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Solvay Firm’s Climate-Related Financial Disclosures

Introduction

Solvay is a Belgian chemical manufacturing company operating worldwide. The company serves the health, agricultural, aviation, automobile, and energy sectors. Ilham Kadri heads the company as the CEO since 2019. Solvay is headed by a board of directors who appoint the executive committee which oversees the company’s business operations. This paper analyzed Solvay’s disclosure on climate-related risks. The company is also compared with Bayer and BASF, which operate in the same domain. The three companies manufacture chemicals used as raw materials in other industries and have much influence on social and environmental domains. Werner Baumann heads Bayer as the CEO since 2016 while Martin Brudermüller heads BASF since 2019.

Climate-Related Financial Disclosures

Organizations file disclosure as proof of adherence to regulations and gain investor trust. financial disclosures contain several reports that jointly exhibit the organizational management’s validity and accountability to its investors. Financial disclosures present information on all financial transactions alongside any other supportive document, which helps organizations identify their position in the competitive markets. The corporate sector is a big consumer of energy generated from carbon-emitting sources. The Task Force on Climate-related Financial Disclosures (TCFD) is the most popular framework organizations use to file disclosures on their contribution to climate change (Agovino et al., 2019, p.525). The framework was primarily developed to aid organizations and businesses that evaluated the cost of climate-related risks such as floods, mudslide slides, global warming, and many more.

Disclosures present information that could significantly influence the decision-making capabilities of investors. In the united states, federal law requires companies to file their financial disclosures at least twice a year (Harper 2018, p. 407). According to Kim et al. (2021, p. 325), disclosures present all kinds of positive or negative data and help investment budgeting and strategic planning. However, sensitive information such as trade secrets should be safeguarded as much a possible (Glaeser 2018, p.163). Organizational sustainability is dependent on openness and transparency, which can only be achieved through disclosures (Gold and Schleper, 2017, p. 425). Adopting bottom-line-based reporting frameworks has pushed organizations into engaging in corporate social responsibilities (Ibrahim, 2019, p. 21). Krasodomska et al. (2020) note that CSR is modeled in making organizations accountable to the investors, environmental aspects, and social impacts.

Climate change is one of today’s biggest challenges, and the united nations proposed sustainable development goals for all member states (Leal Filho et al., 2020, p. 5343). To ensure sustainability, all member states must put measures to ensure their economy is developed in a sustainably accountable manner without causing more harm to the environment (Barreda 2018). Belgium is at the forefront to ensure its companies operate within the rules and guidelines set by the United Nations. European companies such as Solvay in Belgium and Bayer and BASF in Germany are the first to file climate-related disclosure (Kouloukoui et al., 2019, p. 791). This paper evaluates how Solvay files its climate-related risks and compares it with BASF and Bayer.

Governance and Business Model

Ilham Kadri is the company CEO since early 2019. The company is based in Belgium and specializes in industrial chemicals. Solvay is committed to true sustainability as it aims at improving its climate-related disclosures and practices while embracing lucidity in all its operations (Christensen et al., 2018). Bayer is focused on long-term goals in value creation and sustainability. The board of directors appoints and oversees the performance of company executives. The executive committee is tasked with running the company and making sound business decisions. The company’s decisions are mainly made by the CEO, the head of the executive committee, and the board of directors. The three leaders engage in constructive debate on the progress, status, and plans of the company. They also deliberate on the strengths and weaknesses of the company, as well as threats facing the company and opportunities that need to be harnessed.

BASF has invested in healthcare, energy solutions, agriculture, and aerospace chemical production and distribution (Walravens and Grégoire). The company has invested in either resource-intensive domains or domains that emit much waste to the environment. Industrial chemicals have a significant influence over nature. The chemicals could be devastating when mishandles as they could trigger fires, pollute waterways, affect the air we breathe, or cause harm to human skin. Solvay conducts business around the globe and is a crucial player in health, agriculture, automobile, aviation, and general industrial operations (Rehfeldt p. 2019). Solvay does not release ready-made products but produces raw materials for other industries mentioned earlier. As a result, it is an influential company whose collapse could cause unforeseen damages to other companies and industries.

