Digital Technologies as a Key Driver in the Context of the Chemical Industry's Sustainability Efforts

A brand new research about digital technologies as a key driver in the context of the chemical industry's sustainability efforts revealed lots of valuable insights and implications to be applied to further develop our nationwide digital sustainability ecosystem. 

Below you can find the main findings of Vanessa Lindt´s masterthesis at Ludwigshafen University of Business and Society, that we supported. 

Summary Master´s thesis

Digital technologies as a key driver in the context of the chemical industry's sustainability efforts

Empirical Analysis of the Use of Blockchain Technology in Terms of Achieving Sustainability Goals on a Social and Environmental Level in the German Chemical Industry

INTRODUCTION

Digitization and sustainability are considered the major megatrends of our time (Cf. Bundesregierung 2020). Alongside society's advancing understanding of the impact of global business activities on our planet, intensifying competition, and a multitude of disruptive innovations within the chemical industry, an increasing number of global and national political frameworks for action to ensure sustainable development, e.g. the European Green Deal, can be recorded (Cf. Williams, Williams 2020).   

That consistent digitization can significantly reduce CO2 emissions is shown by a study published by the digital association Bitkom and prepared in collaboration with environmental and digitization experts from the management consultancy Accenture. According to the results, CO2 emissions in Germany could be reduced by up to 120 megatons by 2030 through the accelerated and targeted use of digital technologies (Cf. Berg 2020).  Particularly for achieving a sustainable circular economy, digitization can be a catalyst in this context. Data and digitally supported solutions such as Blockchain Technology are already being used intensively to create a transition to a circular economy (Cf. Hedberg, Šipka 2020). While the disruptive potential of Blockchain Technology for industry is well known, the high energy consumption of the cryptocurrency Bitcoin is seizing the upper hand of widespread adoption, which is why the use of the technology is being inhibited against the backdrop of current discussions about climate change and sustainability (Cf. Beck et al. 2018).  

Therefore, this master´s thesis aims to empirically examine the use of Blockchain Technology to achieve environmentally and socially sustainable supply and value chains in the chemical industry. 

THE PROCEDURE 

A desk research and 13 expert interviews including (Digital) Sustainability Managers, Blockchain experts and consultants from companies such as BASF SE, Accenture, DuPont Sustainable Solutions, Daikin, Henkel, Merck, Renolit, SAP, Helm and Evonik revealed insightful results.

THE KEY FINDINGS 

For each category defined, the following key results have been derived:

Technical Characteristics Investment Readiness 

Due to the basic technical characteristics (decentralization, immutability, transparency, security & privacy) of Blockchain Technology and the possibility of creating an incentive system through the tokenization of assets, the integration of the technology into the sustainability strategy of companies in the chemical industry is considered promising. For example, tokenization can be used to create an incentive system for individual behavior, e.g. by granting rebates for proper plastic disposal by end users.

Investment Readiness

The chemical industry is facing a discovery and conception phase with regard to the readiness to invest in digital technologies in the context of sustainability, is increasingly initiating significant pilot projects, and is strongly exposed to the pressure of European legislation.

Social Sustainability 

Blockchain Technology can support chemical companies in meeting due diligence obligations in the context of a German Supply Chain Act by increasing transparency along the entire supply chain. Nevertheless, it will only be able to play a supporting role in achieving social sustainability goals, as the objectives in the field of social sustainability are very complex and political and social reforms are inevitable

Circular Economy

Blockchain Technology can help chemical companies establish a circular economy for plastics by storing the data needed to close the loop in a tamper-proof way and making it transparently available to manufacturers. In addition to the utilization of tracer technologies, it is essential to place consumers at the center of various measures.

Decarbonization of the Supply Chain 

The Blockchain Technology has the potential to contribute to the decarbonization of supply chains through the transparent sharing of data, because all participants in the value chain have access to CO2-relevant data and can reduce their Scope 3 emissions in a targeted manner. Furthermore, the usage of Blockchain Technology can contribute to the trustworthiness of CO2 labels and thus help combat greenwashing.

Traceability

By sharing data via a Blockchain, increased transparency and traceability along the chemical supply chain should be ensured, thus securing trust along the value chain all the way to the end consumer. This could strengthen the presently insufficient contact between chemical companies and end customers.

