OPINION: No more excuses: investors throw climate spotlight on heavy industry

by Adam Matthews | Transition Pathway Initiative
Thursday, 18 February 2021 18:06 GMT

ARCHIVE PHOTO: Smoke billows from chimneys at a chemical factory in Tianjin Municipality December 23, 2008. REUTERS/Stringer

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* Any views expressed in this opinion piece are those of the author and not of Thomson Reuters Foundation.

Investors are ramping up the pressure on industrial sectors like steel and cement to ensure they turn long-term targets into practical reality

Adam Matthews is Director of Ethics & Engagement at the Church of England Pensions Board and Co-Chair Transition Pathway Initiative (TPI).

The highest-emitting economic sector is not electricity or transport or agriculture but manufacturing and especially heavy industries like cement and steel. These sectors all produce things that society demands and therefore to change is critical, but challenging.  New and ambitious thinking is urgently needed if investors are to have confidence that companies are going to make the right moves during this transition decade.

 

The $23 trillion-backed Transition Pathway Initiative (TPI) yesterday, released its latest report which finds that heavy industry is responsible for over nine gigatons of annual CO2 emissions (roughly 25% of total energy emissions). Of enormous concern however is the finding that a mere 14% of the largest publicly listed industrial companies (16 of 111 firms) are on course to reduce emissions to the extent required by the Paris Agreement.

 

In high profile industries like mining for example, TPI shows that only four out of 14 firms have aligned their emissions reductions plan with a pathway to 2°C or below by 2050. It means many of the world’s biggest miners, are not setting comprehensive enough plans to reduce emissions in their operations and supply chain.

 

Investors have run out of patience

 

The response to TPI’s academically tested findings has already drawn a significant change of tone among investors.

 

Until now investors have been patient about the difficulties sectors like steel and cement have faced in the challenge to decarbonise, as there is no straightforward low-carbon replacement technology for their products or processes.  But the situation is changing as we enter this key decade during which key decisions will have to be taken. New industrial processes based on circular economy principles have seen technically viable, economically attractive solutions emerge.  It is time that investors step up their dialogues with sectors and individual companies about how feasible these plans are for them to transition. 

 

The carrot here is that responsible investors want to support through transition financing, but we will need convincing that the transition plans for each specific sector and company are realistic and ambitious. 

 

In cement production, for example, emissions-intensive clinker could be replaced by the waste from other industries (e.g. steel blast-furnace slag and coal ash). It is estimated 15-25% of clinker in Europe could be replaced in this way. And we see Indian cement firm Dalmia Bharat now successfully setting a net negative emissions target.

 

There is similar progress in steel production. Practical decarbonisation measures exist including carbon capture and storage, the use of hydrogen, and increasing the proportion of steel produced from scrap-EAF (i.e. using recycled scrap steel).

 

Yet the TPI report shows that 23 of the 29 leading steel firms assessed do not align with a 2°C or below pathway by 2050. Steel production alone represents 10% of total global energy emissions.

 

The transition decade

Progress in these heavy industry sectors also has a knock-on effect across the supply chain. For example, proponents for the controversial new coal mine proposed in Cumbria in the UK argue that it would provide coal for the UK steel-making industry and that it would displace coal from further afield.  However, such demand for coal would not exist if faster progress was made in clean steel production.

 

With COP26 on the horizon investors are aware that we have entered the ‘transition decade’ where urgent action across the economy is needed to foster a low-carbon transition.

 

That’s why investors like Legal & General Investment Management and Aberdeen Standard Investments alongside asset owners have stated this week that they will hold these heavy industry companies to account in their stewardship activities.

 

From recycling systems to technological innovations, the solutions are there for industrials and materials companies to grasp the nettle on climate.  We need transition plans with feasibility studies for application of key technologies and investors can then play their role in enabling the transition finance to support.  Time is short and long terms targets need to be turned into practical reality in this transition decade.