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This document updates AIMCo’s 2015 Strategic Response to Climate Change and outlines AIMCo’s overall approach to integrating climate- related risks and opportunities into our investment research, decision-making, stewardship and advocacy processes, in alignment with AIMCo’s 2020-2022 Strategic Priorities and the Financial Stability Board’s Task Force on Climate-related Financial Disclosure (TCFD) recommendations. Approved April 30th, 2020.
REPORTING STEWARDSHIP & ADVOCACY INTEGRATION.
MEASUREMENT &
ASSESSMENT
STRATEGIC RESPONSE TO CLIMATE CHANGE | APRIL 2020 2.
Measurement and Assessment.
Our processes for identifying climate-related risks and opportunities across asset classes continues to evolve. Measuring key environmental metrics helps us advance our understanding, management and reporting of climate-related financial risks and opportunities in our portfolios, in alignment with the Task Force on Climate-related Financial Disclosures (TCFD) recommendations. AIMCo continues to expand the scope of our climate assessment. Our objective is to include as much of the total portfolio as possible in our analysis. We track portfolio emissions over time, relative to appropriate financial and sustainable development benchmarks, and we identify top contributors to the portfolio’s emissions profile. We may track other key environmental metrics to capture the portfolio’s sustainability performance. For example, AIMCo’s Real Estate Group tracks water usage/efficiency, GHGs, energy consumption, waste diversion and green certifications across domestic assets.
Although the corporate reporting landscape is improving for large public issuers, carbon accounting is still an inexact science, as it relies largely on unverified or proxied data to calculate trends. As data quality improves, so too will the climate risk analysis- it is an iterative process.
Integration.
Consistent with our goal of creating long-term, sustainable value for our clients, AIMCo is committed to aligning our ESG integration strategies across asset classes and throughout the investment process. AIMCo’s Board of Directors approves and has oversight over the Responsible Investment Policy which features climate change. The Responsible Investment Committee approves the Responsible Investment Strategy and climate change is a key ESG focus area. The AIMCo Board of Directors and Responsible Investment Committee are kept appraised of key climate trends, emerging best practices and related investment applications. The day-to-day execution of the Responsible Investment Strategy is managed by AIMCo’s Responsible Investment department, which has multiple touchpoints across the organization.
AIMCo’s investment landscape is evidence of the ongoing transition to the low carbon economy, considering the growth of our investments in alternative energy within public equities or infrastructure, the percentage of our Canadian real estate assets that are LEED® or BOMA BEST® certified or the growth of our investments in timberlands. We also see a trend of investment in debt instruments funding sustainability projects, such as municipal bonds or transition bonds. Both physical and transition risk viewpoints present implications for investment opportunities with respect to asset allocation strategies and potential diversification benefits.
Stewardship & Advocacy.
As an active investor, AIMCo prefers a strategy of ‘voice over exit’ and engages with companies regarding how they manage and disclose climate-related risks. Resilient companies of the future, including those in high emitting sectors, will be those that are can adapt to various aspects of the transition to the low carbon economy. We believe that companies exhibiting better disclosure of their climate change mitigation strategies, emissions performance and related material environmental metrics are likely to evidence better risk-adjusted performance over the long run.
STRATEGIC RESPONSE TO CLIMATE CHANGE | APRIL 2020 3.
We continue to support and contribute to efforts to provide practical, concrete recommendations to inform the field of sustainable finance in Canada and globally. AIMCo plays an active role in collaborative research and we contribute to various climate-related investor initiatives. As a United Nations’ Principles for Responsible Investment (UNPRI) signatory and leader in responsible investment, we support the UN Sustainable Development Goals. We have publicly endorsed the G7 and G-20 investor statements calling for policy action on climate change, contributed to the TCFD consultations and issued our first TCFD report in 2019. AIMCo is a co-founder of GRESB Infrastructure, a sustainability benchmarking tool for infrastructure assets and funds, which includes climate-related data in its survey assessment.
We contribute to the development of global ESG standards by being an active member of key collaborative initiatives such as the G7 Investor Leadership Network Climate Change Action Committee and the Canadian Standards initiative to develop a made-in-Canada sustainability taxonomy.
Reporting and Communications.
