Apu Gosalia examines a turning point in sustainability and describes how recent events may affect not just the environment, society and the economy but also companies operating in the lubricants industry.
Until the 17th Century, the four-element theory was decisive for chemistry. According to this doctrine, all matter consisted of the four basic elements—earth, water, air and fire—in certain proportions. In the context of sustainability, though, they also symbolize four events and decisions—which took place within four months and four days between December 19, 2022, and April 22, 2023—that are of great significance to today’s sustainability conversation.
These events and decisions have ushered in a turning point in sustainability, with a potentially fundamental impact on the environment, society and the economy, including companies in the mineral oil, chemicals and finished lubricants segments.
Earth
In the not-too-distant future, we might look back on December 19, 2022, as a date on which mankind decided to save itself. At the 15th World Conference on Nature (COP15) in Montreal, Canada, the international community signed a global agreement—the Kunming Montreal Global Biodiversity Framework—which protects the natural diversity of the earth for the first time.
In concrete terms, by 2030 at least 30% of the world’s land and oceans as well as 30% of degraded ecosystems are to be restored (known as the 30×30 target). The agreement also sets measurable targets and mechanisms to monitor the progress of countries to reach this goal. Large companies—including lubricant companies—will be obliged to assess their risks, dependencies and impacts on biodiversity in the context of their business activities, supply and value chains, and portfolios.
Concrete requirements and support for companies are formulated by standards that are oriented toward the objectives of COP15. The International Sustainability Standards Board (ISSB) will therefore include environmental data in its disclosure standards. The Taskforce for Nature-related Financial Disclosures (TNFD) and the Science Based Target Network (SBTN) will also present new standards.
Although the Kunming-Montreal agreement is not legally binding, it is nevertheless considered a milestone. Notably, the agreement took place in close proximity to the annual worldwide Earth Day, which was celebrated on April 22, 2023, exactly four months and four days later.
COP15 also sends an important signal to the economy because the implementation of its resolutions will have a major influence on how companies—including those from the chemicals, petroleum, mineral oil and lubricants industries—will position themselves in the future.
Water
Water is one of Earth’s most important resources. Access to clean water is a human right and one of the United Nation’s 17 Sustainable Development Goals. According to the UN World Water Report in 2023, 2 billion people on Earth still do not have access to a safe drinking water supply, and 3.6 billion do not have access to safe sanitation, especially in the countries of the Global South.
The Global Commission on Water therefore calls for seven measures to counter the water crisis. These include the need for companies to measure and report their water footprint to identify their resource dependency and chart a course for managing water-related business risks.
The water footprint of a company—for example, a lubricant manufacturer—is a measure of the water used in the production of the goods and services it provides. It is also made up of the water consumed in the manufacturing of a product, throughout the supply chain as well as during the use of the product. In terms of measurement, the Global Water Footprint Assessment Standard—developed by the Water Footprint Network—provides a methodology for carrying out a water footprint analysis.
The importance of water as a resource was also highlighted by the International World Water Day on March 22, which marked the start of the three-day UN World Water Conference (March 22-24, 2023) in New York. This was the first UN conference in nearly 50 years dedicated exclusively to the central issue of water, making it a milestone in international water policy.
Air
On March 20 this year, the Intergovernmental Panel on Climate Change (IPCC) published its synthesis report—a comprehensive summary on the peak of the CO2 concentration in the air and the consequences of global warming. According to the IPCC, the world is currently nowhere near Paris Agreement’s goal of limiting global warming to as close as possible to 1.5 degrees Celsius above the level of the 19th Century. By the middle of this century, emissions worldwide must be reduced to net zero and investments in climate protection increased by a factor of three to six.
In addition to the gradual de-fossilization of the economy, opportunities must be created to remove CO2 from the air. This can occur, for example, through reforestation, safe and permanent storage of CO2 or its use as a raw material.
To what extent does the process of making carbon dioxide a resource also affect the lubricants industry?
