Implement sustainability to boost profits

The future of the petrochemicals industry depends on continuing innovation and the adoption of best practice

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4 MIN READ

Dubai: For more than 30 years, the buzz around the word "sustainability" has increased until it has reached a panic-stricken decibel level. Consumers across the gamut of products are loudly demanding that the producers of these goods stop raping the planet to feed their need for profits, leaving a barren wasteland for future generations.

Considering the fact that the Middle East — especially the Arabian Gulf — is one of the largest producers of crude oil and its downstream products, this is the industry that is regionally in the eye of the sustainability storm.

The very survival of a company or industry is today linked to its sustainability and social responsibility practices. Without these, a company loses its competitive advantage in the eyes of the consumer.

But the consumer is not willing to pay a premium for products that are produced sustainably, according to a customer survey conducted by consulting firm Accenture this month.

"Sustainability is important but customers are not prepared to pay a premium. Regulation and consumer expectation means that producers will be demanding a greater sustainability performance from their Middle East petrochemicals suppliers without rewarding them for it," Omar Boulos, managing director of Accenture Middle East, told Gulf News.

"That requires making their processes more sustainable without impacting their pricing. We are talking about improved efficiencies."

Return on investments made in sustainable production practices may affect the bottom line, but they are becoming more and more important to a company's competitiveness in the marketplace.

The challenge

"That's the challenge many organisations deal with, not just in the Middle East. What is the cost of sustainability? Do I really need to run a sustainable business?" said Boulos.

"These are the questions that used to be asked. But now, people simply expect an organisation to implement sustainability practices, as a kind of cost of doing business.

"Can you avoid it? No. It's a key performance indicator for many of the people who buy the products. It goes along with environmental health and safety. It's what we owe to ourselves and future generations."

Middle East petrochemicals suppliers currently have the competitive advantage of cheap access to feedstock. But higher feedstock prices, regulation and end-user requirements are expected to force the region's players to consider more sustainable approaches.

So, what exactly does the term sustainability cover?

Sustainable development was first defined in the Brundtland Report of 1987 as development that meets the needs of the present without compromising the ability of future generations to meet their own needs.

The Brundtland Commission was convened by the United Nations in 1983 to address growing concern "about the accelerating deterioration of the human environment and natural resources and the consequences of that deterioration for economic and social development".

The impact is on the economic, social and environmental dimensions of human life. In simple terms, if you must chop down a tree, plant another.

Value-addition process

When that is translated into millions of barrels of oil pumped out of the ground and trillions of litres of water used in the refining and value-addition process, things could get more complicated.

"The future of our industry depends on continuing innovation and the adoption of best practice. Those who fail to do so will lose competitiveness," Mohammad H. Al Mady, vice-chairman and chief executive of Saudi Basic Industries Corporation (Sabic) and chairman of the Gulf Petrochemicals and Chemicals Association, said at this month's annual summit of the association.

"Carbon dioxide, energy consumption, waste from our plants… These are all becoming larger issues. We cannot stand still," he said.

There is a payoff, however, to allowing the bottom line to be impacted by sustainable practices, according to consultancy A.T. Kearney. More users will view such products favourably.

Effective sustainability initiatives present opportunities of unlocked value and, if implemented effectively, could provide the gateway to future growth for the Gulf petrochemicals sector, Kearney said in a study released this month.

"Contrary to popular belief, sustainability is not only about environmental benefits; it's also about profitability," said Louis Beland, partner at A.T. Kearney Middle East.

Kearney suggested three paths to value-creation through sustainability initiatives — cost reductions, brand enhancement and revenue generation.

Middle Eastern chemical manufacturing companies have been slower to respond, Kearney said.

Reaping the rewards

The Living Planet Report 2010, which presents the individual ecological footprint for 153 countries, identified the GCC in three of the top 10 countries with the highest values.

This is leading the region's leading companies and governments to re-prioritise the topic on commercial and policy agendas. When it comes to maximising value, there is no ‘one-size-fits-all' approach, Kearney said.

"Some petrochemical manufacturers can benefit from getting ahead of the curve and reaping the rewards of a strategic approach to sustainability. Others may recognise that these rewards are not attainable in the near term and choose instead to grab the low-hanging fruit such as energy efficiency and waste reduction.

"Others may conclude that the prudent path is to continue the status quo," the consultancy said.

But the last approach is really not an option any more. The planet is running out of time.

Impact:  End-user expectations

Consumers of petrochemicals have sustainability expectations that cover multiple facets of production. The region's companies will have to consider implementing these expectations, according to a customer survey conducted by consulting firm Accenture this month. They include:

n Energy efficiencyn Materials efficiencyn Reduction in waste generatedn Reduction in water consumedn Social and safety aspectsn Reduction in emissionsThese end-user concerns are expected to have a direct impact on how petrochemicals companies conduct business.

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