AIMCo is a supporter of the TCFD which encourages companies and investors to voluntarily disclose consistent, relevant, decision-useful climate-related financial disclosure, including with respect to a firms’ climate governance, strategy, risk/scenarios and metrics and targets. We formed an internal TCFD working group comprised of investment professionals from risk, valuations, public equities, economics and fund strategy and responsible investment to address the TCFD recommendations. The working group explores both climate risk and opportunity-whether we are adequately invested in enabling solutions or ‘levers’ to, for example, reduce energy demand, promote eco-efficiencies or otherwise mitigate emissions. The outputs of our internal analyses serve to inform our internal house viewpoint and external reporting. Our CFO Office conducts internal verification of AIMCo’s TCFD reporting.
As you can see, AIMCo is striving to do our part to evaluate and appropriately consider climate risks and opportunities. In doing so, our goal is to protect and enhance investment returns for our clients and beneficiaries— all Albertans.
Climate Action Report 1 May 2019 “ Our ambition is to significantly reduce our carbon footprint.”
“ Central to a successful transition will be supportive policy to ensure a global level playing field, access to renewable energy at affordable prices and access to finance.”
ARCELORMITTAL CLIMATE ACTION REPORT 1 CONTENTS PREVIOUS BACK FORWARD
Contents.
SECTION 1 INTRODUCTION 02.
SECTION 2 CLIMATE ACTION REPORT 04.
SECTION 3 ANNEXES 41 04 Chapter 1: Our climate action at a glance 06 Chapter 2: The future of materials: growing, circular, sustainable 10 Chapter 3: The carbon challenge for steel 14 Chapter 4: Low-emissions technology pathways and policy scenarios 20 Chapter 5: ArcelorMittal strategy towards low-emissions steelmaking 30 Chapter 6: Policy recommendations 32 Chapter 7: Carbon performance and targets 36 Chapter 8: Governance and risk 40 Chapter 9: Alignment with TCFD recommendations 02 Introduction from our.
Chairman and CEO 41 Annex 1: The steelmaking process 44 Annex 2: Glossary.
About this report.
This report outlines the analysis behind ArcelorMittal’s strategy on climate action, summarised in its Integrated Annual Review 2018. As such it is the company’s first comprehensive response to the recommendations of the TCFD for climate disclosures. It reflects the views of the ArcelorMittal group in May 2019. Data on ArcelorMittal’s carbon emissions are for financial years up to and including 2018. All financial values given in dollars are US dollars, and those given in Euros are where funding has been received in that currency.
Our reporting.
Our portfolio of corporate reports aims to engage stakeholders on material aspects of our financial and non-financial performance. In addition to our statutory requirements, we publish an Integrated Annual Review and a Fact Book containing in-depth data on our business. Our Basis of Reporting explains the methodology behind our metrics, and our Reporting Index references a range of different frameworks we use in preparing our reports. These reports can be downloaded from annualreview2018.arcelormittal.com.
Reporting Index Basis of Reporting Integrated Annual Review.
Fact Book Annual Report 20F 1 ARCELORMITTAL CLIMATE ACTION REPORT 1 CONTENTS PREVIOUS BACK FORWARD
Introduction from our Chairman and CEO.
Welcome to ArcelorMittal’s first Climate Action report. We are publishing this because we understand the enormity of the climate challenge for society and the responsibility of ArcelorMittal as an emitter of CO2 to reduce our carbon footprint. We also acknowledge the interest of our stakeholders in understanding how we plan to do so and the requirement for additional disclosure in line with TCFD.
In December 2015, world leaders adopted the Paris Agreement, which aims to keep the global average temperature increase to well below 2ºC and pursue efforts to hold the increase to 1.5ºC. Clearly, success will require unprecedented levels of coordination on a global level. There are no borders in the sky, so every region and country will need to make a meaningful contribution.
The industrialisation of the world has been powered by fossil fuels. In the steel industry this has involved using coal-based products, such as coke, to reduce iron ore in the blast furnace. While steel may have a lower carbon intensity than many other materials, the large volumes of steel produced globally mean that the industry emits over three gigatons of CO2 annually.
Dear stakeholders,
Now that the unintended consequences of using fossil fuels have become clear, the world needs to find a new way of doing things that enables further economic and social development while minimising environmental damage. Steel is prevalent in our society because it has a combination of properties that make it ideal for building much of the infrastructure we need. As the world continues to develop, with an increasing population aspiring to achieve improved living standards, demand for steel and materials generally is only expected to further increase. Indeed, our forecast indicates demand rising from 1.7 billion tonnes in 2018 to 2.6 billion tonnes in 2050.
