The Transition Pathway Initiative (TPI) has warned that 86%, or 95 out of 111, of global publicly listed firms surveyed in heavy industries have failed to prepare for the “transition decade”.
Research done by the initiative points to an $856-billion climate risk, which is the combined market cap of the 95 companies, for failing to align with a pathway to keeping the earth’s temperature rise below 2 ˚C above pre-industrial era levels.
TPI analysed the carbon performance of five “hard to decarbonise” industrial sectors − diversified mining, steel, cement, paper and aluminium.
The investors behind the $23-trillion TPI have called for greater uptake of emerging technologies such as scrap electric arc furnace steelmaking for example, which recycles scrap steel to make secondary steel.
TPI included in its report a special focus on steel, finding that the number of steel companies aligned with the 2 ˚C benchmark in 2030 has increased to eight.
TPI highlights that Acerinox and ArcelorMittal are aligned with the benchmark in 2050; however, Tata Steel and Evraz, both listed on the LSE are not aligned with any benchmark for 2050.
The heavy industry sectors covered by TPI are responsible for more than nine gigatons of yearly carbon dioxide emissions, roughly 25% of total energy emissions.
The six firms that have achieved the highest level of climate governance are Air Liquide, BHP, Vale, Anglo American, Klabin and Koninklijke Philips.
The research was carried out for TPI by the Grantham Research Institute on Climate Change and the Environment at the London School of Economics.
“As we enter the transition decade these hard to abate sectors are critical to achieving net zero goals by 2050. While it is concerning that so few industrial companies are ready, it is clear new industrial processes based on circular economy principles give us a tipping point of technically viable, economically attractive solutions,” says TPI co-chairperson Adam Matthews.
He explains that the sectors’ performances are 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 timeframe – with nine companies aligned by 2030 in paper, eight in steel, five in diversified mining and four in cement.
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.
More industrial companies need to set longer-term targets to 2050.
TPI argues 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% to 25% of clinker in Europe could be replaced in this way.
Matthews says 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.
“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 the twenty-sixth United Nations Climate Change Conference being hosted in November 2021.
“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,” says Matthews.