Introducing Industry Tracker: the love child of Carbon Tracker and CDP that will take on hard-to-abate sectors
Starting with steel, the new think-tank will analyse the Net Zero potential of heavy emitting sectors beyond energy
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There is plenty of infighting in the ESG world nowadays, but last week saw a rare moment of near universal fist-pumping when the International Energy Agency (IEA) released its first Net Zero scenario - concluding that all investments in new fossil fuel projects must stop immediately if the world is to limit global warming to 1.5°C.
Headlines and social media posts all over the globe hailed the report as a game changer. It gives investors an internationally-recognised, widely (although not unanimously)-endorsed framework with which to engage portfolio companies on their transitions to Net Zero. And it’s not just fossil fuels.
“That IEA report has set some very clear timelines for when all heavy-emitting industries need to have stopped investing in existing technologies and moved over to new ones,” points out Carole Ferguson.
From today, Ferguson will take the helm of a new think-tank called Industry Tracker, but she is currently better known for having spent the past four years overseeing the Investor Research Programme at fellow non-profit CDP. In that role, she led a team of four that produced analysis on how sectors perform on environmental issues.
Now, she and her team have been spun off into Industry Tracker, although - as the name suggests - it’s Carbon Tracker behind the entity, not CDP. The two think-tanks, along with nature-focused counterpart Planet Tracker, all sit under an umbrella group called Investor Watch, founded by Mark Campanale.
It’s an unusual move, but one that CDP’s CEO, Paul Simpson, describes as consensual. CDP created the Investor Research Programme in 2015, but, Simpson says, “we knew about 18 months ago that it needed to evolve, and the funding model needed to change”.
After discussions with funders and Campanale, it was agreed that Carbon Tracker - or a spin-off - would be “the natural fit” for such in-depth, sector-based analysis.
“We should celebrate it when non-profits do this,” says Simpson. “We should be working together to find the right places for things, in order to achieve the overall goal.”
As a result of the change, CDP will focus on macroeconomic analysis (although it will still do some sector-specific work) as well as broadening its coverage to new environmental themes like biodiversity. It will also double down on its disclosure work - a topic of increasingly intense global debate.
Meanwhile, under their new guise, Ferguson and her team will be focusing on those heavy-emitting industries that were given deadlines in the IEA report. Industries like cement, steel, chemicals and aviation.
“These sectors are crucial to the real economy,” she says. “They’re so intertwined with the way we live, but they’re also sectors with the highest direct emissions.”
The tendency to label them as ‘hard to abate sectors’, she reflects, “has given them a bit of a free pass, because it makes them seem simply too difficult to decarbonise”.
There is no doubt that it will be difficult, though. Both Ferguson and the IEA report point out that most of the technologies needed for these businesses to make the shift to Net Zero don’t exist in a viable form yet - they are still under development.
This is a key difference between the mission of Carbon Tracker and that of its new sibling: Carbon Tracker’s influential reports regularly conclude that investors should minimise their exposure to fossil fuel companies, whereas Industry Tracker wants investors to keep allocating to dirty businesses to help them reach Net Zero.
“That’s because there are already alternatives to burning fossil fuels,” explains Campanale, referring to renewables and electric vehicles. “I’ve just finished reading about some electric trucks in the US that are cheaper than gasoline ones, so that’s perfectly viable. But some of the sectors Industry Tracker is looking at are core parts of the economy, and don’t have viable alternatives; so the challenge is how to develop some, or how to decarbonise existing processes.”
He points to the $1.8bn that supercar giant Lamborghini has just pledged to developing electric vehicles - the biggest investment in the company’s history.
“What that really is is the redesign of your entire production line. And, at every company in these sectors, investors need to know how much that’s going to cost and - once you’ve done it - whether you’ll make any money out of it. So that’s what we want to look at.”
Industry Tracker’s first project will focus on steel, looking at the potential for Europe’s businesses to transition to Net Zero using already-available technologies.
“The big challenge is the asset-level analysis,” says Ferguson. “We are trying to identify all the plants that these companies have, and work out when they invested in them. Some were built decades ago, and companies have been investing in updates ever since, so they virtually become new plants at some stage.
“We’re trying to identify exactly when that happened so we can understand how ‘locked in’ they might be. In other words, what it takes to shift to new technologies, and what that means for capital expenditure and the company balance sheet.”
Ferguson, like everyone else in the climate space, is aware of the number of Net Zero commitments being made in the run-up to COP26, the global climate summit scheduled for November, and on the back of pressure from shareholders. In March, research suggested that more than 20% of the world’s biggest listed firms had promised to become Net Zero by 2050 or earlier, and many more pledges have been announced since.
“There’s been a lot of focus on target setting, but the reality is that there’s this big gap when it comes to the action plan for achieving these targets,” she says. “Hopefully that’s what we will address, and we want investors to take a really active interest in that and support us.”