Investors worth $30tr urge steel industry to 'safeguard future in face of climate change'

More than 250 institutional investors representing over $30tr in assets urge steel sector to set out decarbonisation strategies to guard against climate-related risks

The global steel sector has been urged to "safeguard its future in the face of climate change" in a rallying cry today from an influential group of more than 250 major institutional investors representing over $30tr in assets.

The investor group argues steel companies must significantly scale up investment in technologies that will enable them to decarbonise operations in line with the Paris Agreement, warning that failure to keep pace with necessary greenhouse gas reductions could expose them to "significant risks".

The call comes in a new report issued yesterday by the four investor networks that make up the Global Investor Coalition on Climate Change (GIC).

The report highlights how global steel production accounts for seven per cent of the world's total greenhouse gas emissions. As such, it argues growing policy and market responses designed to meet the Paris Agreement goals will expose steel firms to significant risks if they fail to anticipate and keep pace with necessary reductions in emissions.

Stephanie Pfeifer, CEO at the Institutional Investors Group on Climate Change (IIGCC), said that while some steel sector innovations and pilot projects were being carried out worldwide to boost energy efficiency, no steel company has yet set long-term emissions intensity targets through to 2030 and beyond.

"The steel sector still needs to reduce its greenhouse gas emissions dramatically and this will only happen with significant technological innovation," she said. "This can be expected to be a key focus of investor engagement in shaping the robust, responsive and resilient business strategies required in the face of climate change."

The report was produced by the IIGCC with lead authors Aegon Asset Management and Kempen Capital Management. The other three investor networks backing the report include Ceres, the Investor Group on Climate Change, and the Asia Investor Group on Climate Change (AIGCC).

The move follows the launch last week of a new £35m university and industry-backed network - dubbed SUSTAIN - which is aiming to turn the UK into a world-leading hub for 'carbon neutral steel'.

This week's report also highlights a recent study by the Energy Transition Commission which concluded steel sector decarbonisation was both attainable and could be achieved at comparatively low cost.

But yesterday's report warns that in order to ensure alignment with global climate commitments in the Paris Agreement, the steel sector as a whole will need to reduce its overall emissions by at least 31 per cent, and its emission intensity by 55 per cent, by 2050.

Steel companies face significant risks to their business from failing to decarbonise, the investors add, pointing out that 70 per cent of the world's steelmakers already face a price on their carbon emissions, in addition to technology and market change risks.

Asset manager Schroders has also previously suggested the steel sector could see profits fall by 80 per cent if higher carbon prices emerge, while the price per tonne of CO2 in the EU Emissions Trading System have shot up to record levels over the past year.

Yesterday's report, which was developed in line with the goals of Climate Action 100+, includes a framework of "investor expectations" for the steel sector on how companies should look to manage their climate risks and develop decarbonisation strategies.

The three key recommendations cover transition planning, embedding climate risk governance into company boards and management, and improve disclosure of risks in line with the guidelines set out by the global Taskforce on Climate-related Financial Disclosures (TCFD).

Stephanie Maier, Climate Action 100+ steering committee member and director for responsible investment at HSBC Global Asset Management, welcomed today's report. "The challenges of decarbonising steel production are well understood and by no means insignificant," she explained. "We are now starting to see targeted R&D delivering exciting developments such as a pilot to produce fossil fuel free steel. A smarter circular economy approach to the way the steel is made and used also offers huge potential to deliver financially within a transition to a lower carbon economy. We encourage greater cross-sector collaboration on R&D and innovation to drive decarbonisation operationally and along the value chain."

Investors' desire to see businesses respond to escalating stranded asset risks in the face of ever more ambitious decarbonisation policies is now extending far beyond the energy sector that was the first target of the 'carbon bubble' hypothesis. Now steelmakers are facing similar calls to strengthen their climate policies and deliver credible emission reduction plans and targets. Every other carbon intensive sector should take note. 

19 February 2019