Capital goods sector primed to capitalise on low-carbon transition, says CDP

The capital goods sector is on the "verge of a low-carbon industrial revolution" with numerous high-profile companies urged to turn to microgrids, energy storage and hybrid renewables to lower emissions and capture new economic opportunities, a new report has found.

The report, released on Tuesday (24 July) by CDP, examines 22 capital goods companies – those that produce assets to be used by others to produce goods or services – and how well they are harnessing new opportunities to decarbonise systems to help meet the goals of the Paris Agreement.

Companies such as Schneider Electric, Vesta and CNH Industrial were found to be leaders across the ‘electrical equipment’, ‘industrial conglomerates’ and ‘heavy machinery’ fields by the CDP report, which notes that companies can capture “significant revenue opportunities” by introducing low-carbon technologies.

Unsurprisingly, electrification was cited as the biggest low-carbon opportunity for the sector, with the report highlighting that energy storage, autonomous tech, microgrids and renewables would all help lower emissions in the sector, which have remained flat since 2012.

CDP’s head of investor research, Carole Ferguson, said: “We are on the verge of a low carbon industrial revolution. Regulators and markets are demanding the decarbonisation of high emitting sectors and the industrial corporations at the end of the chain are looking to their suppliers to find innovative new solutions and equipment. The good news is that the capital goods sector is starting to meet this challenge.

“From hardware to software, decentralization to digitalisation, industrial suppliers are finding solutions that build low carbon into the DNA of big industry. Energy storage is a great example of this – the rapid price decline for renewable power is driving an estimated twelve-fold increase in demand for energy storage, catalysing even faster integration of renewable technologies for both centralised grids and distributed generation.”

Companies within the sector have been urged to capture early demand for energy storage, which is expected to grow twelvefold by 2030, creating an investment opportunity of more than £78bn.

Notably, the report also suggests that these firms can help others reduce emissions. A number of companies are producing hardware and software “with the potential to be radical and transformative”, the report states, with technologies such as behind-the-meter solutions and precision agriculture all coming onto the market. In fact, R&D expenditure in the sector as a proportion of sales is high at 3.5% on average compared to other industrial sectors.

Room for improvement

The report is one of the first to map company progress across the key recommendations from Mark Carney’s Task Force on Climate-related Financial Disclosures (TCFD), including transition risks and opportunities and climate governance at board level.

Although the sector is set to benefit from low-carbon revenues, the report notes that board-level climate understanding and action remains low. Companies operating within the sector were urged to adjust business models and risk in order to reap bigger benefits in the long-term.

One area of immediate improvement is that of supply chain interaction. Scope 3 accounts for more than 90% of the sector’s emissions, however, corporate disclosure and management of these emissions are poor, according to the report. In fact, less than a third of analysed companies have a target in place for value chain emissions.

Matt Mace

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