This means we need to significantly reduce the carbon footprint of steel, which requires finding new ways to make steel in a less emissions-intensive process. Scrap, unfortunately, is not a sufficient answer as there is not enough scrap available in the world to simply make all steel through the electric arc furnace process.
Our work on low-emissions technologies underpins our ambition to significantly reduce our carbon footprint by 2050 in line with our commitment to the Paris Agreement.
2 ARCELORMITTAL CLIMATE ACTION REPORT 1 CONTENTS PREVIOUS BACK FORWARD
So, we need to develop breakthrough low-emissions steelmaking technologies. We are working on the technologies for several potential pathways including circular carbon and clean power, and these underpin our ambition to significantly reduce our carbon footprint by 2050. We are in the process of running pilots of these different technologies at various plants in Europe, where regulation today is most advanced, and where we have an ambition to reach carbon neutrality by 2050. This work will enable us next year to publish a more specific 2030 reduction target.
The suite of technologies we are developing gives us confidence that we are well positioned to align with the science-based trajectory for our sector. But we cannot solve the problem by ourselves. Central to a successful transition will be supportive policy to ensure a global level playing field, access to renewable energy at affordable prices and access to finance. The dynamics of the global steel industry need to be fully understood, and support provided at levels similar to those which have enabled the growth of renewables in the energy sector.
This report does not have all the answers because we do not yet have all the answers. But as the world’s leading steel company, we are committed to the objectives of the Paris Agreement and I want to reassure our stakeholders that we will do our best to contribute effectively to a low-carbon world and, in doing so, help them manage their own risks and ambitions.
Lakshmi N. Mittal, Chairman and Chief Executive.
May 2019 3 ARCELORMITTAL CLIMATE ACTION REPORT 1 CONTENTS PREVIOUS BACK FORWARD
1 Our climate action at a glance.
Circular carbon technologies.
In 2018, we launched a €40 million Torero demonstration project at Ghent, Belgium, to convert 120,000 tonnes of waste wood into biocoal for use in iron ore reduction in place of fossil fuels. The technology has the potential to work with a variety of society’s waste streams. We’ve also been running an industrial pilot of IGAR technology in Dunkirk, France since 2017 to reform waste carbon gases so they too can be reused for iron ore reduction. Both technologies will reduce the amount of coal and coke needed in the blast furnace and lower associated CO2 emissions.
At our steelworks in Ghent, Belgium, we are building a €120 million industrial-scale demonstration plant for technologies developed with LanzaTech1 to both capture carbon offgases and convert them into the Carbalyst® range of products. Capable of producing 80 million litres of ethanol per year, this project alone has the potential to annually reduce CO2 equivalent to 600 transatlantic flights.2.
See chapter 5 2050 Carbon ambition Our ambition is to significantly reduce our CO2 emissions by 2050 and, in Europe, to achieve carbon neutrality by this date, in line with the objectives of the Paris Agreement and the science-based trajectory for our sector. Supportive policies will be central to achieving this ambition. We are building a strategic roadmap based on potential improvements and our suite of breakthrough technologies, and in 2020 we will set a 2030 reduction target.
ArcelorMittal’s readiness to advance the low-carbon economy can be seen throughout its operations, from the breakthrough technologies it is demonstrating to the solutions it offers its customers.
Clean power technologies.
ArcelorMittal is exploring iron ore reduction technologies using hydrogen and electrolysis, both of which could deliver significant carbon reductions if powered with clean electricity. In March 2019, we launched a €65 million pilot project in Hamburg, Germany to test hydrogen steelmaking on an industrial scale, with an annual production of 100,000 tonnes of steel. At the same time, we have been exploring direct iron ore reduction using electrolysis for a number of years. We lead the EU-funded Siderwin project, which is now constructing an industrial cell to pilot the technology.
See chapter 5 1 This project is also known as Steelanol. 2 https://corporate.arcelormittal.com/news-and-media/our-stories/capturing-and-utilising-waste-carbon-from-steelmaking 4 ARCELORMITTAL CLIMATE ACTION REPORT 1 CONTENTS PREVIOUS BACK FORWARD
S-in motion®
S-in motion® is a set of advanced high-strength steels launched by ArcelorMittal in 2010. Since then, S-in motion® steels have been providing the lightness and strength carmakers need to make mobility solutions ever more sustainable. It enables a reduction in vehicle lifecycle emissions of 14.5%,3 while at the same time ensuring the safety of vehicle users at an affordable cost.
