Report: Only 14% of Large Industrial Companies Aligned with Paris Agreement

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by | Feb 17, 2021

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New research by the Transition Pathway Initiative finds that only 16 of 111 (14%) 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 more than $856 billion.

The research analyzes 169 companies in total, including the likes of Arcelor Mittal and Rio Tinto. Of these 111 firms are analyzed on carbon performance to show if their emissions reductions plans align with the Paris Agreement.  The 111 companies come from the aluminum, cement, diversified mining, steel, and paper sectors – collectively industries deemed “hard to decarbonize” as there is no straightforward, low-carbon replacement technology for their products or processes.

The TPI research highlights the poor performance of the aluminum and paper sectors in particular. Only one company in both sectors (Rio Tinto – specifically for aluminum) 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.

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 (9 companies aligned in paper, 8 in steel, 5 in diversified mining and 4 in cement by 2030). The reason fewer companies are aligned with 2°C or below after 2030 is because the pace of decarbonization required in the industrial sector really picks up next decade, requiring drastic falls in emissions between 2030 and 2050 to meet Paris Agreement goals. More industrial companies need to set longer term targets to 2050 that require greater levels of decarbonization.

The report argues that the circular economy can help address the challenges of the ‘hard to decarbonize’ 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.

Management Quality Results

The full TPI report also assesses the climate management quality of a wider selection of 169 companies. This includes companies in the chemicals and “other industrials” sector. The latter being a diverse mix of high-emitting producers such as Boeing and General Electric.

On management quality, six companies have reached TPI’s highest level, 4: Air Liquide in chemicals; BHP, Vale and Anglo American in diversified mining; Klabin in paper; and Koninklijke Philips in other industrials.

Management quality indicators also show that 24 companies (20%) move up at least one level. One of the key changes TPI is witnessing is a growing number of companies nominating a board member or board committee with responsibility for climate policy. Companies such as such as Kobe Steel and Steel Dynamics took such action last year. However, 17 companies (14%) moved down a level, with a key factor being failure to disclose on an ongoing basis involvement in trade associations active in climate lobbying.

Steel and Climate Solutions

Steel production alone represents 10% of total global energy emissions, and a special focus on the steel sector in the TPI report shows that eight large steel makers, including the world’s largest (Arcelor Mittal) are aligned with the 2°C or below benchmarks by 2030, an increase from five last year.

However, 21 of the steel firms assessed do not align with a 2°C or below pathway by 2030, rising to 23 unaligned by 2050. Also, according to TPI, no steel company discloses whether its position on climate aligns with the trade associations it is a member of.

TPI presents the mitigation potential of several decarbonization measures including carbon capture and storage and the use of hydrogen, and concludes that one of the most effective measure is for steel makers to increase the proportion of steel produced from scrap-EAF (i.e. using recycled scrap steel), with even greater potential if that process is paired with a green grid.

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