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By Olivier Maronneaud, Andy Orszynski, and Kunle Dosumu

This is a thought leadership report issued by S&P Global. This report does not constitute a rating action, neither was it discussed by a rating committee.

Highlights

The global chemical industry is in a prolonged downturn, longer and deeper than previous cycles. Consequently, many global chemical producers have reduced investments in sustainable chemicals to cut costs and prioritize their core businesses. 

Nevertheless, progress is being made. S&P Global Energy estimates that as of 2025, the top 12 global chemical producers have commercialized close to 2 million metric tons of sustainable polymers, or 14% of their aggregated 2030 voluntary pledge to commercialize 14 million mt by 2030. 

This progression is insufficient to meet the stated pledges, and a combination of regulations mandating the use of sustainable chemicals, technological developments and increased consumer awareness is necessary to foster investments in this sector.

Sustainability pathways for chemicals offer alternatives with lower carbon footprints and higher bio or circular content. As brand owners water down or delay their voluntary commitments for increased sustainability, affordability is being questioned, particularly in a chemical industry facing a sustained downturn. Will new regulations create the required environment to support investment opportunities in sustainable chemicals?

Pathways to sustainable chemicals

Sustainable chemicals are characterized by attributes that reduce the effect of chemical production, use or disposal on the environment and ensure positive social impacts. In 2021, the UN Environment Programme established a framework defining sustainability objectives for chemicals. Initial steps to improve the production footprint include improving energy efficiency, increasing process yields, limiting waste streams from conventional processes, and accessing renewable power through suitable contracts and/or upstream investments. More advanced approaches include reducing greenhouse gas emissions through electrification (e.g., steam cracker furnaces or fired heaters) and using low-carbon power and process design in certain steps to replace heat and steam. Lower-carbon fuels, such as electrolytic hydrogen, capturing process emissions (carbon capture, utilization and storage) or transitioning from conventional feedstocks to circular or biogenic raw materials can also achieve a more sustainable production footprint. There are many different routes and pathways available for companies:

  • Biogenic routes, including bionaphtha, bio-LPG, ethanol, sugar and biogenic waste
  • Circular routes, including mechanical recycling and chemical recycling processes
  • E-routes, including e-methanol and e-naphtha

Some feedstocks are classified as drop-in solutions and could be fed directly into existing facilities. Others require the implementation of dedicated processes and the development of new value chains. Although these pathways could displace conventional feedstocks, including naphtha or NGLs, their impact on the chemical industry would differ based on the process and stage at which they enter the value chain.

Drivers behind sustainable chemicals

There are two main reasons why companies aim for more sustainable production. The main driver is the implementation of a tighter regulatory environment. Regulation could impact chemical companies either directly or indirectly through downstream industries and end-use markets, down to end-consumers. In the past 15 years, regulations have been developed across several jurisdictions to reduce pollution and health hazards related to the production, use and disposal of chemicals and polymers. This is the case for plastics, which account for about 50% of total chemical production, with the development of a comprehensive framework in Europe, such as the Single-Use Plastic Directive, the Packaging and Packaging Waste Regulation and the End-of-Life Vehicle Regulation, promoting recycling and circular feedstock. In Europe and several other countries, the implementation of Extended Producer Responsibility schemes and subsequent taxes on virgin plastics have supported funding for circular initiatives and recycling projects. Apart from the regulatory push, some companies set voluntary targets and market sustainable products, relying on consumer awareness and brand recognition, to command a markup on their sustainable products and packaging and justify sustainability investments.

In most instances, sustainable chemicals compete with their conventional equivalents, which are derived from traditional hydrocarbons such as crude oil, coal, natural gas or NGLs. Hence, the state of the chemical industry impacts the competitive landscape and the fate of sustainable chemicals.

Downturn in the chemical industry is impacting investments

The chemical industry is in a period of prolonged downturn, which is both longer and deeper than previous cycles. While the underlying demand for chemicals and polymers continues to grow, driven largely by population growth and prosperity in highly populous developing regions, demand has fallen short of expectations, primarily due to a slowdown in China's economy.

The chemical industry is in a period of prolonged downturn, which is both longer and deeper than previous cycles.

