| An industrial worker welds steel, a material that has traditionally been carbon-intensive to manufacture. The decarbonization of power generation, mining and the oil and gas sector is a crucial early step in broader efforts to reduce global greenhouse gas emissions. |
Because the global economy depends heavily on electricity and many sectors create products from materials extracted from the earth, reducing greenhouse gas emissions from the power and extractive industries is crucial to reaching the broader global goal of decarbonizing the world economy.
Several large companies in the power and extractive sectors continued to release new net-zero goals in the past few months, research by S&P Global Market Intelligence shows.
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Market Intelligence found that 23 of the 30 biggest utilities in the U.S., nine of the 10 largest utilities in Europe, 19 of the 30 biggest metals and mining companies in the world, and 15 of the 30 largest oil and gas companies in Europe and North America have set targets to reach net-zero emissions by the middle of the century. Two of those U.S. utilities describe their targets as aspirational.
This is the first of a four-part series examining how the largest 30 companies in each of three sectors — oil and gas, utilities, and metals and mining — are establishing global goals to achieve net-zero greenhouse gas emissions by 2050 or earlier. Each of the three sectors analyzed includes new company net-zero pledges since the last assessment in December 2020.
Rhetoric vs. real life
The International Energy Agency, or IEA, recently released a pathway to reaching net-zero emissions by 2050 with the goal of limiting global temperature rise to 1.5 degrees C. The plan sets out several milestones, including no new fossil fuel supply projects, no new internal combustion engine passenger cars by 2035 and net-zero emissions in the global electricity sector by 2040.
While the growing number of countries and companies pledging to hit net-zero emissions is encouraging, it may not be enough, IEA Executive Director Fatih Birol said during an event announcing the roadmap.
"Our numbers, unfortunately, show ... this year, global emissions will increase substantially, which is the second-largest increase in history," Birol said May 18. "There is a growing gap between the rhetoric we hear from governments and industry leaders and what is happening in real life. We hear a lot of commitments, a lot of pledges, but the numbers are going up."
Many of the top metals and mining companies by market capitalization are working to decrease their environmental impact while also pivoting to a focus on minerals used in the clean energy transition and moving away from activities such as coal mining.
Nevertheless, a 2020 report from the Responsible Mining Foundation revealed that 63% of assessed large-scale mining companies had not identified and reported on how climate change can worsen their impacts on communities, workers and the environment. Pierre de Pasquale, head of stakeholder engagement, said most companies could not provide evidence they are responsibly addressing or identifying climate change-related issues like water, tailings management, biodiversity, forests and health.
"In comparison with the increasing number of companies who do measure and report their greenhouse gas emissions, it sheds a harsh light on the trade-off that is being made between the demands of investors and creditors — that are increasingly concerned about the financial and reputational risk to companies — and the salient risks to peoples and the environment," Pasquale said in an interview. "There is a real risk of 'greenwashing' or 'carbon-washing' from companies that put a majority of their efforts into going carbon-neutral while leaving other urgent ESG impacts unattended."
The Climate Group is leading work on boosting energy productivity among heavy industry sectors, including producers of steel, aluminum, cement and chemicals. The Climate Group includes a network of over 300 multinational businesses in 140 markets worldwide.
The iron and steel sector is currently responsible for about 8% of global final energy demand and 7% of energy sector carbon dioxide emissions, according to an October 2020 report from the IEA. The Climate Group's SteelZero initiative is working to speed up a transition to a net-zero steel industry by organizing entities to publicly commit to procuring 100% net-zero steel by 2050.
"The demand we're working on is coming from the end-user, but that's really going to activate all the links of the supply chain to decarbonize," said Jenny Chu, the head of energy productivity initiatives at The Climate Group. "So that means the electricity that they're using from the grid needs to come from renewables, for instance."
Europe leads
Early and rapid decarbonization of the utility sector is a linchpin for cleaning up other parts of the economy. But many utility executives still argue that policy and technology advancements need to happen first.
Though some U.S. power generators increased their public climate ambitions in recent months, only two of the largest 30 by market cap said they were on track to reach the Biden administration's goal of net-zero greenhouse gas emissions from the power sector by 2035. Many European utilities are further ahead in their climate goals. Half of the top 10 European power and gas utilities included in the latest Market Intelligence survey plan to decarbonize by 2050, and four others plan to reach that even sooner.
Market Intelligence's review of climate commitments found European oil and gas majors, such as Royal Dutch Shell PLC and BP PLC, continue to be more likely to have a net-zero pledge than their U.S. counterparts.
Worldwide, there is increasingly less resistance to decarbonizing compared to several years ago and momentum is picking up to decarbonize sectors such as heavy industry. For example, early in 2021, a coalition of major companies in the manufacturing and transportation industry backed by billionaires Jeff Bezos' Bezos Earth Fund and Bill Gates' Breakthrough Energy organization, and Bloomberg Philanthropies rolled out the Mission Possible Partnership in an effort to rein in carbon emissions from various sectors including aviation, chemicals, steel and aluminum.
However, deeper decarbonization will likely require rolling out policies to encourage research and development of technologies and to incentivize industries to lower emissions. Meanwhile, the financial sector is increasingly pressuring the industry to decarbonize. Andrew Swart, the global mining and metals leader at multinational consulting firm Deloitte, said that mining companies that fail to decarbonize will likely find it difficult to attract capital from investors who are increasingly concerned about climate issues.
In 2020, BlackRock Inc., the world's largest asset manager, announced it would exit the public debt and equity securities investments in companies that depend on thermal coal for more than 25% of their revenues within its active investment portfolios. Larry Fink, chairman and CEO of BlackRock, wrote in a 2021 letter to CEOs that climate risk is sparking a "fundamental reallocation of capital," and it is occurring even faster than expected only a year ago.
"I believe that this is the beginning of a long but rapidly accelerating transition — one that will unfold over many years and reshape asset prices of every type. We know that climate risk is investment risk," Fink wrote. "But we also believe the climate transition presents a historic investment opportunity."