Emerging Risks

According to Penttinen (2021), emerging risks can cause devastating damage to business operations in the future, although they are not fully manifested at the moment. The risks cut across all aspects of company operations and domains. Solvay, Bayer, and BASF operate in the same domain, produce similar products, and target similar industries. As a result, the companies are susceptible to similar risks. The risks are discussed in the subsections that follow.

The global COVID-19 pandemic

The global COVID-19 pandemic is the most significant economic disrupt in the 21 century after the 2008 recession (McKibbin and Fernando, 2020). The pandemic caused several companies to close their doors as containment measures demanded people to stay at their homes. Solvay, Bayer, and BASF were not left behind and had to halt their business operations for several weeks. Although economies have reopened worldwide, it is unclear what the future holds for the private sector as the coronavirus has constantly mutated. New variants emerge now and then, and they seem more infectious than their predecessors. The dynamism of the virus makes it difficult for the company executives to plan.

Acquisition of raw materials

Solvay, Bayer, and BASF are primarily dependent on natural raw materials to produce their chemicals. The companies rely on petroleum and other rare earth metals to manufacture chemicals for other industries. Most of the natural raw materials risk depletion, which could potentially result in their closure in the future. However, the companies’ executives have been looking into alternative business practices and processes to keep them afloat when such times come. Also, delays in the delivery of raw materials could affect the company manufacturing processes. Currently, the company ensures that raw materials are delivered in strict synchronicity.

Regularity uncertainties and government interference

Over the years, governments have proven they can inflict pain on foreign companies by banning or imposing sanctions on their products, services, and operations. The three companies are not an exception and might be pushed out of business should their products be banned in foreign markets. Business companies such as Solvay and Bayer are mainly founded to make profits for the investors. If regulatory demands exceed the acceptable threshold, the company might find it challenging to cope with the regulations.

Comparison Analysis

Purpose and strategy

Solvay is dedicated to making chemicals for life. The company aims at manufacturing products within the guidelines set by regularity authorities. Bayer company seeks to share all relevant information with relevant authorities to help conceptualize a mutual relationship with investors and authorities. BASF shares only relevant information with authorities and investors.

Metrics and Target

Solvay is determined to cooperate with regulatory agencies and investors through information sharing and compliance with guidelines and principles. The company is dedicated to filing climate-related financial disclosures to help investors and regulators make better decisions. Bayer and BASF are concerned about the impact of their products on users and the environment. The company aims to become carbon neutral in 2030.

Summary of company analysis

Table 1: Comparison of Solvay with Bayer and BASF Companies

Metric Solvay BASF Bayer
Governance Solvay is headed by a board of directors who appoint the company executives. The board of directors appoints the company CEO, who is tasked with managing the company operations. The board of directors appoints the company CEO, who is tasked with managing the company operations.
Strategy Solvay develops chemicals for other industries. Moreover, the company is dedicated to cooperating with regulatory agencies to achieve long-term sustainability. The company seeks to share all relevant information with relevant authorities to help conceptualize a mutual relationship with investors and authorities. The company shares only relevant information with authorities and investors.
Risk management The company employs different strategies to reduce climate-related risk. The company takes all measures possible to reduce climate-related risks. The company manufactures safe products intending to improve human life.
Metric and target The company is concerned about the impact of its products on users and the environment. The company aims to become carbon neutral in 2030. The company is concerned about the impact of its products on users and the environment. The company aims to become carbon neutral in 2030. The company is concerned about the impact of its products on users and the environment. The company aims to become carbon neutral in 2030.

