Eco-efficiency pays off

01-09-2013 | Engage | Sylvia van Waveren

Ecological efficiency in the metals and cement industries is vital to a low-carbon, resource-efficient economy. It also allows companies to reduce costs. Still, not many companies are fully aware of the opportunities. Senior Environmental Engagement Specialist Sylvia van Waveren is engaging with companies to help them realize their ecological cost savings potential.

Good for the environment, good for the bottom line
There’s more to eco-efficiency than saving energy. It’s also about assessing the environmental impact of products throughout their lifecycle. It is crucial to both the metals and cement industries, as the extraction and processing of ores into metals requires toxic chemicals and a massive amount of energy, and the production of concrete is energy intensive. But this is not the only reason why eco-efficiency is important. After water, concrete is the most widely used material in the world, and although demand for metals has recently fallen, there are still concerns over their scarcity over the long run. Using metals more efficiently by recycling them, for instance, can help address this problem. So how is this relevant to investors? The answer is that eco-efficiency also has a positive impact on companies’ bottom line. Recycling and lower energy consumption reduce production costs, thereby improving a company’s profitability. Still, few metals and cement companies are capturing their ecological savings potential. This is why we launched an engagement initiative with twelve companies.

Global metal recycling is negligible
We kicked off our engagement program in the third quarter of 2011 by commissioning a study on the eco-efficiency risks and opportunities of twelve publicly listed metal and cement companies. The analysis was carried out by Oekom, a German research institute specializing in climate and energy-related performance. As metals such as aluminum, steel and copper are long-lasting, reusable and can be recycled with no loss of value or quality, the industry often portrays itself as a pioneer of sustainable management. But this turned out differently. Global recycling rates for most metals are still negligible due to the lack of recycling infrastructure and technologies. A May 2011 UNEP study found that less than one-third of some 60 metals studied have an end-of-life recycling rate above 50 % and 34 metal elements have recycling rates below 1 %. Recycling is therefore one of our engagement focus areas. We look at policies and measures taken to promote recycling of scrap metal, use secondary raw materials in the production of industrial metals, or improve the recyclability of construction materials.

Carbon, hazardous substances and emissions
Other focus areas are carbon efficiency, mining and emissions intensity. First, energy and carbon efficiency are key issues in the metals manufacturing industry as metals production is highly energy intensive. The high carbon emissions levels in the cement industry are caused by the carbon released during the chemical process of calcifying limestone into clinker. Improved eco-efficiency can be achieved by modernizing plants, investing in new technologies, heat recovery, minimizing energy losses and the use of low-carbon renewable energy sources.

“There’s more to eco-efficiency than saving energy. It’s also about assessing the environmental impact of products throughout their lifecycle.”

When evaluating the management of the mining activities in the metals sector, we look at how companies minimize environmental risks resulting from the use, impact, handling, storage and transportation of hazardous substances such as cyanide, ammonia, mercury, nickel and chlorine.
Our fourth and final focus area is emissions intensity. Emissions intensity trends such as waste generation and air emissions inform us about a company’s eco-efficiency compared with its peers. Preventive measures such as process control optimization and the application of modern technology should be in place.

Companies are making more progress than expected
Since we started the engagement, the majority of the companies have made substantial progress. We have even closed our engagement with two companies one and a half years ahead of schedule. The first, global aluminum supplier Norsk Hydro ASA has set a target of reducing its water use by 15 % by 2020 and has 30 operations across the world aimed at recycling its own aluminum and that of other companies. The other company, supplier of building materials CRH, has substantially reduced CO2 emissions in the production of cement. An important contributor was the conversion of one of its Polish cement factories to a more energy-efficient process. As a result, the company has reached its CO2 emissions reduction target three years ahead of schedule. In addition, as a result of significant investments in environmental projects, CRH has reduced toxic gas emissions by 24 %, reduced its water use by 23 % and increased the use of alternative energy sources by 6 %. Compared with its peers, CRH is one of the leaders in the use of alternative energy sources.

“Few metals and cement companies are capturing their ecological savings potential, and engagement turns out to be effective.”

We will continue our engagement with the other companies. The responses we received so far show us that metals and cement industries take eco-efficiency seriously. Given the progress already made, we expect to close most of our cases earlier than planned.

sylvia-van-waverenSylvia van Waveren
Senior Engagement Specialist RobecoSAM Governance & Active Ownership