Future-proofing

The third stage of our SOE journey demands that we look to the future, determining how we can adapt to the planetary and social megatrends coming our way. Horizon scanning and scenario planning are tools available to help identify external factors which could potentially impact our business. Risks and opportunities are then considered, which shape our strategy going forward.

We are exploring what future-proofing means to us in practice – finding ways in which we can build the resilience of our business. We continue to invest in people and technology, making strong progress on our key performance indicators, which in turn enables our operations to be sustainable for the short to medium term.

We engaged with Forum for the Future, a specialized non-governmental organization, to help us identify the external factors that could impact our business in the years to come. While we have successfully responded to many issues over the last 170 years, we believe it is time to provide more structure to our thinking in this area.

The megatrends that could affect Birla Carbon

Although our analysis of key global megatrends is at a preliminary stage, we present here several external factors that may impact the global carbon black industry between now and 2030.

  • Climate change

    The atmospheric threshold of 400 ppm of carbon dioxide was permanently crossed in 2016. The Paris Agreement committed developed nations to achieve zero net emissions by 2035, and developing nations to reach zero net emissions by 2050. This entails a massive shift in the global energy system, affecting transportation, electricity generation and heating. Governments are increasingly considering radical policy. The conventional expectation is that regulation in this area will become increasingly strict.

    Any change to transportation regulations will have a real impact on our business. For example, climate change policy could profoundly shift transport away from cars by 2030. Potential carbon taxes could affect oil prices, which in turn would affect the availability of our feedstock. On the other hand, from a material impact there could be more demand for carbon black, as tire ingredients that improve efficiency may be prioritised.

  • Resource scarcity

    Oil and gas

    There is an expectation of increased oil price volatility in the next decade as conventional oil fields decline and supply is squeezed. While there is certainly strong growth potential in USA shale oil, it currently represents less than 5% of global supply and is not thought to be able to scale up to match the projected decline in conventional oil over the period.

    Oil availability and supply will inevitably have an impact on our business, as carbon black production requires feedstock that is a by-product from oil. There is a need for Birla Carbon and other members of our industry to consider alternative sources over the next decade, particularly in the face of other attractive materials, such as silica.

    Energy

    A huge shift is underway from fossil fuels to renewables in both rich and developing nations. This change is partially policy-driven, but increasingly now due to the economics of solar power which is undergoing exponential growth. This transition may impact oil demand, supply and pricing, and affect electricity generation or transport. The rate of the transition is uncertain.

    Any change from traditional energy and transport systems represents both challenges and opportunities for Birla Carbon, in terms of resilience and adaptation.

    Circular economy

    The circular economy is still nascent, but with increasing investment it is expected to be much more mainstream by 2030, with tracking methods such as materials passports to enable proper reuse and recycling. Waste legislation is expected to tighten over this same period across the world.

    This represents a future challenge for Birla Carbon if used tires cannot be landfilled or combusted. There is an increased preference for renewable, recyclable and ‘closed loop’ materials. Companies are already applying various technologies to recover low grade carbon black from old tires for use in low-end applications.

    Water

    This is a key area for all industry – nearly half the global population is expected to face shortages by 2030. Water requirements are a pressing concern. Use reduction and recapture will become increasingly important for Birla Carbon in the years to 2030.

  • Demographic shifts

    Growing middle class

    The popular definition of a growing middle class implies more consumption in emerging economies. However, it is important to note that this consumption may involve a significant divergence from the current Western model: premature deindustrialization is already visible in some African and Asian countries. These changes may be boosted further by automation and reshoring, leading to a different, less affluent model of ‘middle-class’ that is much more frugal and prioritizes access over experience – e.g. access to a car on-demand, rather than ownership.

    For Birla Carbon, the fact that a rising middle class may not mean a rise in consumption is a challenge. Innovation could favor the design of low-tech and durable consumer goods, which could reduce the need for carbon black.

    Millennial consumption patterns

    A new model of living that prioritizes access over ownership is emerging. This lifestyle is driven strongly by the Millennial generation who are at ease with technology, have more sustainability-centered values, and are to some extent unable to access the prosperity of previous generations. A key indicator of this is in changing car use – using car-sharing services in place of ownership.

    As Millennials will be the dominant generation by 2030, this represents a challenge for Birla Carbon.

  • Disruptive innovation

    Future of mobility

    The wider future of mobility is a key challenge. Three transformative revolutions have kicked off: sharing, electrification and automation. Electric cars may have potentially positive implications for our industry as they wear through tires more quickly – and they use carbon black in their battery technology. Driverless cars are more uncertain in their effect, especially as they may enable a transition to fleet models of shared mobility, replacing ownership and presumably leading to fewer cars, thus to a decrease in carbon black demand.

    Smart cities and urban mobility

    Technology is increasingly being designed to lower carbon emissions while improving infrastructure services, public health and wellbeing outcomes. There is a growing push for walkable and bike-able cities, with visible efforts worldwide to reduce congestion by shifting away from car use. By 2030, fleets of on-demand, shareable electric driverless vehicles may also reduce traffic.

    The various stakeholders we engaged with on this topic are divided as to whether this will affect carbon black demand or not. Changes to urban planning will however undoubtedly generate challenges.