86% of heavy industry not prepared for energy transition, TPI warns
As the world enters the energy transition - the period where industry will shift away from traditional energy sources such as fossil fuels - only 14% of large publicly-listed companies are aligned with an emissions reductions pathway that would keep global temperature rises at 2°C or below, according to an analysis by Transition Pathway Initiative (TPI) in their annual report.
TPI's research found that 86% of these companies - with a combined net worth of $856 billion across various heavy industries like steel, mining and cement - have failed to adequately prepare themselves for what TPI refer to as the "transition decade."
Read more: TPI report finds slow climate progress by high-emitting industries
The research analyses 169 companies in total including the likes of Arcelor Mittal and Rio Tinto. The firms are analysed on their "carbon performance," a measurement of emissions reductions plans in line with the Paris Climate Agreement, which specifies at least a commitment to 2°C, with a preference to keeping it below 1.5°C.
The research was conducted at the Grantham Research Institute on Climate Change and the Environment at the London School of Economics.
Collectively, all the companies analysed come from industries considered "hard to decarbonise" owing to there being no straightforward low-carbon replacement technology for their products or processes.
The research highlights the poor performance of the aluminium and paper sectors in particular with only one company in each industry putting forth plans to stick within the 2°C guidelines.
By contrast, the report indicates six steel companies are aligned with 2050 goals, with the largest being Luxembourg-based Arcelor Mittal.
Steel production alone accounts for 10% of global emissions and is considered a vital step in net-zero goals.
Read more: Japan's Kobe Steel shows off carbon-reduced steel production
In all, heavy industries account for 25% of total energy emissions.
The pace of decarbonisation for certain industries has meant that the 2050 goal would be more practical owing to technological limitations or extreme costs associated with rapid shifts to net-zero and the greater need for the shift away from carbon. The data suggests that at least 28 of the companies listed could meet the PCA's climate goals by 2030.
The report also argues that the circular economy could help address the problems encountered by hard to decarbonise sectors through the use of new processes to design out waste and pollution and increase the emphasis on recycling and reusing more products and materials.
For example, in cement production, emissions-heavy cement clinker could be replaced by steel blast furnace slag and coal ash.
Read more: EU 'completely ignoring' climate-neutral tech in steel, cement & chemicals
The data claims as much as 15.25% of clinker in Europe alone could be replaced in this way.
Adam Matthew, TPI's co-chair, revealed it is concerning that so few companies are ready for the energy transition, stipulating the importance of many of these sectors in the switch to net-zero.
He said: “Industrial sectors like mining and steel form the building blocks of the global economy and are some of the hardest sectors to decarbonise. But they account for more than 9 gigatonnes 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.
"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 TPI report also assesses the climate management quality of companies in various other industrial sectors, such as chemicals and aerospace.
Six companies listed have reached TPI's highest level for management quality, including Air Liquide, BHP, Vale, Anglo American, Klabin and Philips.
Euan Stirling, Global Head of Stewardship and ESG Investment, Aberdeen Standard Investments, said: “Sustainability of global development will be determined by how we produce and use commodities such as steel and cement. That is why the TPI report covering industrial and materials companies is both essential reading and a call to action for investors.
"Only six of the expanded coverage of 169 companies have achieved TPI’s top grade with many failing to make any progress since the last publication. We hope that we will be joined by others in redoubling our stewardship efforts with these companies to help them improve their performance.”
Iancu Daramus, a Senior Sustainability Analyst at LGIM, said: “Industrials and materials companies will literally provide the building blocks of a low-carbon future. This report emphasises the urgent need to tackle the huge climate challenge in this sector. TPI research forms a key part of LGIM’s public climate ratings of corporates, and we will continue to hold such companies accountable through voting and investment decisions for their progress towards net zero.”
Carbon capture technology could also prove useful in aiding decarbonisation, allowing for heavy industry players to sequester any carbon they release before it enters the atmosphere.
Read more: LafargeHolcim and Schlumberger to explore carbon capture technology
Carbon capture could not only aid in the shift to net-zero but could also lead to carbon-negativity, the process by which existing excess carbon dioxide may be removed from the atmosphere.
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.
He added: "Low-carbon industrial technologies, such as Scrap-EAF in steelmaking, 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 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.”
Back to Homepage
Back to Construction & Engineering
Back to Energy & Utilities