Tuesday, May 15, 2018

An Approach to Determining Environmental Regulatory Strategies for Chemical Companies

Chemical companies can select different strategies for how they manage their response to environmental regulatory requirements.  For example, Mike Rosenberg in his book “Strategy and Sustainability” (click here for a synopsis of the book) suggests four possible strategies:

1. Just meet the regulatory requirements (the low road); 
2. Meet the requirements, but also monitor for possible actions needed (wait and see);
3. Meet the requirements and monitor for needed changes, but also publicize to stakeholders what is being done (show and tell); and
4. In addition to meet, monitor, and publicize, have a strategy that positions the company as a “green” company, attempting to lead its industry in environmental-friendly products (pay for principle).

To get a better feel for what Rosenberg suggests, I applied his ideas to developing a strategy for the chemical company Mexichem.

Mexichem is a chemical company with headquarters in Mexico.  It has 18,000 employees and in 2016 had $5.4 billion in revenues.  Its major products include:  polyethylene, polyvinyl chloride, polypropylene, and fluorine-based products. 

Rosenberg suggests that the selected strategy (one of the four listed above) should be based on analysis of four factors:

1. The industrial sector that the company is in;
2. The geographical regions in which the company operate;
3. The impact that environmental interest groups might have on the company; and
4. What the company has been doing in the past and presently with respect to environmental compliance management.

Here is some “light” analysis I did in each of these factors to help me select a strategy for Mexichem:

Mexichem’s industrial sector.  Because Mexichem’s industrial sector, the chemical sector, produces chemicals, which can adversely affect the environment, chemical sector regulations are extensive, and penalties high for non-regulatory compliance.  

Regions in which Mexichem operates.  Mexichem operates in 37 countries (all continents, except Antarctica) with 120 production plants.  Mexichem is a global company.  

Possible interest groups’ effects on Mexichem.   Environmental interest groups have for a long time been very active in monitoring and commenting upon chemical companies’ environmental records.   These groups are a major source of information on chemical companies’ environmental performance.

Mexichem’s past and present efforts.  Mexichem’s annual report indicates an active program in environmental compliance. 

Based on this analysis, I believe Mexichem’s best strategy for dealing with its environmental regulatory program is strategy number 3, show and tell.   Not only should Mexichem meet all regulatory requirements (as all companies should do) and monitor/measure how it is doing in meeting these requirements, Mexichem should be proactive in publicizing what it is doing (the show and tell strategy).  The forth strategy (pay for principle) is best suited for those chemical companies that provide products sold directly to the public, e.g., personal care products.  Mexichem products are mostly not used in products sold directly to the public so a pay for principle strategy likely would bring little additional marketing and other benefits.  It seems to me, based on reading Mexichem’s reports, that Mexichem is in fact using the show and tell strategy.

The above about Mexichem is a simplified application of some of Mike Rosenberg’s ideas in his book on how companies should go about selecting a strategy for their environmental regulatory (sustainability) program.   However, I am impressed that applying his ideas helped me choose a strategy for Mexichem that seems to be the strategy that Mexichem is using.   Using Rosenberg’s ideas in his book and his lectures (e.g., he has a course on Coursera based on his book) might be useful for chemical companies.

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