American Steel Still Not Clean Enough Say Industry’s Top Lenders

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The banks financing the American steel industry have a message: You’re not very green, but we’re here to help.

While U.S. steelmakers have been quick to remind investors that their mills are among the cleanest in the world, including this week’s statement lauding a study that said they have the lowest emissions, their lenders say they’re not green enough and there’s still lots of work ahead.

A push to eliminate emissions in one of the world’s most polluting industries led Goldman Sachs Group, Citigroup Inc. and four other banks to come together to develop a climate-aligned finance agreement for the steel sector. The banks struck a working group led by ING Groep NV and Societe Generale SA and facilitated by RMI’s Center for Climate-Aligned Finance to craft an industry-backed agreement before November’s United Nations Climate Change Conference.

“It is a carbon intensive sector and increasingly the financial sector is acknowledging they need to support these clients in their transition,” Lucy Kessler, a manager at the Center for Climate-Aligned Finance, said in an interview.

Steelmaking accounts for 6% of global carbon dioxide emissions and 8% of energy-related emissions, according to researchers at Columbia University’s Center on Global Energy Policy. The U.S. Environmental Protection Agency says the American iron and steel industry accounts for 72.2 million tons of direct carbon dioxide equivalent emissions, which is about a third of the emissions from all U.S. flights in 2019.

Still, the U.S. had an edge. U.S. producers emit fewer carbon emissions per ton of steel produced than most countries, said a CRU International study released this week that was paid for by the Climate Leadership Council.

A major reason the U.S. industry is so competitive relative to other countries is because most of its steel is made using electric arc furnaces that remelt scrap metal and turn it into new products, while traditional mills burn an immense amount of coal to produce new metal. Columbia University says electric arc furnace production is the simplest way to decarbonize, though other more expensive technologies will be needed to cut out all emissions from the sector.

Aggressive Targets

American producers are also stepping up their emissions efforts. Last month U.S. Steel Corp announced a goal to zero out its direct emissions by 2050, making it the most aggressive target by an American steelmaker.

“U.S. Steel’s announcement is notable, but that’s one steel company and U.S. Steel’s production accounts for just 1% of total steel production worldwide,” Kessler said. “We need all the other steel companies to get there.”

The working group of banks want steelmakers across the globe to zero out emissions by 2050 to keep global warming below 1.5 degrees Celsius. This group is looking to identify a road map and figure out the methodology to assess their clients against that benchmark, Kessler said.

“You need to work with your clients to support this transition and that’s what the working group is trying to achieve here,” Kessler said. “They need investible assets beyond the Facebooks and the Apples.”

©2021 Bloomberg L.P.

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