The Barker Plan: How a former UK Energy Minister used sustainability to transform a sanctioned Russian aluminium firm
EXCLUSIVE: Over the course of a year, Russian aluminium and hydropower firm EN+ Group has gone from being banned on the US market to launching a new sweeping sustainability strategy and having those sanctions lifted. Here, edie speaks to former UK Energy Minister Greg Barker, who has been the surprise driving force behind this transformation.
In late 2018, the world’s second-largest producer of aluminium was in dire straits. EN+ Group, a conglomerate consisting of Russian aluminium producer Rusal and various hydropower organisations, had seen its shares on the London Stock Exchange fall by 60% since its stock-market launch the year prior. The US Department of the Treasury’s Office of Foreign Assets Control had also placed sanctions on the Group and its controversial billionaire oligarch owner Oleg Deripaska, temporarily stopping the company from trading on the US market. Questions were inevitably being asked about the ethics and resiliency of the company, and, therefore, its future.
A little under 10 months later, EN+ Group announced that it was the latest organisation to join the 9,500+ network of companies seeking to improve human rights, labour, environment and anti-corruption through the UN Global Compact initiative. The company had also announced a raft of new CSR goals stretching to 2025 and relating to its environmental impacts. Those targets include reducing greenhouse gas emissions by 15% from smelters and 10% from refineries compared with 2014 levels, and cutting power consumption at select sites by 7% from 2011 levels.
During that 10-month period, the Group’s stock shares have surged by 33%. The transformation merely scratches the surface of a company that has completely restructured itself from the time it was embroiled in the violent “aluminium wars” of the Nineties and from its more recent tangles with the Trump regime.
At the heart of this transformation sits Lord Greg Barker, the former UK Minister of State for Energy and Climate Change who worked within the now-abolished Department of Energy and Climate Change (DECC). Barker was broadly seen as a good Energy Minister by the UK's green economy during his five-year tenure and is remembered for launching the Green Deal Finance package. According to Barker, his ongoing passion for climate action, combined with his financial background, has been key to EN+ Group’s transformation.
“I took the decision to stand down [from the DECC position] in 2015,” Barker tells edie. “I wanted to go back to business, which was my area of focus before politics. The intention was to combine my finance background with my passion for climate action to deliver real change.
“It was not a complete surprise to be asked to chair the Group. I spent two years working in Russia in the energy sector in the 1990s, so I had some experience. I was cautious about getting involved in the intricate geopolitics that comes with a Russian company, but I was bowled away by the detail of the company and its ambitions for the future.”
The most immediate of these ambitions was to navigate the complexities of the Group’s initial public offering (IPO) onto the London Stock Exchange (LSE). Barker was announced as EN+ Group’s non-executive chairman in October 2017, one month before the company raised $1.5bn to float on the LSE; this was the first IPO by a Russian company in London since 2014.
What was meant to be an ‘ideal capital-raising’ decision instead led to tensions further afield. Six months later, the US slapped sanctions on EN+ Group and its owner Deripaska – largely based on strong ties to Vladimir Putin and alleged Russian involvement with the 2016 US presidential election – stopping the firm from trading on the US market. Deripaska has consistently denied any wrongdoing.
The Barker Plan
Barker tells edie that the environmental ambitions of the Group were a “clincher” in his decision to take up the role, but the sanctions imposed meant that the financial security of the company became the key strategic aim in the short-term.
“We have more to do to green our operations,” Barker says, “But we have a real ambition…We’re introducing a number of exciting strategies to grow the market and allow us to forge a strategic partnership with other like-minded organisations.”
Rusal is the world’s largest aluminium producer outside of China, but the US sanctions caused global prices for the metal to spike. This, in turn, placed extra pressure on some UK and European firms.
The resolution arrived in the form of the so-called Barker Plan. Devised by its namesake, the Plan saw Deripaska scale back his holdings in the London-listed group from around 70% to below 45%. A new board was also introduced under the Plan as a way of further reducing Deripaska’s involvement, with former Deutch Bank executive Christopher Bancroft Burnham, Nicholas Jordan and Igor Lojevsky all introduced.
With the Barker Plan executed, the US sanctions were eventually lifted in January 2019. According to Barker, the board reshuffle and defeating the sanctions means that the Group can now dedicate much more focus to its environmental ambitions.
“[The sanctions] were a big, big distraction for a year,” Barker admits. “The possibility of US sanctions was a threat to the performance of the expansion. It has been successfully resolved and we’ve emerged a stronger company and our business has proved to be extremely resilient.
“The board we now have brings greater international experience and a greater environmental understanding to the table. It has made the company more investible and opened avenues to other strategic partners and markets.”
Building the hydrogen market
With the right internal environment now in place, those new market plans are beginning to take shape. EN+ Group already produces 5.8% of the global aluminium output, while the energy segment of the group is the largest independent power producer in Russia. The Group operates hydro-generating assets totalling 15.1GW of installed electricity capacity and 17 kGcal/h of installed heat capacity.
Renewables is a key new market for the Group to explore. The company has recently announced plans to build numerous small-scale hydropower stations on small rivers across Siberia, with the capacity of the projects set to total 200MW. According to Bloomberg, a deal has been struck for an 8MW Segozerskaya plant, (costing $125m) to provide for a data centre developed by DCLab Karelia with more deals set to follow.