Meanwhile, on the supply side, China continues to execute a strategy of increasing self-sufficiency — and reducing reliance on imports — through significant investments in domestic petrochemical building blocks and derivatives capacity. As a result, global supply growth has significantly outpaced demand growth in all but two years since the COVID-19 pandemic, and this trend is likely to continue for the remainder of the decade.

This imbalance has led to a decline in global capacity utilization across the chemical value chain and a slump in margins. Recovery is expected after 2030 when demand catches up with supply.

Oil and natural gas prices peaked in 2022, and their decline over the past four years resulted in prices for many petrochemicals nearly halving from their peak over the same period.

As a result, sustainable chemicals faced growing headwinds in securing investments, scaling up production capacity and gaining market share in an environment where the traditional materials they aim to replace are low-cost and abundant.

Limited progress despite ambitious targets

Sustainable chemicals account for less than 10% of global chemical demand. Mechanical recycling of plastic (the process of turning plastic waste back into new materials without altering the chemical structure of the polymers) is by far the most developed pathway operating on a commercial scale. Bio-based chemicals are a growing segment of the chemical industry, behind mechanically recycled plastic; however, growth is hindered by feedstock availability and concerns over competition with food or biofuels, where regulations tend to be supportive. Despite the growing interest in the past 10 years, chemical recycling remains the least-developed segment, requiring significant investment to scale up technologies and develop infrastructure for collecting and sorting plastic waste.

Sustainable chemicals account for less than 10% of global chemical demand.

Over the past few years, global chemical companies have announced ambitious targets to commercialize sustainable chemicals and polymers via diverse pathways. More than 400 projects have been announced and investigated by technology companies and project developers. However, since 2024, momentum has noticeably decelerated. The environment of low prices and slim margins within the chemical industry has rendered many of these projects uneconomical or lower-priority as companies pivot to reduce costs and improve their profitability.

S&P Global Energy has been tracking these targets, particularly through the progress of the top 12 global chemical companies with their pledges. Collectively, these companies announced the objective to commercialize 14 million metric tons of sustainable polymers by 2030. Progress has been made; however, many companies have not communicated a comprehensive five-year strategy for the pathways they will adopt. In 2023, the group collectively sold an estimated 1.3 million mt of sustainable polymers. Sales volume increased in 2024 by an estimated 24% but is anticipated to decline to 18% in 2025, equating to 14% of the group’s stated 2030 pledge. The current environment has made it more challenging for companies to comply with their pledges and meet their 2030 targets without a significant acceleration in new investments.

Collectively, these companies announced the objective to commercialize 14 million mt of sustainable polymers by 2030.

Recent major developments include Exxon Mobil Corp.’s successful startup of its third chemical recycling facility in Baytown, Texas, in January, bringing its total annual processing capacity to about 113,000 metric tons/year. ExxonMobil has active plans to increase its chemical recycling capacity using its proprietary Exxtend technology in North America and Asia. LyondellBasell Industries NV is constructing its first industrial-scale chemical recycling plant in Wesseling, Germany, based on its MoReTec technology. The facility is expected to have a capacity of 50,000 mt/year and to start operations in 2026. Dow Inc.’s Fort Saskatchewan Path2Zero expansion project was paused due to difficult market conditions, but the company recently confirmed that the project will proceed with 1.3 million mt/year of net-zero ethylene and polyethylene capacity by 2029.

Looking forward

The prospect of a wave of investments and new capacities in sustainable chemicals has faded in recent years. Progress continues but at a slower pace, with a focus on the most viable sectors and pathways. The potential for sustainable chemicals to materially displace conventional feedstocks is expected to be limited over the next five to 10 years. As crude oil demand for fuel applications is expected to decline, growth in chemicals is forecast to continue. For sustainable chemicals to become a significant portion of the chemical industry, several conditions will need to materialize:

  • A comprehensive set of regulations that mandate the use of sustainable chemicals, similar to the recent implementations in Europe with recycling and recycled content targets
  • Technological developments and the ability to scale up to improve the competitiveness of certain pathways
  • Consumer awareness regarding the benefits of sustainable chemicals
  • The ability to provide a different value proposition to customers and to dissociate from the competition with virgin chemicals, particularly in a low crude-oil price environment

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Special Reports