Cement Industry Lags on Emissions Reductions, CDP Report Finds

by | Apr 9, 2018

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Major cement companies need to more than double their emissions reductions or risk missing global climate goals a new CDP report found.

Called “Building Pressure,” the CDP report analyzed 13 of the largest publicly-listed cement companies in the world across a range of carbon and water-related indicators. Companies were then ranked on their business readiness for a low carbon economy transition.

The global cement sector accounts for 6% of global carbon dioxide emissions, making it the second largest industrial emitter behind steel. “In its current form, [the cement industry] is not compatible with the commitment taken at COP21 in Paris, and needs a significant change in business-as-usual practices to align to a 2-degrees trajectory,” the report says.

We asked Marco Kisic, a senior analyst with CDP Investor Research, to share his insights.

Why has the cement sector been slow to set ambitious emissions reduction targets?

It is a very difficult sector to decarbonize. Large parts of the emissions are inherent in the cement making process, so it is not just a case of switching to more renewable energy, as other sectors could do. Also, there are hardly any materials that could currently replace cement so it is likely to continue being used in construction for the foreseeable future, therefore the incentive for companies to change is not there. Finally, the sector is not traditionally an innovative one, as it relies on a basic production process and has low R&D spend.

What are the biggest challenges around emissions in the cement sector?

Carbon emissions are inherent in the cement making process so reducing emissions isn’t that easy. At the same time, innovation isn’t in these companies’ DNA so coming up with new products or processes requires a shift in management priorities and operations.

Another challenge is that the sector traditionally has lower margins because cement is a readily available material — it is more of a numbers game than a quality game, and that isn’t conducive to innovation and development.

What is the business case for lowering those emissions?

It doesn’t have to be expensive — there are options that are both cost-effective and help with decarbonization such as increasing the energy efficiency of plants and using more waste fuel. Indeed, waste fuels are likely to be much cheaper and in some cases, municipalities will pay companies to take on and dispose of them.

Ignoring the problem doesn’t make it go away. Postponing action will only make the cost greater down the line, and the companies won’t be able to control the scale or time of this cost. It could hit them all in one go with a significant regulatory change.

Finally, there are a growing number of stakeholders and buyers interested in low carbon cement so there is an opportunity for companies that act early to gain market share in these nascent markets.

What’s an example of that?

The rise of low carbon cities provides a good illustration of how these risks and opportunities may come about. Indeed, the rising ambition of cities to go low carbon means regulation could hit companies from down the line in the form of building regulation, should regulators’ focus shift from building operations to building materials as a key source of emissions. This could drive more scrutiny on current cement products and practices and increase demand for low carbon alternatives.

Which steps did top-performing cement companies take to address emissions?

The companies that come out top in our research are addressing emissions by having new, highly efficient plants while also using a large amount of alternative materials that have lower emissions. The top companies also perform well on governance. They have high quality emission reduction targets, board-level management of climate issues, and have incorporated an internal carbon price in the business.

What were the characteristics of the lowest performing companies?

The lowest performing companies in our analysis do not include or embed climate-related issues in their governance — often, they have not set emission reduction targets or linked executives’ remuneration to climate change goals.

These companies are also not making enough use of alternative materials or fuels which would lower emissions in the cement-making process. They are also not investing enough in low carbon products and R&D.

What should corporate sustainability leaders take away from this CDP research?

Our research shows the sector as a whole needs to step up significantly, because while companies are making some progress, they are not doing nearly enough. External forces may drive change in the sector at any point, and as buildings and cities raise their low carbon ambitions, there are multiple routes in which regulation could hit these companies. Cement companies need to think long term and plan for how they will operate in a low carbon economy.

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