As an asset manager focusing on Sustainability Investing, RobecoSAM plays an important role in encouraging the development of a low-carbon, resource-efficient economy. Eco-efficiency in the metals and cement industry is of vital importance in this respect and helps companies save costs. In her engagement with 11 companies on this topic, Engagement Specialist Sylvia van Waveren witnessed significant progress.
Strong business case for eco-efficiency
The extraction and processing of ores into metals accounts for approximately 7% of global energy consumption and the related emissions contribute significantly to climate change. The process requires massive amounts of energy, uses toxic chemicals and generates various emissions and hazardous processing wastes. In the cement industry, concrete is the second most used substance in the world after water. Carbon released during the chemical process of calcinating limestone into clinker is responsible for the high levels of carbon emissions in the cement industry. There is a strong business case for eco-efficiency, making this topic relevant for investors. Lower energy costs push down production costs, thus increasing competitiveness and profitability. For instance, the use of secondary raw materials (metal scrap) reduces expenditures required to extract, transport and refine ores. From a financial and reputational risk perspective, the topic is relevant for investors because environmental agencies may issue fines and file class-action lawsuits against polluting companies. Therefore it is important for investors to have a comprehensive overview of eco-efficiency related risks and opportunities for metals and cement producers.
Engagement with 11 companies
In the third quarter of 2011, Robeco commissioned a study into this topic. The research was carried out by Oekom, a German research house specializing in research into climate and energy-related performance. The study produced a comprehensive overview of eco-efficiency related risks and opportunities for eleven publicly listed metal and cement producing companies, including Arcelor Mittal, HeidelbergCement AG and Norsk Hydro. In our subsequent engagement with these companies we focused on four objectives: energy and carbon efficiency, recycling, mining, and emissions intensity.
Four ways to monitor progress
The first objective – improvement in energy and carbon efficiency – can be achieved by modernizing plants, investing in new technologies, heat recovery, minimizing of energy losses and the use of low-carbon renewable energy sources. Second, we looked at recycling because primary raw materials used in the production of metals are becoming increasingly scarce and harder to access. For this objective we looked at measures that promote recycling of scrap metal, use secondary raw materials in the production of industrial metals, or improve the recyclability of construction materials. In the cement industry for instance, industrial waste products can be mixed with clinker to improve the energy and carbon efficiency of the production process. Third, in the management of mining activities we looked at how companies minimize environmental risks resulting from the use of hazardous substances such as cyanide, ammonia, mercury, nickel and chlorine. Fourth, we focused on emissions intensity trends such as waste generation, water use intensity and air emissions. Preventive measures, such as process control optimization and the application of modern technology, should also be in place.
Progress is promising
At the end of our three-year engagement, we see a favorable development in energy and carbon efficiency, as well as emissions intensity. There are strong economic and reputational incentives to improve in these two areas. Industry leaders have been able to improve their competitive advantage by lowering costs and improving their reputation. We expect more companies to take advantage of this opportunity. We closed a large proportion of the engagements on energy and carbon efficiency successfully. Companies such as Anglo American and Norsk Hydro are a benchmark for best practice, due to their outstanding reporting and progress in emissions management. Anglo American has set ambitious targets to become a leader in the sector, while Norsk Hydro has already made impressive achievements such as sourcing two thirds of its energy from renewable sources.
Although the same opportunities exist for recycling, we have not seen the same level of progress in this field. An important stumbling block is the fragmented distribution system: It is difficult to funnel metal scrap from various locations towards one factory. Cement is typically used in long-term projects, with a long lifecycle, making it difficult to develop a streamlined recycling system. Similar to recycling, we do not see much progress in mining. There are differences between industries. Gold mining uses cyanide to separate the gold particles from the ore. Disposing of this hazardous material is costly and gold producers have been reluctant to invest in this activity, as it does not offer any monetary benefit. Still, Gold Fields has been working on an assessment with KMPG regarding the safe treatment and transportation of cyanide, which is beyond the legal requirements for companies in this sector. This is a promising initiative.
Overall, we are pleased to have successfully closed 88% of our engagement objectives on this topic. This is a positive signal from the market about the future role of sustainability in the metals and mining industry.
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