5070

Dazzle Bhujwala

Dazzle Bhujwala

ESG Climate Advisory – PE & AM Leader, KPMG US

+1 415-963-5100

ESG performance has become a significant consideration for investors in the chemicals industry. This is driven in large part by public and governmental concern over climate change, social inequities, and corporate accountability. But there is also a growing consensus that companies that perform well on ESG metrics are less risky and may generate greater value.1

The chemicals industry in particular has struggled with environmental-image issues involving hazardous waste and air and water pollution. But leading companies are transitioning to low-carbon operating models and more conscientious environmental practices. Since chemicals companies contribute up to 6 percent of global greenhouse gas emissions,2 they are likely to receive increased scrutiny. Investors in publicly listed chemicals companies are increasingly using their voting rights to engage with high-emitting chemicals companies to adopt a more rigorous approach toward environmental issues.

Companies that do not adjust their policies risk not attracting investment dollars. Last year, more than 450 investors managing $41 trillion in assets announced a renewed commitment to climate-related investments and government policies that support sustainability.3

Sustainability is becoming part of a mainstream investment strategy, and research shows that support for ESG factors can lead to investments with higher yields and good returns on equity. It’s good business: From 2017 to 2022, there is a direct correlation between higher ESG scores, higher share prices, and lower volatility among top U.S.-based chemical companies.4 Chemicals companies that have invested in ESG initiatives are ready for new SEC reporting requirements.5

We believe that the transition of the global chemicals industry to sustainable practices will create significant investment opportunities, jobs, and greater wealth for investors. In private markets, we see dealmakers integrating ESG into their key performance indicators and value creation processes. Target companies are now judged in terms of their adoption of low-carbon products and process technologies, their increased use of renewable energy, and their ability to offer promising applications designed to support the environment—such as chemicals for electric vehicle batteries and recyclable plastics.

In 2021, Bain Capital and Cinven acquired Lonza Specialty Ingredients (LSI) to further develop innovative chemistries that control the spread of microbes (such as viruses and bacteria) in a sustainable and responsible manner. In 2018, The Carlyle Group and GIC acquired Akzo Nobel’s specialty chemicals business and relaunched it as Nouryon, which now manufactures products ranging from bleaches and polymers to cosmetics and skincare products.

Footnotes

  1. Source: “How to determine where ESG can create value,” KPMG LLP, 2022
  2. Source: MRS Bulletin, “Electrification of the chemical industry—materials innovations for a lower carbon future,” February 1, 2022
  3. Source: IIGCC, “Over 450 investors managing $41 trillion in assets tell governments to get climate policy right and massive investment will flow,” October 6, 2021
  4. Source: “SEC Proposes Rules to Enhance and Standardize Climate-Related Disclosures for Investors,” Securities Exchange Commission, press release, March 21, 2022
  5. Source: KPMG Analysis of Top 60 U.S. chemicals companies by market capitalization, Sourced through Refinitiv, March 2022