From Left: Jack Tsai, Executive GM of Sporting Goods Adhesives & Materials, Elic Hsu, CEO, Jeffrey Huang, Special Assistant to the CEO, and Morrisen Kuo, Executive GM of Adhesives & Specialties
The August 2021 report from Sustainalytics said it all. NanPao lowered its ESG risk rating score from 36.0 to 23.4." The results underscored the core of NanPao’s competitive strategies – championed by CEO Elic Hsu – as well as its commitment to creating a better, more sustainable future for everyone.
Sustainalytics is a global ESG risk rating agency, and the lower the Sustainalytics ESG risk rating score, the better the ESG performance of the company. Among the 443 companies in the chemical industry rated, NanPao ranks in the top 7% while, just one year ago, NanPao lagged with a percentile of 56%. The scale and resources that NanPao has are comparatively small with those of large multinational companies, which further reflects NanPao's commitment to "sustainability". What is NanPao’s view on “sustainability”? What are their opportunities and challenges in the push toward a greener future?
A corporate culture that focuses on sustainability and innovation
Elic introduced NanPao to us with an interesting historical perspective on the company: “From day one, the founder, Dr. Huang, Tang Qing Yun, who studied polymer chemistry in Japan, laid down a foundation with a long-term vision for NanPao. Shortly after its founding, NanPao set up a research institute to develop new products and shaped the corporate culture focusing on innovation and R&D. In addition, NanPao continuously introduced the latest technologies into its manufacturing processes. For example, NanPao cooperated with Hoechst AG to develop water-based resins in the 1970s.” Elic said. Out of the more than 3,000 employees, more than 900 employees are in the Research & Development department or are marketing engineers. R&D expenses now account for about 3% of revenue. Focusing on research and development is in the DNA of NanPao and employing cutting-edge manufacturing technology has become one of NanPao’s core advantages.
Focusing on R&D is one of the keys for NanPao to become the world's largest footwear adhesive manufacturer. Elic explained, “Water-based products are solvent-free, with low or almost no volatile organic compounds (VOC), and therefore are friendly to the environment and the human body. We realized early on that this would be the future and invested R&D resources into developing water-based products. 1997 was a pivotal year when Nike suddenly announced that it would replace petroleum-based footwear adhesives with environmentally friendly water-based adhesives. At that time, many companies in the industry could not offer this kind of product and within a few years exited the industry, one by one. In the past, Nike had more than 20 suppliers, but the number dwindled to less than five after this change. NanPao’s position in the industry became rock solid since then, and its market share in footwear adhesives products has increased significantly.” Currently, 75% to 80% of NanPao footwear adhesives products are low-VOC or VOC-free.
From day one, NanPao planned to go big and strong, so its strategy is always based on long-term perspectives, focusing on innovation and developing core technologies. Over the past six decades at NanPao, every staff member has been living and breathing the ethos of sustainable corporate culture without the need for “sustainability” as a slogan. Along with the sustainable leadership of professional managers, Dr. Huang’s grandnephew is also actively involved in the company.
Carbon Neutrality in 2050: Opportunities and challenges under the megatrend of carbon reduction
As consumers and brands are paying more attention to sustainability, what are the opportunities and challenges for NanPao? “In addition to asking for suppliers to comply with ESG requirements, brands are also looking for more eco-friendly and sustainable materials and manufacturing processes. Therefore, the current R&D mainly focuses on green products, and everyone is thinking about how to make products with a smaller carbon footprint, become more environmentally friendly, and also improve production efficiency. Our customers welcome this kind of innovation. Many consumer brands have announced the goal to achieve carbon neutrality by 2050 or earlier, or committed to using more sustainable and recyclable raw materials. From the perspective of carbon reduction, raw materials account for 70% to 80% of GHG emissions during the product life cycle. If everyone converted our footwear adhesive products from solvent-based to water-based, GHG emissions can be cut by almost half. At the moment, we have gone a step further to develop bio-based materials and recycled materials. Some products in our development pipeline can even be carbon negative.” Elic shared with us.
NanPao is capable of leveraging the chemical properties of materials to turn recycled waste into highly sustainable, low-carbon products. “We can turn recycled PET bottles into high-performance polyester polyol resin, which can be used as the raw material of water-based PU. When applying to textile products, it can make clothes stiff, and when it is added into foam materials, such as chair cushions, it can make the product comfortable and soft.” Elic explained.