Barriers

The implementation of Blockchain Technology to achieve social and environmental sustainability goals faces various barriers, ranging from uncertainties about the energy consumption to lack of knowledge among decision makers about the technology's potential to lack of authenticity in the data generated.

Enabler

The success criteria for implementing Blockchain Technology to ensure sustainable value chains include, in particular, understanding the added value of the technology at management and employee level. In addition, a holistic use of the technology, a smooth integration into the business processes, and the support of politics are essential in order to unleash the potential of the technology. 

Collaboration

The success of Blockchain Technology within the circular economy depends on the creation of a cross-company and cross-value-chain business ecosystem in which one or more companies take responsibility for operating the network nodes.

IMPLICATIONS 

1.     Creation of a Digital Ecosystem 

In the context of establishing a circular economy, the research has shown that the use of Blockchain Technology is only considered useful in company networks. Therefore, the creation of a cross-company and cross-value-chain digital ecosystem within which peers can come together, exchange ideas and distribute responsibilities is crucial. Moreover, companies with the capacity to operate network nodes must drive the creation of a platform on which to collaborate on sustainability related projects. 

2.     Mindset Change and Training 

The research has shown that the mindset for innovation in companies needs to be strengthened in order to increase the understanding and acceptance of the use of Blockchain Technology. This is why the establishment of a broader innovation mindset at leadership and employee levels focused on collaborative partnership is important. Furthermore, a close interaction between the digitalization and sustainability departments is needed, as sustainability managers/representatives need to be made aware of the potential of digital technologies to establish a circular economy. 

3.     Building Trust 

The research findings indicate that trust issues often exist among decision makers and executives due to the transparency that Blockchain Technology provides to network participants. Consequently, it is important to build trust towards the technology in order to lay the foundation for a potential implementation of the technology in the sustainability strategy of chemical companies. Additionally, significant and successful use cases need to be executed on a small scale first, without exposing the company to significant business risks. 

4.     Acceptance at decision-making level 

The empirical research indicates that there is room for improvement in the understanding of the technology and consequently in financial commitment at the executive level. Decision-makers do not see an economic advantage in implementing the technology in the field of sustainability. Therefore, there is a need for a close exchange between decision makers and Blockchain experts to present the advantages of Blockchain Technology. Blockchain experts have to take on the role of educators regarding energy consumption by differentiating consensus mechanisms in an understandable way.  

FINAL REMARKS 

Overall, the findings revealed that against the backdrop of establishing a circular economy, Blockchain Technology has the potential to contribute to ensuring ecologically and socially sustainable supply and value chains in the chemical industry due to its technical basic features. However, the success depends on the availability of high-quality and reliable data, which can currently be considered one of the greatest risks. Blockchain Technology does not provide a fully comprehensive solution approach for establishing ecologically and socially sustainable supply and value chains in the chemical industry. It can only be considered as part of a solution concept. Thus, a combination of the following four anchor points is necessary to unleash the potential of Blockchain Technology to ensure environmentally and socially sustainable value chains: 

1. From the technology perspective: the right digital concept

2. From the chemical companies' perspective: close collaboration within an innovative ecosystem spanning the value chain

3. From the end user's perspective: the appropriate commitment to participate in this transformation

4. Targeted support from policymakers

Sources: 

Beck et al., Governance in the blockchain economy: a framework and research agenda. In: Journal of the Association for Information Systems, Vol. 19: Iss. 10, October 2018. 

Berg, A., Klimaeffekte der Digitalisierung (WWW-Seite, Stand: November 2020). Internet: 

https://www.bitkom.org/sites/default/files/2020-11/201124_pkcharts_digitalisierungklima-schutz.pdf (Zugriff: 10.02.2021, 16.59 MEZ).

Bundesregierung, Erster virtueller Digital-Gipfel- Nachhaltigkeit und Quarantänesprünge (WWW-Seite, Stand: Dezember 2020). Internet: https://www.bundesregierung.de/breg-de/aktu-elles/merkel-digitalgipfel-2020-1824098 (Zugriff: 26.01.2021, 15.03 MEZ).

Hedberg, A., Šipka, S., The Circular economy: Going digital, Brussels 2020.

Williams, N., Williams, D. L., A Transparent New World: Ethically Sourced Mineral Supply Chain. In: The definitive guide to blockchain for accounting and business: understanding the revolutionary technology. Dutta, S. K., (Hrsg.), Bingley 2020.