Forging a Sustainable Future: A Look at Steel Companies' ESG Initiatives

In 2022, worldwide production of crude steel totaled 1,885.02 million metric tons (mmt), and demand for steel is anticipated to increase significantly to meet future requirements. However, the steel industry is a major contributor to global greenhouse gas (GHG) emissions due to its reliance on fossil fuels and energy-intensive production processes. Currently, the industry accounts for approximately 8% of the global final energy demand and 7% of the energy sector’s CO2 emissions. Hence, there is pressure on the industry to reduce its carbon footprint. Consequently, it has been exploring various strategies, such as using renewable energy sources, adopting more efficient production methods, and implementing carbon capture and storage technologies to mitigate the environmental impact.

In recent years, there has been increasing pressure on various industries to take environmental, social, and governance (ESG) issues seriously, and the steel industry is no exception. In recent times, major steel companies have undertaken ESG initiatives as part of their core business strategy, recognizing that it can have a positive impact on their financial performance and reputation. Some of the companies improving their ESG practices are:

• ArcelorMittal: ArcelorMittal, a global steel company, has recognized the importance of ESG issues. The company has set ambitious targets to reduce GHG emissions intensity by 30% by 2030 and achieve net-zero carbon emissions by 2050. In line with these, ArcelorMittal has invested in modern technologies like Electric Arc Furnaces (EAF), hydrogen-based steelmaking, and Carbon Capture and Storage (CCUS). At the social front, the company has established programs to support employees' physical and mental health, provide training and development opportunities, and promote diversity and inclusion, among other initiatives. It has also strengthened its governance structure, reinforcing its commitment to ethical conduct and regulatory compliance, with policies and procedures for risk management, internal controls, and compliance with industry rules.
• Nippon Steel: A leading Japanese steelmaker, Nippon Steel, has pledged to achieve carbon neutrality by 2050 and reduce CO₂ emissions by 30% by 2030. The group plans to mass produce high-grade steel in EAFs to realize hydrogen steelmaking with a multi-aspect approach, including CCUS and other carbon offset measures. Nippon Steel’s social initiatives include supporting employee’s well-being and development via training & development programs, health and safety measures, and other employee engagement programs. The company also has disaster relief efforts and environmental conservation projects. The group has implemented various governance initiatives such as strengthening corporate governance framework, enhancing transparency in business operations, and promoting compliance and ethics throughout the group.
• Tata Steel: Tata Steel, a global steel company, made ESG issues a priority in its business operations. The company has set targets to reduce carbon emissions intensity by 50% by 2030 and reach net-zero emissions by 2050. Its long-term plan includes the adoption of HIsarna technology and new smelting technologies, CCU dovetailing with existing processes, and integrating hydrogen across the steel value chain. Some of its specific social initiatives include setting up schools, providing vocational training, supporting women's self-help groups, and implementing green energy projects. Tata Steel has also undertaken various governance initiatives, including strong ethical and compliance policies, developing accountability, adopting international standards for sustainability reporting, and establishing a strict code of conduct for suppliers.
• POSCO: POSCO, a South Korean steelmaker, has pledged to reduce CO₂ by 20% in the short term (by 2030) and 50% in the mid-term (by 2040) and achieve carbon neutrality by 2050. Through innovative technologies, such as CCUS and hydrogen-based steelmaking, POSCO aims to equip itself with ‘low carbon competitiveness’. Additionally, POSCO has undertaken various social initiatives, including the establishment of the TJ Park Foundation to support social welfare and cultural activities. The company has also created the Steel Village project to improve living conditions in underdeveloped regions. POSCO has also implemented several governance initiatives, such as establishing a code of ethics and conducting regular audits to ensure compliance. They have put a whistleblower system in place to encourage transparency and accountability.
• Hyundai Steel: Hyundai Steel, a South Korea-based steel company, aims to reduce carbon emissions by 20% by 2030 and achieve carbon neutrality by 2050. The company introduced ‘Hy-Cube’, a new low-carbon steel manufacturing system to develop low carbonization of products using EAFs. Hyundai Steel has undertaken various social initiatives, including the establishment of the ‘Hyundai Steel Love Foundation’ to support education and cultural activities. It has also implemented the "Green Car School" project to promote environmental education among children. In terms of governance, Hyundai Steel has established a compliance committee to oversee amenability with laws and regulations, implementing a whistleblower system to encourage employees to report any illegal or unethical activities and conducting regular audits to ensure compliance with internal policies and external regulations.

Notes:

• Bloomberg’s ESG score has been determined on the following metrics:
  • Environmental includes Energy Management, GHG Emissions Management, Air Quality, Water Management, Waste Management, Climate Exposure, and Environmental Supply Chain Management
  • Social includes Occupational Health & Safety Management and Social Supply Chain Management
  • Governance includes Board Composition, Executive Compensation & Shareholder Rights. The above ESG ratings are measured on a scale of 1–10
• MSCI ESG Ratings aim to measure a company’s management of financially relevant ESG risks. Ratings range from leader (AAA, AA), average (A, BBB, BB) to laggard (B, CCC)
• S&P Global ESG Scores (‘ESG Scores’) measure companies’ exposure to and performance on key ESG risks and opportunities, the quality and completeness of their public disclosures, and their awareness of emerging but underreported ESG issues. ESG Scores are measured on a scale of 0–100, where 100 represents the maximum score
• Total GHG emissions/Revenue are measured in metric tonnes of CO₂ (Scope 1+2+3) equivalent/to US$M of revenue
• Arcelor Mittal includes 60% AM/NS India; Nippon Steel includes Nippon Steel Stainless Steel Corporation, Sanyo Special Steel, Ovako, 40% AM/NS India and 31.4% USIMINAS; 

While several steel companies have taken initiatives in recent years, their number is limited. Although their efforts are commendable, they need to be scaled up and adopted more widely across the industry. Reduction of GHG, handling social issues, and filling governance gaps require a collective effort from all stakeholders, including management, policymakers, and investors. As such, it is crucial that other steel companies prioritize ESG initiatives and take action to mitigate their environmental impact and improve social and governance practices. Only through concerted action can the industry achieve sustainable growth and ensure a better future. Yet, some companies continue to prioritize profits over sustainability and engage in practices that harm the environment and local communities. As consumers and investors become more aware of ESG issues, steel companies will be compelled to improve their practices in these areas.

Way forward:

The steel industry has historically been associated with significant environmental impact. However, in recent years, many companies in this sector have been taking steps to improve their ESG performance. Several steel companies are implementing sustainable practices in their operations, such as reducing carbon emissions and water usage, and increasing the use of recycled materials, renewable energy sources, and optimizing resource utilization.

Additionally, some companies are developing new products and solutions that are more sustainable, such as lightweight steel that can reduce fuel consumption in automobiles, and using steel for renewable energy infrastructure like wind turbines.

To increase transparency and accountability, many steel companies are publishing ESG reports and engaging with stakeholders, including investors, customers, and local communities. By reporting ESG data with standardized reporting frameworks, they have enabled comparison and benchmarking across the industry.

Finally, companies can implement green practices throughout their supply chain, from sourcing raw materials to recycling products at the end of their lifecycle. By undertaking these steps, the steel industry can become more environmentally conscious and socially responsible while creating long-term value for all stakeholders and contributing to a more sustainable future.