Alliances are on the rise
Alliances are at the heart of the decarbonisation agenda, which is an astronomic shift from the traditional purpose of an alliance. Let´s begin with the common understanding of what an alliance is, which is a group of countries, political parties or organizations that are formally united and working together because they have similar aims. In international relations, an alliance is a formal agreement between two or more states for mutual support in case of war. Throughout history there are countless examples of alliances between two or more states for mutual support in case of war. These generally defensive associations obligate allies to join forces if one or more of the is attached by another state or coalition. Nowadays, the use of this term is applied in a wider context as technological disruption, geopolitical uncertainty, regulatory overhaul, and demographic shifts, are pushing such partnerships beyond their traditional limits.
In the PwC publication, Why your next deal may be a partnership, the authors emphasise how companies can´t afford to follow their previous deal blueprints if they want to respond to the disruptions and risks in today’s markets. Below are some interesting takeaway’s from the article on how companies plan to drive corporate growth or profitability throurgh partnerships.
A strategic alliance is an agreement between independent organizations to share resources, knowledge, or other assets. Partners coordinate their actions to pursue mutually beneficial goals while maintaining their autonomy. Each company gains a new business opportunity, be it increasing efficiency, expanding into a new market, capturing more market share, or some other type of growth.
An alliance can be the tip of the spear when it comes to exploring a new path to growth.
Companies are also using alliances and joint ventures to explore growth outside their home countries. Unlike mergers and acquisitions or greenfield investment, an alliance or joint venture can allow a company to get experience in a particular market before considering a more substantial investment.
An alliance may be established and remain just that — two or more companies sharing resources, working toward a common goal, and, ideally, reaping mutual benefits. But it’s also possible that an alliance will evolve into either a different type of partnership.
How do industrial companies that recognize the benefits of pursuing alliances come together with countries, political parties and other associations to work on their decarbonization agenda?
Industrial alliances bring together a wide range of partners in a given industry or value chain, including public and private actors and civil society. They shall act as the power arm to bring strategic roadmaps into fruition, facilitating cooperation in a range of large investment projects. At EU level, alliances are important public-private collaborations, and could become key tools for EU green industrial policy.
Relevant to the chemical industry, three already existing alliances will play a fundamental roll in the next decade.
The Circular Plastics Alliance, which was established in 2019, aims to boost the EU market for recycled plastics to 10 million tons by 2025. The alliance covers the full plastics value chains and includes 277 organizations representing industry, academia and public authorities. The European Clean Hydrogen Alliance, which was set up in 2020, aims at an ambitious deployment of hydrogen technologies by 2030, bringing together renewable and low-carbon hydrogen production, demand in industry, mobility and other sectors, and hydrogen transmission and distribution. Lastly, the European Raw Material Alliance, which was announced in 2020, addresses the challenge of securing access to sustainable raw materials, advanced materials, and industrial processing know-how by 2030.
On the other hand, the Commission has not yet announced the creation of a Low-Carbon Industry Alliance included in the new Industrial Strategy, they have favoured others instead. For example, this year, the Renewable and Low-Carbon Fuels Value Chain Industrial Alliance has kicked off, as a new initiative that focuses on boosting production and supply of renewable and low-carbon fuels in the aviation and waterborne sectors.
Industrial alliances bring together a wide range of partners in a given industry or value chain, including public and private actors and civil society. Industrial alliances have the following characteristics:
They are built around a common goal to implement EU policy objectives.
They involve all relevant partners (EU countries, regions, industry, financial institutions, private investors, innovation actors, academia, research institutes, civil society, trade unions, and others) along the value chain.
They are based on the principles of openness, transparency, diversity and inclusiveness and comply with competition rules.
They are not involved in decision making on policy, regulation or financing.
There is no direct funding for alliances and they do not prejudge potential Important Projects of Common European Interest (which are designed by EU counties and need a separate approval by the Commission).
While in Europe alliances are built around a common goal and focus to deliver benefits in specific areas, globally a new alliance that aims to accelerate net-zero ambitions and the decarbonization of industrial value chains in pursuit of the Paris Agreement climate goals, is born in 2022. The Alliance for Industry Decarbonization consists of private and public organizations and stakeholders operating in energy-intensive sectors, commit to collaborate toward the common vision of a green future. Among all the founding members there is one chemical company, the rest are mainly companies operating in the energy sector. The Alliance members believe in the power of partnerships based on honest dialogue and concrete actions. The International Renewable Energy Agency (IRENA) coordinates and facilitates the activities of the Alliance based on its vast experience in hosting multi-stakeholder platforms. This alliance will meet for the first time at COP27 in Sharm El Sheikh, Egypt.
The Alliance for Industry Decarbonization was created to achieve country-specific net zero goals faster, encourage action for decarbonizing industrial value chains, and enhance understanding of renewables-based solutions and their adoption by industry. The Alliance will also strengthen dialogue and coordinate action by industrial stakeholders from across the public and private sectors.
At both, regional and international scale, in the last five to ten years we are experiencing an increase in the number of alliances. How do they evolve and how much value do they add to their ultimate goal should start being visible in the short term. The alliances that will thrive are the ones able to generate trust early on, design agreements that are flexible and follow strong governance processes and principles. Perhaps, it would be worthwhile to understand whether the scope and scale complexities of the alliance accelerate or, on the contrary, slow down progress. For this purpose, the transparency principle is key.
