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TNFD launches its guidance for the chemical industry

The chemical industry plays an important role in the global economy, interacting with nearly every good that is manufactured, used, or consumed across increasingly complex value chains.

The chemical industry plays an important role in the global economy, interacting with nearly every good that is manufactured, used, or consumed across increasingly complex value chains.  UNEP Global Chemicals Outlook estimated the size of the global chemical industry to be more than US$5 trillion in 2020 and is projected to double by 2030.

While the volatility and uncertainties of the global economy have created strategic challenges for the industry, there has been a growing focus on sustainability. This is due to increasing demand from regulators, customers, and investors, which is shaping the industry’s overall response towards a sustainable future.   

The chemical sector is already tackling challenges on the road towards the net-zero emissions 2050 target and increasingly switching to low-carbon emitting technologies to keep on track. The decarbonization efforts include among others, investments in sustainable resources, such as bio-based feedstocks or feedstocks obtained from renewable energy sources as well as process energy efficiency; carbon capture and utilization; and waste processing and recycling. 

The unprecedented decline of natural assets and resources raised the alarm on the importance of nature in the global risk landscape. Chemical companies must address their nature-related risks as they have significant interactions with nature throughout various stages of their value chains, including upstream, direct operations, downstream, and end-of-lifecycle phases.  Moreover, many of the sector’s decarbonization efforts rely on natural resources, such as biomass utilization, which can lead to excessive land conversion if sustainable processes are not adopted. The chemical industry has both direct and indirect impacts on nature, with the extent of control and influence depending on the companies’ activities, business models, and regulatory environments.

The Taskforce on Nature-Related Financial Disclosures (TNFD) published their final recommendations on 18 September 2023, marking the culmination of a two-year effort to design and develop a comprehensive toolbox, enabling organizations to assess and disclose their nature-related risks and opportunities.

As part of a series of additional publications, TNFD released sector-specific guidance for the chemical sector during COP28 in November. This guidance is currently undergoing market consultation and aims to expedite the adoption of the framework by providing a roadmap and tools for organizations in the chemical sector or those connected it within their value chain.  

TNFD Additional guidance for the chemical sector identifies the specific requirements that the chemical companies should consider in their nature-related risk assessment and disclosures.

The guidance also outlines high-level nature-related targets for the sector, which align with the five initiatives recommended by the World Economic Forum’s Sector transitions to Nature Positive report series, Role of the Chemical Sector. These targets aim to avoid and reduce negative impacts on nature, regenerate, and restore nature’s resources and transform ecosystems to address the drivers of nature loss. The targets are:

  1. Increase efficiency in the manufacturing process and expand the use of renewable energy to reduce greenhouse gas emissions to achieve net-zero emissions by 2050, with over 30% improvement in energy efficiency by 2030 and a 40% reduction in the sector’s long-term emissions.
  2. Improve water stewardship through sustainable water management strategies and practices, aiming to reduce water withdrawal and consumption by up to 30% by 2030.
  3. Source responsibly and explore switching to sustainably sourced bio-based or recycled materials by setting % target of share of bio-based feedstock used by 2030, while enabling land restoration and regeneration.
  4. Support nature conservation and restoration and advocate for policy changes that protect nature and support the halt and reversal of nature loss by 2030 and help protect the long-term viability of the chemical sector.
  5. Expand circularity, product innovation and customer education on product use and disposal. Set a target for generated sales or share of revenue by 2030 for solutions that contribute to the circular economy.

The guidance also includes additional recommendations to help companies comply with TNFD disclosure indicators and metrics, addressing for example pollutants released into water and soil, waste recycling, and use of bio-based feedstock from regenerative agriculture practices.  

TNFD is seeking feedback and plans to finalise the additional guidance by June 2024. This will enable chemical companies to be fully prepared to report against the TNFD recommendations.

The TNFD guidance emphasizes that nature presents not only risks, but also opportunities for the chemical sector. It is highly likely that chemical companies will be motivated to adopt a new perspective on nature.

Marsh can help your organization understand, manage and disclose nature-related risks and become more resilient. If you would like to explore more, please reach out to your Marsh representative or speak to one of our Climate and Sustainability specialists at Marsh Advisory.