Banking giants team up to accelerate net-zero transition for steel industry
Six leading lenders to the steel industry - ING, Citi, Goldman Sachs, Societe Generale, Standard Chartered and UniCredit - have created a new working group focusing on decarbonisation.
Called the Steel Climate-Aligned Finance Working Group, the panel will consist of senior representatives from each bank’s metals and mining teams, as well as sustainability and climate professionals. They will work together to develop a financing agreement, to be signed by all member firms and other banks and investors, that is aligned with the Paris Agreement.
In a statement, the Group said that the global steel sector is currently “lacking commercially viable alternatives” to goal. The idea of the financing agreement is to scale up investment in potential alternatives that are not yet commercially mature. Researchers believe that a combination of electrification, energy storage, alternative fuels and circular economy innovations are needed to align the sector with net-zero.
Additional finance could also support carbon capture and storage (CCS) technologies, that could capture emissions at steel plants using coal.
The Group’s pathway will be aligned with net-zero by 2050 and be globally applicable. Further information on the agreement’s emissions scopes, methodologies and governance structure will be announced at a later date. However, the Group has stated that it will be modelled after the Poseidon Principles, the first sector-specific climate-aligned finance agreement for maritime shipping. The Poseidon Principles have been in operation for almost two years and now cover nearly 40% of senior shipping debt.
Moreover, the Group has confirmed that its work will form part of the Mission Possible Platform’s Net Zero Steel Initiative. The Platform was unveiled in January, uniting 400 heavy emitters in a bid to accelerate the low-carbon transition. Bezos Earth Fund and Breakthrough Energy are supporting financially, while management duties sit with the Energy Transitions Commission, Rocky Mountain Institute, We Mean Business Coalition and World Economic Forum (WEF).
Editor's note: The Mission Possible Partnership bears no relation to edie's Mission Possible campaign. That campaign is still ongoing and you can find out more about it, here.
“The challenge for the steel sector to decarbonise is significant, with alternative technology paths unproven and not yet commercialised,” ING’s global head of metals, mining and fertilisers Arnout van Heukelem said.
“By leading this working group, we signal our commitment to help define what the energy transition means for the sector and our clients. It will also help us to define our expectations for change and define an ambitious yet realistic trajectory to meet those ambitions.”
Late last year, ING published a progress report on its efforts to align its €600bn lending book with the Paris Agreement. The Dutch bank uses a methodology called ‘Terra’ to identify the highest-emitting sectors in its portfolios and to develop specific targets for engagement and divestment.
Since introducing Terra in 2018, the bank has reduced its direct exposure to coal by 22% and pledged to reduce its financing to upstream fossil fuel operations by one-fifth by 2040. It has also increased engagement with the companies it holds in the power generation, shipping, cement, steel, residential real estate, automotive, aviation and commercial real estate sectors.
A global race
The news from the banks comes in the same week that the Energy & Climate Intelligence Unit (ECIU) published an analysis of the steel sector’s low-carbon transition across different European nations.
The paper concludes that the UK is falling behind virtually all other major players in the continent, with the EU hosting 23 hydrogen-based steel production projects and the UK hosting none. EU projects could produce more than 650,000 tonnes of green steel by 2022, the report states.
While praising the UK Government for introducing a Clean Steel Fund, the report outlines how none of the £250m will be allocated until 2023, and how this figure falls short of what is needed to align the sector with net-zero. It flags the Climate Change Committee’s (CCC) recommendation that steel sector emissions are cut by 23% between 2020 and 2030. To meet this recommendation – part of the Sixth Carbon Budget – cuts to emissions must be made now, the ECIU is urging.
“The UK has enviable resources to produce clean hydrogen from renewable energy, using this to underpin a clean steel industry will bring vast economic benefits across the country,” the ECIU’s head of analysis Dr Jonathan Marshall said.
“EU nations are clearly seeing the opportunities presented by decarbonising their steel sectors; the UK needs to recognise that this is a competitive global market, so sticking with the status quo, or worse, arguing that the sector will remain reliant on coking coal, just doesn’t cut it. “
Dr Marshall is alluding to support for a proposed deep coal mine in Cumbria, on the grounds that the coal would be used for steel production in the UK, potentially displacing imported coal.
On hydrogen, the UK's Hydrogen Strategy is due out in the coming weeks after Covid-19-related delays. It will build on the Ten Point Plan commitment to bring 5GW of low-carbon hydrogen production capacity online this decade.