Cement Industry Faces a Pivotal Moment on Climate
Guest Blog by Tarek Soliman, CDP
Cement is not often at the forefront of investors' minds – unless perhaps they are involved in a property project. However, it is an everyday necessity, and leading cement companies face an enormous challenge in the wake of the Paris Agreement to become compatible with the future transition to a low-carbon economy.
The stakes couldn’t be higher.
The cement industry accounts for 5% of global emissions and research released today by CDP shows that the 12 biggest cement companies – collectively boasting a market capitalization of over $120bn - risk US$4.5bn in lost earnings if a moderate carbon price (of $10) is introduced. That represents up to 114% of EBIT [earnings before interest and tax) for the worst performers
Cement producers in Europe are currently sheltered from carbon pricing due to generous emission permit allowances; however, reform of the EU ETS (emissions trading system) post-2020 is likely to change this.
The industry is in urgent need of reinventing itself, and will need to invest in Carbon Capture & Storage (CCS) infrastructure at scale and develop products with low embedded carbon if it is to be ready for a low-carbon future. Although some companies are starting to take these steps, the current pace of change is not fast enough. CDP estimates that the carbon intensity of the industry needs to be reduced by 40% from current ‘best in class’ levels which many companies are not yet attaining.
Winners and losers
The new analysis of 12 of the largest listed cement companies finds that a handful are leading the way. For example, Holcim and Lafarge (who recently merged) both scored strongly across the analysis of climate drivers which can affect company financial performance. HeidelbergCement, on the other hand, is piloting a CCS project to capture up to 250,000 tonnes of carbon emissions at one of its plants in Norway.
However, there is significant disparity in what companies have done to date. The majority of companies have not aligned their own long-term emissions reduction targets with the industry science-based pathway to decarbonise in line with a 2-degree transition.
The CDP report highlights ways that cement companies can decarbonise and protect their bottom line, including reducing their energy expenditure through thermal efficiency measures and burning more alternative fuel sources, often made up of industrial waste materials which they are paid to burn in their kilns.
Companies who are already taking such action will continue to reap the cost benefits, while those behind the curve might find themselves between a financial rock and a hard place.
The full CDP report Visible Cracks: Which cement makers are failing to address structural issues can be found at: https://www.cdp.net/Docs/investor/2016/cement-report-exec-summary-2016.pdf
Tarek Soliman is Senior Analyst, CDP Investor Research