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Institutional investors challenge steel companies on climate change

17 Aug 2021

Steel producers are failing to meet their carbon reduction targets, meaning that investors need to step up. Andrew Holt reports.

A coalition of institutional investors that collectively manage $55trn (£39trn) of assets has called out the steel industry for its lack progress in fighting climate change.

Climate Action 100+ has warned that steel producers are failing to meet the International Energy Agency’s (IEA) net zero scenario where emissions across the sector need to fall 29% by 2030 and by 91% in the following 20 years.

It noted that only nine leading steel companies – China Baowu, ArcelorMittal, Nippon Steel, China’s HBIS, Posco, US Steel, Thyssenkrupp, SSAB and Outokumpu – have committed to achieving net zero emission targets.

This is in the context of 107 companies producing more than 3 million tonnes of steel last year, according to the World Steel Association (WSA), with the 10 largest steelmakers accounting for almost 30% of global output.

Stephanie Pfeifer, chief executive of the Institutional Investors Group on Climate Change which created Climate Action 100+, said there is no “silver bullet solution” for the steel industry to cut its harmful emissions by 29% in the next nine years.    

“We cannot afford to delay action – while emerging technology has a role to play, the IEA’s report highlights that existing technology can deliver 85% of the emissions reductions needed by 2030.”

So, investors need to incentivise steelmakers to assist in the low carbon transition.

Adam Matthews, chief responsible investment officer for the Church of England Pensions Board, who also chairs the Transition Pathway Initiative, said: “Steel companies face a challenging transition and the prize will be investors that not only remain as shareholders but also provide the needed transition finance.

“However, for investors to play this role not only requires clear targets, but detailed transition plans demonstrating the feasibility of key technologies and what enabling public policy they need.

“Additionally, it will be essential for the sector, but also investors to secure commitments from those that buy steel. This calls upon investors to engage the whole value chain to drive demand for zero carbon steel,” Matthews added.       

Through its investor networks, Climate Action 100+ is developing global strategies for key sectors. The recommendations of each strategy will be tailored by region and provide sector-specific actions that investors can take.

Priority actions outlined include obtaining public commitments from the largest global purchasers of steel to buy “green steel” and provide capital explicitly to finance low carbon steelmaking capacity.

The funding need for steel companies to meet their carbon reduction targets is significant. ArcelorMittal has estimated the cost of meeting net zero targets across its European operations could reach $65bn (£47bn), while Climate Action 100+ estimates that the entire steel industry needs to invest $1.3trn (£940bn) to achieve carbon neutrality.

Prices for so called green steel are, at least in the short term, rising while the cost of renewable energy continues to fall. This could drive companies in sectors, such as construction and automotive, to continue buying lower-cost steel from emissions-intensive producers.

Climate Action 100+ intends to improve the situation by holding twice-yearly roundtables to discuss progress with the steel industry and to extend this dialogue to other carbon-intensive sectors such as trucking, utilities and oil and gas production. 

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