Five in 5: Metals industry decarbonization partnerships

1. Why are we seeing so many metals companies taking action to decarbonize their organizations?

Kelsey Carvell: It seems like every day, a new metals company is coming out with a net-neutrality goal: In fact, according to the Deloitte 2023 CxO Sustainability Report, many chief experience officers (CxOs) rated climate change as a “top three issue,” ahead of seven others, including innovation, competition for talent, and supply chain challenges (economic outlook ranked only slightly higher!).¹ We are seeing this drive toward decarbonization for several reasons, most of which are rooted in stakeholder influences—from customers to employers, and everyone in between. In most instances, the initial customer of metals companies is not the end user but rather a manufacturer for things such as automobiles, infrastructure, or beverages. Yet, these metals customers, just like their end users (for example, us), are demanding carbon emission reductions. We’re seeing that these companies are using various levers to encourage suppliers to reduce emissions: demanding reductions through mandating Science Based Target initiative (SBTi) target goals (that is, “compel”), providing training resources to help with the reduction (that is, “coach”), or working with their suppliers to find innovative ways to reduce emissions (that is, “collaborate”).

Brad Johnson: Companies aren’t just facing pressure from their customers to set sustainability targets; they’re also being steered in this direction by government regulations and legislation specific to climate change. In fact, from the same Deloitte 2023 CxO Sustainability Report mentioned previously, 65% of CxOs said the changing regulatory environment has led their organization to increase climate action over the past year.² This is in part driven by the SEC’s proposed climate-related disclosures, which would require companies to provide an accounting of their greenhouse gas (GHG) emissions, the environmental risks they face, and the measures they’re taking in response.³ Another pressure is costs—both rising fossil fuel prices and the cost of inaction (which can be measured through an internal carbon price)—which can influence the decisions executives make.

2. Decarbonization is hard—are companies able to do this on their own?

Kelsey Carvell: Decarbonization is not an easy feat. It involves decisions that need signoff across the organization and often entails solutions requiring changes in how employees operate. Moreover, solutions do not yet exist for all unsolved challenges; innovation is needed, which means time, resources, and money. However, despite these challenges, we are seeing companies across the metals sector value chain partner to find decarbonization solutions for specific companies and the sector at large. This comes in a variety of forms. For instance, we are seeing partnerships in the metals industry: Suppliers and manufacturers partnering together to test out new processes for decarbonization (for example, inert anodes) or partners working together to design for recyclability so that end-of-life products can be used in new products (eliminating the use of carbon-intensive primary production). We are also seeing financial levers: short-term pooling of resources or agreements to split the costs of development among suppliers and manufacturers to advance technologies or products that reduce emissions; or offtake agreements to de-risk suppliers’ investments in technologies or products or price premiums.

Brad Johnson: In addition to the funding and partnerships metals companies are leveraging to help accelerate and scale decarbonization efforts, there are other ways metals companies are being supported to achieve goals. Consortiums and coalitions have been formed to produce materials, playbooks, and best practices for companies to apply these learnings across their company. International groups, such as the International Aluminum Institute (IAI), are launching coalitions to attract both downstream and upstream companies across various industries to work toward net-zero emissions.⁴

3. What are some best practices for implementing these types of metals decarbonization partnerships?

Kelsey Carvell: There are a few best practices that come to mind. First, it’s important to make sure everyone has a clear role (for example, providing technical support, funding, pilot locations, or the “voice” of the customer) and everyone feels like they have a stake in the game, whether that be from financial or resource contribution. Identifying clear roles and responsibilities from the onset will help ensure that there are just enough cooks in the kitchen—helping to highlight any gaps that might exist. Second, it’s important to think about funding: Who is going to finance this partnership? Internal and external sources, such as government or philanthropic funding, could be leveraged. Unique business models can also be developed to allow for cost- or profit-sharing, as discussed previously. It’s important that this is figured out in the beginning so that funding does not run up midway. Finally, partners should work together to identify “design principles” that will guide their thinking—whether that’s “fail fast” or “think outside the box” or “have a ‘yes and’ mindset”—these principles will help develop the tone and North Stars for the engagement.

Brad Johnson: Scaling growth is also an important consideration. While many of these metals decarbonization partnerships have to do with products, narrowing down a specific region or product line to pilot and test compatibility, pain points, and learnings is important to realize the potential and value of the partnership. By testing a specific market segment (that is, starting small), companies can have more control over activities, make changes where needed, and pull funds if necessary. All of these activities are much more difficult to implement and track in a full-scale implementation. In the market, we are seeing companies invest in launch facilities to proactively measure value prior to pilot. This approach strategically provides companies with the opportunity to pilot and iterate in a controlled environment before rolling out to customers.

4. Technology requires innovation and potentially failing—how should this be approached in testing the waters?

Kelsey Carvell: While new technologies and innovations require strategic planning and significant investment, there is always the chance for failure. Whether backed by an investor or internally funded, the risk of an investment is unavoidable. In order to minimize the risk of failure, companies need to establish a clear greenlight scenario for a pilot to evaluate the potential of further investment and to ensure the pilot is scalable. For instance, companies can conduct feasibility assessments to test different technologies—whether that’s using offline data to predict carbon emission reductions from implementing a carbon-capture sequestration technology or putting out a request for information to better determine the cost of a new metal-making process for inert anodes. These “quick and dirty” feasibility tests can help companies feel more confident in going from concept to pilot. Then, if the results are positive, move on to full implementation.

Brad Johnson: In the spirit of avoiding pitfalls, working with partners, either within your industry in a pre-competitive way or through competitive collaboration, can reduce the risk of innovation failing. Regarding the former, we’ve seen numerous examples of companies working together with their competitors to establish basic research for new decarbonization solutions and lobby for regional and local support for things such as carbon capture, utilization, and storage (CCUS) and clean hydrogen. In a competitive sense, many large metals companies have started partnerships with emerging technology providers, or leaders in parallel industries, to combine resources and expertise to move toward a more effective pilot for decarbonization solutions. By diversifying skill sets and working together, the risk of innovations failing because of poor execution can be greatly reduced.

5. Taking a five- to 10-year outlook—what do we think the ecosystem world is going to be doing?

Kelsey Carvell: Many companies have already established carbon neutrality goals for 2030 and beyond. In five to 10 years, we should hope that many of these companies are on their way to reaching decarbonization—or have already done so. The steps these companies take over the next five to 10 years will provide lessons learned for what works and doesn’t work, as well as key playbooks and recommendations. I’m excited to see what coalitions are formed and how companies lean on each other for partnerships, best practices, and areas to innovate across their value chain. With the push for decarbonization coming from all angles, there will be a significant shift in how companies operate on a day-to-day basis over the next decade.

Brad Johnson: It will also be interesting to see how regulations impact decarbonization efforts. Many countries are committing to carbon neutrality —including the three largest carbon-emitting countries: China, India, and the United States.⁵ The regulations and incentives these countries make will be consequential for achieving decarbonization. In fact, I’m excited to see what the impact of the Inflation Reduction Act (IRA) will have on our economy! We have a lot of excitement (and work) in front of us.

Endnotes

¹ Deloitte, Deloitte 2023 CxO Sustainability Report: Accelerating the Green Transition, 2023, p. 5.
² Ibid., p. 4.
³ Emily Abraham et al., “Executive summary of the SEC’s proposed rule on climate disclosure requirements,” Deloitte, March 21, 2022.
⁴ International Aluminum Institute, “Collaborators,” November 28, 2022.
⁵ ClimateTrade, “Which countries are the world’s biggest carbon polluters?,” May 17, 2021.