Conclusions

Financial disclosures are not something new in the corporate sector and have been employed to help organizations adhere to regulations and help investors make better decisions. Climate-related disclosures are a significant step towards achieving true sustainability. as the world rushes to actualize the sustainable development goals formulated by the united nations, climate-related risks are a significant concern as they risk human lives and economies. Solvay, Bayer, and BASF are industries in the same domain and have the same disclosure practices. However, Solvay is more concerned about climate-related risks than the other two.

Reference List

Agovino, M., et al., (2019). Agriculture, climate change and sustainability: the case of EU-28. Ecological Indicators, 105, pp.525-543.

Barreda, A.B., (2018). Assessing the level of awareness on climate change and sustainable development among students of Partido State University, Camarines Sur, Philippines. Journal of Sustainability Education, 17.

Christensen, H.B., Hail, L. and Leuz, C., (2018). Economic analysis of widespread adoption of CSR and sustainability reporting standards. Available at SSRN 3315673.

Glaeser, S., (2018). The effects of proprietary information on corporate disclosure and transparency: evidence from trade secrets. Journal of Accounting and Economics, 66(1), pp.163-193.

Gold, S. and Schleper, M.C., (2017). A pathway towards true sustainability: a recognition foundation of sustainable supply chain management. European Management Journal, 35(4), pp.425-429.

Harper Ho, V. (2018). Nonfinancial risk disclosure and the costs of private ordering, American Business Law Journal, 55(3), pp.407-474.

Ibrahim, M.M., (2019). Beyond sustainability–towards restorative interior spaces through biophilic design. International Journal of Multidisciplinary Studies in Art and Technology, 2(1), pp.21-39.

Kim, Y. et al. (2021). The effect of trade secrets law on stock price synchronicity: evidence from the inevitable disclosure doctrine. The Accounting Review, 96(1), pp.325-348.

Kouloukoui et al., (2019). Factors influencing the level of environmental disclosures in sustainability reports: case of climate risk disclosure by Brazilian companies. Corporate Social Responsibility and Environmental Management, 26(4), pp.791-804.

Krasodomska, J., Michalak, J. and Świetla, K., (2020). Directive 2014/95/EU: Accountants’ understanding and attitude towards mandatory non-financial disclosures in corporate reporting. Meditari Accountancy Research.

Leal Filho, W., et al. (2020). COVID-19 and the UN sustainable development goals: threat to solidarity or an opportunity?. Sustainability, 12(13), p.5343.

McKibbin, W. and Fernando, R., (2020). The economic impact of COVID-19. Economics in the Time of COVID-19, 45(10.1162).

Penttinen, S.L., (2021). Texas Energy Crisis in 2021: Emerging Climate Risks, Extreme Weather and Key Takeaways to Increase Resilience. Oil, Gas & Energy Law, 19(4).

Rehfeldt, U., 5. The Renault, Engie (GDF Suez) and Solvay agreements: the “French imprint”. Trade union and collective bargaining in multinationals, p.209.

Walravens, F. and Grégoire, P., Corporate Hybrid Bonds: Solvay Case Study.

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Essay4Business. (2022, December 11). Solvay Firm’s Climate-Related Financial Disclosures. Retrieved from https://essay4business.com/solvay-firms-climate-related-financial-disclosures/

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"Solvay Firm’s Climate-Related Financial Disclosures." Essay4Business, 11 Dec. 2022, essay4business.com/solvay-firms-climate-related-financial-disclosures/.

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Essay4Business. "Solvay Firm’s Climate-Related Financial Disclosures." December 11, 2022. https://essay4business.com/solvay-firms-climate-related-financial-disclosures/.

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Essay4Business. 2022. "Solvay Firm’s Climate-Related Financial Disclosures." December 11, 2022. https://essay4business.com/solvay-firms-climate-related-financial-disclosures/.

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Essay4Business. (2022) 'Solvay Firm’s Climate-Related Financial Disclosures'. 11 December.

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