In conversation with…

Why is Solvay’s ESG approach important to investors?

Last year’s Annual Integrated Report heard from stakeholders through individual interviews. This year we showcase the relationships the Group has built with its stakeholders, highlighting how Solvay engages with them to meet their expectations and create value for the company, its stakeholders and the planet. As part of this ongoing dialog, four of the investors who follow the Group met with members of the Executive Committee, Karim Hajjar, CFO, and Vincent De Cuyper.

The talk team

Karim Hajjar

Member of the Executive Committee and CFO

Vincent De Cuyper

Member of the Executive Committee and Climate Supervisor

Arnaud Langlois

Lombard Odier Asset Management

Alix Chosson

DNCA-investment Analyst

Looking ahead to the challenges of the future

The investors were keen to understand how Solvay is integrating sustainability into its business and investments. One significant part of the Group’s approach is its decision to modify its Capex approval procedure to include an internal CO2 price that is higher than the market price (€75 per tonne), with the aim of encouraging a shift toward investments in more sustainable activities. “These may offer lower profitability than standard business investments,” says Vincent De Cuyper, “but we do not invest for the sake of reducing CO2 emissions without profitability. We always maintain financial rigor in our investments.”

The Group has also evaluated the potential impact on investments and business opportunities of its ambitious target of a one million ton reduction in its greenhouse gas emissions by 2025. The move to an absolute reduction approach aims to align the company with efforts to decarbonize the European economy by 2050, and is proof of Solvay’s determination not to grow its business at the detriment of the environment.

I do not look at this as anything other than enhancing risk-adjusted returns. It is about having the harmony, the right tension between going towards the green solutions and not destroying an inordinate amount of financial capital

Karim Hajjar
Member of the Executive Committee and CFO

Differentiating Solvay on sustainability

Discussions also focused on Solvay’s Sustainable Portfolio Management (SPM) tool, and how it contributes to reducing CO2 emissions or consumption of resources. The investors were interested to hear how SPM guides strategic resource allocation and portfolio choices, rigorously assessing each product on sustainability criteria in all applications. “The same product may have a different sustainability profile from one market application to another,” explains Vincent De Cuyper, “so finding an accurate, reliable and relatively simple way to measure that is extremely helpful.” And the tool is dynamic, adapting to future trends, for example in mobility. The catalysts for diesel and gasoline ranked as favorable today will be neutral in the future, when the solutions with a positive impact will be Solvay’s solutions for batteries and electrification of vehicles.

The dialog with investors also raised the need for Solvay to undertake even more transparent communication on the SPM as a tool that explains its strategic decisions and differentiates it from other players in the chemicals industry.

“The SPM tool is a key differentiator. It demonstrates Solvay’s strong commitment to embed sustainability at the heart of its strategy. It is crucial that companies develop this kind of strategic tools to integrate long-term sustainability considerations into their capital allocation strategy.”

Alix Chosson
DNCA-Investment Analyst
Analysts at Solvay's investor update (photo)

Greener input, sustainable output

Solvay’s commitment to moving toward green chemistry was another key subject, with a first focus on using renewables for energy supply. At its soda ash plant in Rheinberg, Germany, for example, the Group is investing in a new biomass boiler which will cut CO2 emissions by 30% or 190 kt/year. Bio-based materials are also being used as raw materials, especially in Solvay’s Advanced Formulations activities. “Using similar raw materials is more complicated in Advanced Materials,” explains Vincent De Cuyper, “and I think there the focus in the years ahead will be on the recyclability of the materials used for high-end polymers, for composites.” In thermoplastic composites for example, the focus will be on the recyclability of the materials used for high-performance applications. The idea is to push innovation in thermoplastic composites including recycled fiber materials which has the ability to create significant value in the industry.

“I think a holistic approach to capturing value is why ESG is so important. It is about the ability to price companies more accurately and to have a more accurate representation of the cost of capital challenges, how the risks might play out in business.”

An analyst

I believe investors will increasingly reward companies for the work they are doing on integrating more renewable raw materials into their production processes. I think that some companies may accept to pay a premium for products or inputs into their process that actually have a lower carbon or lower environmental footprint.

Arnaud Langlois
Lombard Odier Asset Management
Analysts at Solvay's investor update (photo)
Analysts at Solvay's investor update (photo)

Changing mindsets through the circular economy

Another topic of the conversation was the circular economy, including Solvay’s decision to become a Global Partner of the Ellen MacArthur Foundation. As well as offering opportunities to connect with leaders in the field, the Foundation opens up access to training and education.

The Group is also looking for ways of integrating the circular economy into its business model, an endeavor that is still in its early stages, but which is investigating areas such as enhancing the recyclability of composites or the recovery of metals.

Karim Hajjar, Member of the Executive Committee and CFO (photo)

“Being the only chemical industry representative in the Ellen Mac Arthur Foundation is not something that I would say generates pride, but is a good, natural extension of just who we are.”

Karim Hajjar
Member of the Executive Committee and CFO

Toward ESG-focused investment

There was also an exchange on the importance for investors of ESG versus short-term business performance indicators. Karim Hajjar mentioned that investors rarely raise the topic at roadshows, but fund manager Arnaud Langlois said he felt sure that they were nevertheless keen to learn more about Solvay’s actions on ESG. “I think of the quarters as milestones that help support an investment thesis, and the objective is certainly longer term whenever we invest,” he said. Emmanuelle Chastenet, Amundi, added,: “I think most investors, even if they do not ask questions on ESG, know your business positioning and where you want to go.”

The investors also stressed the importance of quality ESG indicators to bring value and help them understand the company. They encourage Solvay to pursue its current approach and even take it further.

Vincent de Cuyper, Member of the Executive Committee and Climate Supervisor (photo)

“In 2018, about 100 of our people were trained to think about circular economy as a business opportunity and I think this is probably one of the most interesting parts of the program.”

Vincent De Cuyper
Member of the Executive Committee and Climate Supervisor