A Glimpse Into ESG & Lubricants Industry Players

As lubricant sector companies confront compelling difficulties related to sustainability concerns such as product recyclability and greenhouse gas emission reduction, they are ready to include lubricant package recycling and recovery into their ESG objectives.

In our Lubricants Sustainability Report 2.0, we highlighted environmental, social and governance initiatives in the lubricants sector. Today, we take a further look into the progress key lubricants players make to evaluate, develop and incorporate ESG into their strategy.

ESG, a key component of corporate strategy

Venture capitalists and other investors are emphasising investments in sustainable enterprises that include environmental, social, and governance considerations in their business plans. 

Since customised solutions to achieve sustainability and decarbonization targets gain traction, ESG will continue to play an essential role in improving company ethics, achieving sustainable growth via a robust supply chain, keeping staff, and attracting consumers. 

Forward-thinking companies are anticipated to expand their imprint on ESG criteria, which have proven essential in assessing a company’s capacity to make an educated choice. ESG elements are expected to be critical in mitigating organisational risks. It has evolved as a key element in corporate policies and practises, with investors and firms focusing on worker safety, inclusivity and environmental equality. 

The need for ESG disclosure has also influenced how corporations spend finances in the global marketplace, and the necessity for accountability has emphasised the importance of ESG disclosure in tracking sustainable performance. Businesses in Europe, for example, are required by EU legislation to declare the share of investment deemed sustainable.

Environmental Point of View

ESG issues are front and centre as major stakeholders work to solve social, economic, and environmental concerns. Leading lubricant players are prepared to improve, adapt to, and recover from the altering ESG environment. Investors are interested in how firms will adapt to the social, environmental, and economic landscapes, as well as the associated possibilities and hazards. 

As firms across regions, sectors, and company sizes invest more resources towards improving ESG, a slew of corporations have stepped out to produce sustainability reports. In 2021, 81% of Russell 1000 companies issued sustainability reports, an impressive increase from 70% in 2020, according to the Governance & Accountability Institute, Inc. (G&A) 2021 Sustainability Reporting.

Environmental issues and appropriate reactions to climate change account for a large portion of ESG growth. Companies are likely to provide information on energy efficiency, biodiversity, environmental management, water efficiency, and GHG emissions. 

Chevron Shipping, for example, might begin disclosing climate alignment ratings for its boats using the Sea Cargo Charter approach in 2023. Furthermore, the environmental effect of lubricants has encouraged key stakeholders to support bio-based lubricants, which may strengthen the sustainability quotient via high viscosity index, improved water quality, and extended equipment life. 

BP wants to reduce scope 1 and scope 2 emissions by 30% worldwide by 2030. To offset its carbon impact, Shell has been supplying carbon-neutral lubricants such as biodegradable multi-purpose grease and energy-efficient high viscosity index hydraulic oils.

Social Point of View

Lubricant firms have prioritised data protection, product quality, employee growth, and community support and development on the social front. Social licence has been characterised by stakeholders as corporate oxygen — it is difficult to operate without it. Some social activities, such as fostering equality and diversity in the workplace, giving training and well-being assistance, and supporting local and national charities, bode well for the landscape’s top enterprises.

Grand View Research Lubricant Industry ESG Thematic Report 2022 ranks Idemitsu Kosan first in the social area with a score of 70%. The label is due in part to the institutionalisation of human rights monitoring procedures across the company’s supply chain operations. 

Furthermore, the majority of lubricant businesses have ISO 45001 certification and have implemented extensive healthcare plans and programmes, H&S training, and health insurance — all of which are hopeful factors in increasing employee retention rates. 

Prominent players have gone to great lengths to highlight their social and community investments. For example, Chevron invested USD 6.6 million in non-profits and community groups in Kern, Fresno, and Monterey counties in 2021. The US-based corporation has employed around 700 full-time employees in those counties, as well as 1,600 contract workers. 

Existing players are ready to grasp social considerations as the foundation of a sustainable world.

Governance Point of View

Governance is envisioned as a measure of a company’s transparency, accountability, and ethics in dealing with stakeholders. It also emphasises the board structure, audit committee operations, board independence, and financial audit and control. 

A focus on governance may appeal to investors and consumers while also encouraging prudent risk management techniques. According to Grand View Research’s ESG rating methodology, Chevron ranks at the top of the corporate governance rankings. It has more than 90% independent directors, the largest proportion of independent directors on a board. The American multinational energy firm formed a Supplier Diversity Governance Board to provide strategic direction and supervision of its supplier diversity plan across its US-based operations. As the cornerstone for creating value for investors, board members are required to examine operational, financial, market, political, and other risks inherent in the firm.

ESG is an important aspect that extends beyond charitable impression and is critical to long-term growth. In essence, Royal Dutch Shell came in second behind Chevron with a score of more over 80% in corporate governance. The former boasts the largest proportion of female board members, marking a significant step towards gender equality. The corporation intends to exceed or approach 40% senior female leadership by 2030. Governance will most likely enable businesses to capitalise on and manage diverse ESG risks and opportunities.

ESG, a glimpse into the future

ESG practises are expected to be integrated by both incumbent firms and new entrants in order to improve brand image, drive sustainability, and save costs. 

Companies are expected to prioritise the development of more ecologically friendly and efficient lubricants. For example, in March 2021, Castrol launched the PATH360 plan, a sustainability strategy with 2030 goals and target areas such as carbon reduction, waste reduction, and life enhancement. 

Stakeholders are optimistic about the future of lubricants, citing increased product demand and a focus on ESG principles. The worldwide lubricant market was worth USD 164.8 billion in 2022 and is expected to reach USD 187.9 billion by 2028, growing at a 2.7% CAGR from 2022 to 2027.