Green border adjustment.
ArcelorMittal has been publicly calling for a green border adjustment since early 2017. We believe it is an essential policy that needs to be applied wherever carbon policy exists to ensure that steelmakers bearing the structurally higher costs of low-emissions technologies can compete on a level playing field with imports from higher-emissions steelmakers. This forms a central part of our policy scenario analysis.
See chapter 6.
Comprehensive climate-related disclosure.
We have been making annual climate change disclosures to CDP since 2010, and in 2018 our disclosure was rated B. We report comprehensively on the methodology and scope of our CO2 emissions, and ensure that we measure the carbon intensity of our steel in a way that includes all the processes involved in steelmaking rather than simply those we own and operate. In 2018, we became a supporter of the Task Force on Climate-related Financial Disclosures’ (TCFD) recommendations. This Climate Action Report represents our first comprehensive response to these recommendations.
See chapter 7.
Steligence®
In 2018, ArcelorMittal launched the Steligence® concept to facilitate the next generation of high-performance buildings and construction techniques for our customers. Built into the holistic Steligence® approach is a broad range of thinner, lighter, high-performance steel solutions. Demonstrating the potential to reduce the embedded carbon footprint of a building by 38%, the Steligence® approach can also enhance its flexibility and economics. Considering the share of global emissions from the built environment, the impact of Steligence® could be particularly significant.
$728m.
Energy efficiency.
Each year we spend large amounts of capex to modernise our plants with the latest technology. $728 million has been allocated in the past three years alone.
3 https://corporate.arcelormittal.com/news-and-media/our-stories/cutting-carbon-ensuring-safety-serving-customers-s-in-motion 5 ARCELORMITTAL CLIMATE ACTION REPORT 1 CONTENTS PREVIOUS BACK FORWARD
2 The future of materials: growing, circular, sustainable.
Our world, and our lifestyles, have been built around the use of a variety of materials. All industries making these materials face the same issue: meeting the global demands of a growing population while significantly reducing their climate impact.
The world’s materials challenge.
Materials are an integral part of modern society, human development and well-being. Global consumption of materials has grown significantly over the past 30 years (see box 1), and has been instrumental in the economic development which has lifted over one billion people out of poverty. Today, the production of the main material groups globally account for over 19% of global CO2 emissions.4 The majority of these emissions come from using mostly fossil fuel-based energy to transform primary raw material sources into the materials we use (iron ore for steel, bauxite for aluminium, oil for plastics, etc.). Producing materials from secondary sources (i.e. recycling materials at their end of life) represents a small proportion of material production today, mainly because the strong growth of demand for materials outstrips the stock available for recycling, but also due to the fact that most materials – steel being an exception – cannot be fully recycled (see box 1).
Materials demand is forecast to continue growing for several decades as emerging economies pursue the infrastructure needed to achieve the United Nations’ Sustainable Development Goals, and as the world transitions to low-emissions sources of energy. In this context, primary sources will continue to be essential to meet the world’s material needs. Therefore, the challenge for materials producers is to lower the carbon footprint of materials production whilst meeting continuing demand growth. Contributions will come from improvements in energy efficiencies and production yields, and the move from today’s prevalent linear use-and-dispose model towards a circular reduce-reuse-recycle model. What will be critical, however, is to develop and deliver low-emissions technologies for materials production.
In the long term, the world will transition towards a stable demand for materials in a fully circular economy, where efficiently designed products are reused repeatedly, and ultimately recycled into new products. This means for each application, manufacturers and designers will increasingly choose materials based not only on their physical characteristics such as weight, strength and flexibility, but also for their ease of reuse, recovery and recyclability. This will be enabled by policies aimed at restricting landfill and incineration. Effective recovery and recycling of materials from different waste streams at their end of life will be vital to the transition to a circular economy. In addition, segregation of materials to avoid degradation and loss of recycling capability will be important.
4 ArcelorMittal estimates of main material groups’ CO2 emissions as percentage of World Bank reported global CO2 emissions; material groups included: cement, steel, aluminium, other metals, plastics and fibres, glass, bricks, and cardboard and paper.