Industrial companies largely ignoring climate risks

The world’s largest industrial companies have been warned they have been “too slow” in curbing their carbon emissions.

The warning comes as a major report reveals less than a fifth of these high-emitting corporations are on track to meet the critical 2°C global warming target set by the Paris Agreement.

The latest report by the Transition Pathway Initiative (TPI) found only 29% of publicly-listed industrial companies are set to align their emissions with the least ambitious Paris Pledges by 2030 – while 19% are aligned with a path to keep global warming at 2°C or below.

The TPI, which comprises some 60 major asset manager firms including Aberdeen Standard Investments, Robeco and BNP Paribas with combined assets of $18 trillion, analysed 100 of the world’s largest and highest-polluting public companies in five sectors, including aluminium, cement, chemicals, paper and steel.

Taken together, these five sectors produce over two-thirds of direct industrial C02 emissions. 

The 100 companies were assessed on their climate management quality, including their greenhouse gas (GHG) emissions and risks and opportunities arising from the low-carbon transition.

In addition, 72 companies were assessed on carbon performance, eliminating the chemicals sector whose disclosures were insufficient.

Aluminium remains the worst-performing sector on carbon performance, doing “only slightly better” than oil and gas producers and airlines, the report states. Only one aluminium company – Norsk Hydro – is expected to be aligned with the Paris Agreement.

Although aluminium giants Alcoa and Rio Tinto’s current emissions are aligned with the Paris pledge, they are no longer by 2030, the report revealed.

The findings come amidst a wave of criticism of the aluminium sector, which has been frequently urged to produce the material more responsibly.

China is now the world’s biggest producer of aluminium. According to industry estimates, its aluminium production is around three times more carbon-intensive than aluminium made in Europe, as the electricity taken from the grid in China is largely generated from coal.

Steel is also relatively weak in terms of its emissions action, with only one in four steel makers aligned with the Paris commitment, the TPI report shows.

Of those, only SSAB and Tenaris will be aligned with the below 2°C benchmark according to the study, which was carried on the TPI’s behalf by climate change experts at the London School of Economics. However, target setting in the sector has improved.

In the TPI’s previous assessment in mid-2018, no steel company had a target beyond 2020, whereas now, six steel producers have an emissions reduction target extending to 2030 or beyond, of which four are aligned with at least the Paris Agreement.

At the top of the table is paper. For the first time, over half (56%) of the 18 paper producers assessed are aligned with the Paris pledges. Five out of the 18 companies are aligned with the below 2°C benchmark, while CMPC, DS Smith, Stora Enso and UPMKymmene have the most ambitious targets.

Three Asian paper companies improved disclosure and can be benchmarked for the first time, including Daio Paper, Lee & Man Paper Manufacturing and Nine Dragons Paper Industries. But it’s a different story for paper when it comes to management quality.

According to the report, paper has one of the lowest management quality scores among not only industrials and materials, but all TPI sectors.

Over half of the paper producers assessed are on Level 2 or below, meaning they have not yet integrated climate change factors into their operational decision-making or set quantitative targets for reducing their GHG emissions.

Two companies, Muda Holdings and Nine Dragons, are on Level 0 – where they do not recognise climate change as a significant issue for the business.

Notably, less than 40% of paper producers have their operational emissions verified, with only one paper company, UPM-Kymmene, assuring consistency between its climate change policy and the positions taken by trade associations of which it is a member.

However, UK paper maker Mondi is one success story, becoming the first industrial and materials firm to satisfy all management quality criteria and earn a 4-star rating.

The chemicals sector has the highest average management quality score of all the sectors, with 81% of the 20 companies assessed already on Level 3 or 4.  The largest chemicals company by market capitalisation, DowDuPont, is only on Level 1, while no company has attained a 4-star rating.

Although the sector performs well on many indicators, it is relatively weak on the most advanced markers. For example, only 19% of chemical companies undertake climate scenario planning.

“Industrial sectors like steel and cement face tough challenges to decouple emissions from production, but make no mistake, these industries must transform themselves if they are to survive the low carbon transition and play their part in achieving the goals of the Paris Agreement,” Faith Ward, co-chair of the TPI and chief responsible investment officer at Brunel Pension Partnership, said.

“The TPI data shows it can be done – with 14 companies now aligned with a path to keep global warming below 2°C. Yet, most industrial companies are significantly off-track on climate and that is an abdication of corporate risk management that must be urgently corrected,” Ward added.

Last Updated: 7 February 2020
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