In addition to developing green products, NanPao also focuses on green manufacturing. “Currently, we have built a fractionation distillation system in Taiwan, which allows more than 70% of waste solvents to be recycled and reused. We also hope that the same system can be implemented in other regions. In the past few years, the average annual expenses on pollution prevention, environment and safety exceed NT$50 million.” said Elic.
NanPao stays ahead of customer requirements and proactively transform challenges into its business moat. Elic explained, “Originally, NanPao was relatively lost in calculating carbon footprints. However, we still pushed ahead and started assessing the carbon footprints of our products before our customers asked us to do so. If NanPao can deal with these increased costs and challenges properly, we will be able to widen the gap with our industry peers. In addition to our efforts in ESG, we are also very willing to help our customers achieve their ESG-related goals by developing green products and proposing various sustainable and value-added solutions. Smaller manufacturers are generally less able to afford such long-term R&D investment, so the entry barrier into the industry is likely going to be higher.”
Selling green products is also a good business
NanPao’s products are used in things we all interact with every day, which means business opportunities are everywhere. Elic said confidently, "Currently, green products account for about 63% of NanPao's consolidated revenue, and we hope that it can reach 80% within five years. The idea of reduction in carbon emission or pollution and being more friendly to the human body and the environment is more intuitive. However, NanPao's green products can also generate benefits in various ways, which we classify as high-performance products.” Elic turned around and picked up the paper cup beside him and said, "Like this paper cup, many of them have plastic films. NanPao has developed plastic-free coatings for paper containers, which can make the recycling of paper cups and cartons more convenient and materials can be completely recycled and reused." Elic pointed to the table in the middle and said, "We need to consider a lot of things for products used in woodworking too. If it can achieve higher heat and moisture resistance, and higher bonding strength, the product can be more durable." He added, "In terms of building materials, NanPao has also developed sealants for insulating glass to be resistant to sunlight, extreme weather, and moisture, for improving energy efficiency for buildings.”
NanPao has also found many business opportunities to be developed in the green energy or environmental industry. Elic said, " Our efforts in the solar industry in Taiwan started to bear fruit last year. We launched construction materials and coating products that are salt and corrosion-resistant. We have successfully entered the market and have started to replace some of the existing imported products. We also introduced powder coatings for tap water pipes, which prevent the pipes from releasing chemical substances into tap water, making drinking tap water safer in Taiwan and providing better quality and more sustainable water.”
Do you also see opportunities in the technology industry? Elic replied: "In the electronics and semiconductor industries, high-performance products that can streamline the production process, improve efficiency, and reduce waste and pollution are in high demand. In the past, these kinds of products were mainly supplied by foreign manufacturers. At the end of last year, we set up a new company, NanPao Optoelectronic Materials, in Kunshan, China, focusing on applications in the electronics industry. I look forward to the growth opportunities in this industry.”
After introducing the application of green products to various industries, Elic believes that NanPao's green products also play an important role in their growth strategy. “Revenue from footwear-related applications accounts for around 40% of our total revenue. Footwear adhesives have long been our flagship products. We have been trying to grow in various industries, and we hope that one day the revenue of at least one industry will grow to the same scale as the footwear department. I have to admit that it usually takes several years to get into a new industry. Many peers have been there for more than a century, so we need to do it step by step. Green products are one of the keys for us to enter other industries.” Elic further explained: "For example, water-based PU adhesive for footwear is our flagship product but water-based PU can also be applied to many different sectors, such as textiles, automotive interior materials, leather, and coatings. We also try to target industries with sizable markets, such as flexible packaging. Its main applications are for food packaging, and the market size is several times larger than that of footwear adhesives. NanPao should not be absent in this field. Existing customer relationships can definitely help, too. Footwear products and many functional fabrics and apparel share the same end customers, which should be easier for us to understand customer needs and promote our products more easily.”
NanPao's vision: enable everyone to live a more sustainable lifestyle
"You can find NanPao's products in food, clothing, housing, transportation, education, and entertainment-related applications, so as long as we work harder to be green and sustainable, we can help everyone to live a more sustainable lifestyle. This is our mission!" Elic said with a smile, a smile that spoke to his passion and sense of responsibility. NanPao aims to become a global leader in innovative and sustainable chemicals and materials, reaching carbon neutrality by 2050.
If you would like to arrange a meeting with NanPao’s CEO Elic Hsu, please contact yvonnehuang@qtumic.com.
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