Investing in the chemical industry is buying a pig in a poke
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Investing in the chemical industry is buying a pig in a poke

It’s staggering to think that it is largely unknown what kind of chemicals the world’s largest chemical companies are producing. Investors should be pushing for a change.

There is a need for greater transparency in the chemical industry. This is something investors should take a particular interest in and push for, both for their own benefit and for a better performing market in general.

ChemSec’s sustainability ranking, ChemScore 2021, was recently published. It scores the world’s largest chemical producers according to a series of different sustainability parameters.

Among other things, the ranking exposes a staggering “lack of transparency” – industry jargon for the fact that no one really knows what these companies are actually cooking up. The secrecy surrounding which kinds of chemicals are produced is ironic, considering many producers boast about their environmental commitments.

“The secrecy surrounding which kinds of chemicals are produced is ironic, considering many producers boast about their environmental commitments”

It could be argued that it’s hard for chemical producers to disclose this information, but that is hardly the case. The companies keep good track of their production and there are already rules in place in the EU and US that require this information to be made public. Chemical producers naturally comply with these rules, so the tools are there. It’s just that as long as the companies are not forced to disclose the production that takes place outside of the EU and the US – which often represents a significant part of their total production – nothing happens.

“Regulating at a global level would require the creation of international treaties, which would hardly be a walk in the park”

The overall lack of transparency might be due to a lack of external pressure on the chemical industry. Downstream users have little influence over chemical producers and are in no position to make any significant demands.

Policymakers only have a limited amount of power, as their jurisdiction has geographical borders. The EU and the US chemicals regulations are clear examples of this.

Regulating at a global level would require the creation of international treaties, which would hardly be a walk in the park. However, investors may be able to increase the pressure, and it is in their own interest to do so.

Investors plough billions of dollars into the chemical industry, expecting a return on their investments, which the chemical industry provides. These investments might seem like a good idea at first glance. But even if the business model of a chemical producer looks good, the investor would be wise to analyse the final product: the chemical that is being produced.

However, the lack of transparency makes this difficult, which should be unacceptable to investors, since the produced chemicals might pose an unaccounted risk.

If a certain chemical, making up a large part of the producer’s portfolio, is prohibited, the investor is likely to lose money.

“If we don’t have all the information, how can we make well-informed decisions?”

Investors should strive for full disclosure from the chemical industry. It would not only improve the prospects for their own investments, but also create better conditions for the market as a whole. Transparency is deeply needed in all parts of the market. If we don’t have all the information, how can we make well-informed decisions? How can we protect the health of human beings and the environment from hazardous chemicals?