Note 4: Products and solutions
Eco-premium solutions (EPS) are a fundamental driver of our strategy for creating more value from fewer resources and we continue to measure the proportion of revenue that they generate. In future, we will focus on the tangible downstream benefits that our products and services deliver to customers. This includes improving their resource efficiencies, as well as the environmental impact of their manufacturing processes and products or services in use and end-of-life. In due course, these improvements will begin to impact the sustainable development of the market segments in which we operate.
Our 2020 target is to achieve 20 percent of revenue from products and services which provide customers and consumers in our downstream value chain with a significant sustainability advantage, compared with the most commonly available equivalent commercial products or industrial processes. This is in addition to our target of increasing revenue share from eco-premium solutions (with benefits at any stage of the value chain) to 30 percent by 2015. Both are challenging goals because the assessments are made against equivalent mainstream or standard commercial products, and as such is an upward moving target, as both we and our competitors introduce new and more sustainable products into the market.
Eco-premium solutions stimulate top line and bottom line growth opportunities because they provide improvements in areas such as raw material use (e.g. lower carbon footprint, reduced volume or environmentally beneficial alternatives); production and application (e.g. less pollution and waste from manufacturing processes, lower energy consumption during application); and product performance (e.g. coatings that enable reduced energy consumption or surface-active chemicals that enable water-based formulations).
Driven by customer, market and societal needs, more than two-thirds of our RD&I output is channeled towards producing environmental innovations in the form of new and improved products, new and cleaner or lower footprint processes and customer applications with less environmental impact.
In 2013, revenues from eco-premium products and services with downstream benefits totaled €2.7 billion, or 18 percent of total revenue. It may appear that we are already close to realizing our 2020 target of 20 percent of revenue. However, since this eco-premium solution metric compares our products and solutions with the mainstream in the market, our progress will be impacted by improvements in competitor offerings and changes in legislation.
Eco-premium solutions with downstream benefits in % of revenue
Eco-premium solutions are measured using a quantitative analysis or a qualitative assessment of performance in seven categories: toxicity, energy efficiency, use of natural resources/raw materials, emissions and waste, land use/footprint, risks (e.g. accidents) and health and well-being (added in 2013). The eco-premium solution must be significantly better than currently available solutions in at least one criterion, and not significantly worse in any. A solution with downstream benefits accrues its sustainability benefit to our customer, the use phase, or in end-of-life.
The reported 2013 KPI figure for eco-premium solutions with downstream benefits represents the combined revenues achieved by Specialty Chemicals (16 percent), Performance Coatings (13 percent) and Decorative Paints (27 percent).
Innovations introduced to the market in 2013 which illustrate the new downstream sustainability benefit target include:
- Dissolvine StimWell: Chelating agent derived from natural resources which enables customers in the oil and gas industries to formulate more environmentally-friendly stimulation fluids
- Berol ECO/AMC-1: US EPA approved concentrated blends of surfactants that can be formulated into solvent-free industrial degreasing products, enabling us to meet customer and regulatory demands
- Intersleek 1100 SR: Biocide-free fouling control coating which enables ship owners to achieve reduced drag, improved fuel efficiency and lower CO2 emissions
- Interpon Align: Dual layer powder coating (i.e. primer and topcoat) requiring a single curing step which enables customers to coat substrates using less energy
- LaDox: Nonylphenol ethoxylate-free peroxide initiators that allow manufacturers of emulsion explosives for mining to avoid using a chemical of environmental concern in their production processes
Eco-premium solutions in % of revenue
Revenue from all eco-premium solutions (with benefits anywhere in the value chain) were €3.6 billion, or 24 percent of total revenue. EPS revenues achieved by Specialty Chemicals, Performance Coatings and Decorative Paints were 26 percent, 13 percent and 35 percent, respectively.
VOC in products
We continue to focus on implementing our volatile organic compound (VOC) reduction projects on a regional basis using the comprehensive model we created in 2009 in order to track and quantify the progress of our projects. Our sales forecasts now show that the balance of growth is shifting.
First observed last year, we see increased growth in water- borne wall paint products in all regions globally. We are, however, experiencing a slower transition to a low VOC content portfolio in China, where consumer demand for low VOC content products has historically been lower, with the market more favorable towards a product portfolio that is on average higher in VOC content.
With regards to our Decorative Paints products, we are introducing reformulated products with much reduced and virtually zero VOC content. This reduction trend will continue in the future. Our Performance Coatings business is also achieving a declining average VOC content, despite the significant technical challenges involved in maintaining product performance while reducing VOC content.
We are keenly aware, however, that although we are making technological progress, we must also keep up with the market and match our product offering to customer demand. As mentioned earlier, the Chinese coatings market is not migrating as quickly as other regions towards low or zero VOC products. We have key projects in place to mitigate the absolute output of VOCs, and as our global sales mix will increasingly shift towards China, we will monitor the situation carefully.
Despite the changes in our global sales mix, we continue to see results from our RD&I projects, and will continue to measure and analyze the VOC content of our products on an annual basis. Our evaluation for 2012 shows that compared with our starting position in 2009, we have realized a 10 percent reduction in average VOC content across our coatings and paints product ranges.