Climate Action 100+ signatory investors, which is claimed to be the world’s largest investor engagement initiative on climate change as it represents over USD $55 trillion in assets, has set out the actions that it believes must be taken by the steel industry if it is to decarbonise in line with the goals of the Paris Agreement.
These actions are outlined in Global Sector Strategies: Investor interventions to accelerate net zero steel, published by the Institutional Investors Group on Climate Change (IIGCC) – one of the founding investor networks of the Climate Action 100+ corporate engagement investor initiative. It is claimed that the report will inform constructive engagement between investors and the steel companies responsible for some of the highest levels of greenhouse gas emissions in the world.
According to International Energy Authority (IEA) figures, steel emissions account for 9% of global emissions. Steel production, claims the IEA, emitted 3.6GtCO2 in 2019, which is 9% of total anthropomorphic CO2 emissions.
“The steel industry still has some way to go to meet the 29% emissions reduction required by the IEA's net zero by 2050 scenario, and there is no silver bullet solution. 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.”Stephanie Pfeifer, IIGCC’s chief executive and Climate Action 100+ steering committee member.
In order to align with the IEA’s Net Zero by 2050 scenario, which is a roadmap for the global energy sector, net Scope 1 emissions across the sector must reduce 29% by 2030 and 91% by 2050. According to the recently published report, however, the sector is currently not on track to meet these targets by some margin, and there is little evidence of the concerted actions needed to limit demand growth, and a lack of support for policies to decarbonise steel in the countries that currently dominate production.
The sector strategy report further claims that there is willingness from the steel industry to start transitioning towards net zero. Nine companies representing around 20% of global steel production, including the five largest producers, have set firm net zero emissions commitments. However, these remain concentrated in Europe and Asia, reflecting national net zero pledges and existing regulation.
“There is increased focus from all stakeholders on the hard to abate sectors. Business as usual is no longer acceptable, considering the decarbonisation challenges that these sectors face.”John Howchin, secretary general of the Council on Ethics of the AP Funds.
The sector strategy report finds that it is technically feasible to reach net zero, using a combination of measures and simultaneous, co-ordinated action across value chains and regions as well as the successful scale-up of emerging technologies such as hydrogen-based direct reduced iron with electric arc furnace (DRI-EAF) or carbon capture (utilisation) and storage (CCS/CCUS). The report argues that collaboration is critical to success – 58% of total future emissions reductions will require co-ordinated stakeholder action, it is claimed.
To accelerate co-ordinated action across the value chain, the IIGCC and lead investors, in consultation with external sector experts and Climate Action 100+ focus steel companies, have outlined priority actions for individual companies, the broader industry and investors.
“Investors recognise that climate change is a financial risk to their portfolios, but also that the transition to net zero provides tremendous opportunity. It is our fiduciary duty to address that risk and opportunity.”Anne Simpson, managing investment director, board governance & sustainability, CalPERS, and current chair of the Climate Action 100+ Steering Committee.
Their key expectations include setting short-, mid- and long-term decarbonisation targets, demonstrating the feasibility of emerging technologies, aligning capital expenditure with a broader net zero strategy and adopting policy transparency.
Steel producers, says the IIGCC and Climate Action 100+ investors, will also need to work together across sectors and value chains to accelerate short-and mid-term emissions reductions. In the first instance, investors are asking that steelmakers co-ordinate with value chain participants to review how material efficiency can be increased and assess the impacts of the net zero transition for raw materials and energy. This is the first time that investors have asked for collaborative action across the steel sector and beyond.
“Steel companies face a challenging transition; however, the prize will be investors that not only remain as shareholders but also provide the needed transition finance."Adam Matthews, chair, Transition Pathway Initiative and chief responsible investment officer (CRIO), Church of England Pensions Board.