The now completed project “CO2 Lubricants” focused on the production of biobased lubricants from CO2 with the help of genetically modified algae strains. The project partners used the CO2 from industrial emissions and from the air to convert it into lubricants with the help of chemical and biotechnological process steps. These are thus climate-neutral in both production and use, whereby the CO2 is permanently bound in them and becomes a resource in this way. Meanwhile, the air is relieved of these CO2 emissions.
In the future, we will need more state support for such projects. Therefore, the report of the IPCC is a new milestone for political decision makers.
Fire
Controlling fire and making it usable is a special challenge for mankind. Fire can mean danger and destruction, but it can also signal warmth, light and protection. As a source of energy, fire stands for dynamic development and progress. A notable example is when the fire of the sun can be used in an effective, ecologically and economically sensible way, e. g. as solar energy.
Solar energy is also essential for the efforts of the European Union to achieve decarbonization and energy independence. Therefore, on December 9, 2022, the EU Commission officially launched the European Solar and Photovoltaic Industry Alliance (ESIA). The Alliance works with the aim of establishing a European industrial ecosystem and strengthening the European value chain for photovoltaic technologies, making it strategically independent. The Industrial Alliance is part of a previously published EU solar energy strategy, which states that by 2030 a solar power generation capacity target of 600 gigawatts needs to be achieved—four times the current level.
What does the lubricants industry have to do with solar technology?
Under certain circumstances, the answer to that question is a lot. But this is only the case if the lubricants industry is dedicated to the development of new, high-quality solar fluids (i.e., cooling fluids that have a high thermal conductivity during heat generation from solar energy, do not freeze in winter, have better corrosion properties than previous products, and are less hazardous to health and the environment.)
In this respect, the establishment of the ESIA is a milestone in making better use of the sun’s firepower in the future. At the same time, it is an opportunity for more sustainable product developments in the lubricants industry.
The Fifth Element
The Corporate Sustainability Reporting Directive (CSRD), which came into force on January 5 this year, is the further development of the previously existing Non-Financial Reporting Directive (NFRD). It aims to increase the accountability of European companies on sustainability aspects.
For this purpose, a binding reporting standard at the EU level called the European Sustainability Reporting Standard (ESRS) was introduced. According to the ESRS, all companies in the EU—including lubricant manufacturers—are subject to CSRD reporting obligation for the financial year 2025 at the latest if they fulfill two of the following three criteria:
- Balance sheet total greater than €20 million
- Net sales greater than €40 million
- Number of employees greater than 250
Companies that must already report according to the NFRD are required to report in accordance with the CSRD for the year 2024. In total, around 50,000 companies in the EU will be affected by the new CSRD obligation, about 15,000 of which are housed in Germany alone.
In the report, among other things, companies need to provide obligatory information on the environmental risks and opportunities through or on their company. These must include all four elements of the sustainability turnaround—earth, water, air and fire—to a different extent. This includes, for example, information on the impact of a company on the pollution of air, water and earth (soil and biodiversity) as well as its contribution to the protection and cleanliness of the aforementioned elements in line with the objectives of the EU Green Deal. The element of fire should also be reported (e.g., the investments in renewable energies, such as photovoltaics).
The element of air takes on a priority importance in CSRD reporting, which requires the complete preparation of a greenhouse gas balance sheet according to Scope 1, 2 and 3 emissions, including supply chain emissions and reduction targets, in accordance with the 1.5-degree target of the Paris Agreement.
The development of a corporate sustainability strategy—consisting of the module’s strategy, management and report—to achieve CSRD conformity by the year 2024 or 2025 can take up to two years for a company. It is therefore advisable to start the process now and seek professional support through competent and specialized sustainability institutions.
In contrast to the science fiction film of the same name in which the fifth element is “love,” few of the companies concerned will love the CSRD. Nevertheless, it is a milestone and heralds in a new era in sustainability (reporting).
STAY SuSTAYnable!
Apu Gosalia is a sustainability expert. He can be reached at apurva.gosalia@web.de.