Industry Tracker: “Why investors can’t just ignore carbon-intensive sectors”


21 Feb 2022

Carole Ferguson, managing director and cofounder of climate researcher Industry Tracker argues that divestment from carbon-intensive industries is not always the answer.

Carole Ferguson Industry Tracker



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Carole Ferguson, managing director and cofounder of climate researcher Industry Tracker argues that divestment from carbon-intensive industries is not always the answer.

Carole Ferguson Industry Tracker

Carbon-intensive industries are not typically the top picks of ESG-focused funds. This should not be a surprise as steel, cement and chemicals account for around 16% of direct CO₂ emissions and 65% of all harmful gases emitted by industry globally.¹

But unlike utilities, where there are cost competitive options which can replace fossil fuel technologies, emissions from steel, cement and chemicals are locked into carbon-intensive processes. These processes are close to their limits in terms of emissions and energy-intensity improvements, and most of the transformative technologies needed to reach net zero are early stage and not competitive.

The scale of investment required to adopt technologies that will enable these sectors to transition cannot be met by the companies alone given their cyclical nature and their challenged balance sheets. Our recent research on European steel, for example, found that such companies urgently need to break away from their current production routes to make primary steel and start investing in new technologies if they are to have any chance of reaching their climate goals.


However, there is a significant barrier – the investment required is high for individual companies, estimated at between $4bn (£2.9bn) and $34bn (£24.9bn) for the companies we analysed. Today’s sustainable finance industry is not being directed to these sectors, despite it being the type of real-economy transformation needed to reach net zero. The proportion of the three highest emitting sectors (utilities, materials and energy) in the MSCI ACWI is around 13%, but on average it is only 2% of a sample of global sustainable funds.²

This presents a problem not just for the industrial companies urgently requiring transition capital, but also for investors who might consider their portfolio ‘clean’ of heavy industrial emissions, if they don’t hold these stocks. The key reason is that these carbon-intensive sectors are central to our economy and the way we live. They are used across a range of industries and products.

This means investors may be allocating funds without proper visibility of the climate impact incurred across the value chain. For example, while auto companies might be deemed an appropriate climate investment if they electrify their fleets, cars are still made of steel, which, as mentioned, has a significant emissions profile and faces challenges to decarbonise. Steel is also used in wind turbines where demand is expected to grow exponentially as more and more renewable energy sources are commissioned to decarbonise the power sector.

And even if investors get to grips with how these materials feed into the economy and companies in the value chain, they could still be exposed to heavy industry if they hold banks in their loan books. While investors might not hold these companies directly to avoid the high Scope 1 emissions, they still need to address this as they seek to improve the Scope 3 exposure of their portfolios.

This means investors need to broaden their engagement beyond their direct holdings and look at the materials, products and services their portfolio companies use. They cannot just engage based on individual holdings in their portfolio anymore but need to take a view across the full value chain. They need to do deeper due diligence, assess impacts and drive progress across the system.

Clearly, this is not just a problem for investors to fix – public policy support is critical, not just in incentivising early stage low carbon innovation but also in de-risking private investment in these technologies to bring them to scale.

Glasgow Breakthrough

One such initiative, announced at COP26, was the Glasgow Breakthrough Agenda, which will focus on driving the development of low-carbon technologies in five sectors: power, road transport, steel, hydrogen and agriculture. The Agenda aims to increase the affordability and accessibility of low-carbon technologies in these sectors, to stimulate green investment, align policies and standards, co-ordinate R&D and public investments and unlock private finance.

The details of how this will be implemented are being ironed out but it has the potential to stimulate the public sector funding and support needed to decarbonise these sectors. Wherever the money comes from, be it investors or public funding, these heavy industrial sectors need support to transition – they can’t just be put on the naughty step and ignored.

Net-zero goals cannot be reached for the broader economy unless we can find a way to scale up and deploy the transformative technologies needed for us to keep enjoying the products and services these materials provide.

1) IEA Energy Technology Perspectives, 2020

2) Industry Tracker analysis of Bloomberg data, 2020

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