The Group’s 2025 goals will also aim to improve the efficiency of its renewable generation assets. Targets are in place to enable the generation of an additional 2TWh of renewable energy – equivalent to more than 3% of the Group’s total hydro generation in 2018 – from the same volume of water passing through its facilities. The generated clean energy will be used to replace coal-fired generation for operation, subsequently reducing emissions by 2.3 million tonnes of CO2 annually, more than 10% of the Group’s energy segment emission levels.
Barker is of the belief that these targets can have an impact beyond the Group’s operations and begin to drive a clean transition further afield.
“The usual problem with the business opportunity to use renewables and combat climate change is that it is very difficult to do something that’s going to have real impact and global scale,” he says. “I came on board to oversee the global strategy to drive the Group as a key building block in the global low-carbon transition. It’s a fantastic opportunity for me to go from policymaking to actually creating the building blocks of our low-carbon economy.”
In July 2019, the Group announced that it had joined the Energy Transitions Commission – a global alliance of businesses, NGOs and academics trying to lead the shift to reach net-zero carbon emissions from heavy industry. A key aim for the Group is to collaborate with other members to identify the most effective actions to realise this goal. Importantly, the Group believes it can unlock many of the tools to assist with this transition.
The Group states that Russia has the second-largest potential in the world for economically efficient hydropower generation, largely due to Russian rivers which can provide more than 800 billion kWh of low-carbon electricity per annum. As of 31 December 2017, 77% of the Group’s energy segment installed electricity capacity was represented by hydropower plants, with the remaining 23% represented by combined heat and power (CHP) and one solar plant. Being able to tap into an abundant renewable energy source on its doorstep has enabled the Group to make the low-carbon transition a viable economic opportunity, both in terms of new partnerships and its own production.
Aluminium arms race
The Group’s increased use of renewables has helped improve the low-carbon credentials of the aluminium it places onto the market – a timely feat considering the renewed focus customers and investors alike are placing on climate change and business impacts.
Low-carbon production will become a key component of the Group’s success. As of 2017, China accounts for 55% of global aluminium production from smelters that use coal for 90% of its energy demand. While demand for coal-fired production in the sector grew by 450,00 GWh between 2005 and 2015, hydrogen’s share actually fell to 30%.
Rusal has already launched a low-carbon “Allow” grade for cans and other types of packaging which is guaranteed to have a carbon footprint lower than four tonnes of CO2 per tonne of aluminium. In comparison, this is up to 50% less than those relying on gas resources.
Other major players within the industry, such as Rio Tinto and Alcoa have also released similar grade products, the latter of which claims to be below 2.5 tonnes of CO2 per tonne of aluminium. Companies within the sector are increasingly aware that low-carbon products and services are viewed as an “essential” for future business prosperity.
Barker notes that one of the 2025 goals is to achieve an average level of energy-related emissions per tonne of aluminium of no more than 2.7 tonnes, but that the company “has a real ambition to drive this as low as possible”.
“We’re trying to create a new asset class in low-carbon aluminium,” he explains. “Whether it’s production for an electric vehicle, smartphone or drinks can, we want consumers to know they have a choice to make on the impacts of their purchase. What we need to do is see hydro and other forms of renewables take the lion’s share of the market to make aluminium a more sustainable material.”
Three of Rusal’s major production sites have now been certified against the Aluminium Stewardship Initiative (ASI) Performance Standard and ASI Chain of Custody Standard, which is recognised as the only sustainability supply chain standard applicable across the entire aluminium value chain. More widely, the Group is investing in undisclosed low-carbon innovation projects that could potentially “transform the carbon footprint of the aluminium industry”.
Looking ahead, Barker believes the Group can sit at the heart of a global low-carbon transition, and one that doesn’t need to be decoupled from economic growth. In fact, the form DECC minister is firmly of the belief that companies moving towards a sustainable future can capture a rare “triple-win” for people, planet and prosperity.
“Aluminium can play a key role in all sectors looking to decrease emissions, but people need to be more aware. What was so compelling for me, having been active in the early days of renewables, is that, not only are we the wanting to be the largest lowest-carbon producer, but we can also offer the lowest costs. It’s an extraordinary triple-win for the consumer. There’s usually a price to pay, a premium attached to green choices, but because we’re using highly innovative production techniques, we can deliver the lowest carbon product at the lowest price.”
Barker adds that “informed consumer choices” could be the biggest short-term change that businesses will see, noting the widescale impact of the various climate strikes across the globe and in the UK. He also warned that businesses shouldn’t look for “clunky government intervention” to act as a starting gun for low-carbon strategies.
He additionally claims that the investor community has “realised the need to invest in the green agenda”, which again should act as an action signal for firms.
Of course, EN+ Group has a long way to go to actually deliver on its new targets, and the company and Barker’s role aren’t without their controversies. Barker is rumoured to be fetching more than $4m for his work with the firm – but if his namesake plan has proved anything, it is that even against a tumultuous backdrop, sustainable business makes complete economic sense.