There are growing fears that the world’s heavy industries will not be able to keep pace with the rising momentum for decarbonisation to meet the world’s global warming targets.
Research by the Transition Pathway Initiative (TPI), a global initiative led by asset owners and supported by asset managers, found that only 16 of 111 (14%) of large publicly listed industrial companies are aligned with an emissions reduction pathway that would keep global warming at 2°C or below.
The combined market cap of the 95 industrial companies failing to align with 2°C or below by 2050 is over $856 billion, leaving the world’s investors with some tough choices unless more is down to reduce emissions in the medium term. The research says while many of the firms will be able to meet the targets for the coming decade the requirements then increase significantly towards the world’s 2050 targets and for many companies at present those targets are simply unobtainable.
The research analysed 169 companies in total including the likes of Arcelor Mittal and Rio Tinto. Of these 111 firms were analysed on Carbon Performance, to identify if their emissions reductions plans align with the Paris Agreement.
The 111 companies came from the aluminium, cement, diversified mining, steel and paper sectors – collectively industries deemed “hard to decarbonise” as there is no straightforward low-carbon replacement technology for their products or processes.
The TPI research highlighted the poor performance of the aluminium and paper sectors in particular. Only one company in both sectors (Rio Tinto – specifically for aluminium) is aligned with a 2°C or below pathway by 2050. By contrast six steel companies are aligned by 2050 including the largest, Arcelor Mittal.
Adam Matthews, Co-Chair of TPI and Director of Ethics and Engagement Church of England Pensions Board said, “Industrial sectors like mining and steel form the building blocks of the global economy and are some of the hardest sectors to decarbonize. But they account for more than 9 gigatons of greenhouse gases, and key decisions will be taken by companies and investors over this coming decade that will determine the role they will play in societies achievement of the Paris climate agreement.
“As we enter the transition decade these hard to abate sectors are critical to achieving net zero goals by 2050. Whilst it is concerning that so few industrial companies are ready, it is clear that new industrial processes based on circular economy principles give us a tipping point of technically viable, economically attractive solutions.
“A stark $856 billion market risk jumps out at investors from today’s research, with only 14% of heavy industry companies on a path to keep global warming at 2°C. From recycling systems to technological innovations, the solutions are now there, and investors are ready to push for much bolder action from these sectors in the run up to COP26. To ensure that companies are part of the transition decade they must initiate cooperation across sectors and through their value chains to develop circular economy measures such as material efficiency and cross-sector recycling of by-products.”
The research was carried out for TPI by the Grantham Research Institute on Climate Change and the Environment at the London School of Economics.
The sector’s performance is marginally more encouraging for climate conscious investors from a 2030 point of view, with 22% of companies aligned with 2°C or below for that shorter time frame (nine companies aligned in paper, eight in steel, five in diversified mining and four in cement by 2030). TPI explained: “The reason fewer companies are aligned with 2°C or below after 2030 is because the pace of decarbonisation required in the industrial sector really picks up next decade, requiring drastic falls in emissions between 2030 and 2050 to meet Paris Agreement goals.”
It warned more industrial companies need to set longer-term targets to 2050 that require greater levels of decarbonisation. The report argued that the circular economy can help address the challenges of the “hard to decarbonise” sectors by using new processes to design out waste and pollution and recycle more products and materials. For example, in cement production emissions-intensive clinker could be replaced by steel blast-furnace slag and coal ash. It is estimated 15-25% of clinker in Europe could be replaced in this way.
Vitaliy Komar, Researcher at the Grantham Research Institute on Climate Change and the Environment at the London School of Economics, and a co-author of the TPI report said, “It will be a long road ahead for industrial sectors, but technological advancements are smoothing the path to a 2°C or below future, and heavy industry needs to gear up its climate progress.
“Low carbon industrial technologies, such as Scrap-EAF in steel making, show the importance of establishing a circular economy and offer viable ways to phase out high-carbon processes. Our report also identifies an emerging case to develop carbon capture and utilisations projects in the cement sector, represented by Dalmia Bharat and other companies.
“Dalmia is also the first company in TPI assessment universe with a net negative emissions target. Across the sectors, there are a number of other irons in the fire, and companies that are fast to adapt will have greater resiliency in a low carbon future.”