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Wholesale Banking

The steel industry needs to decarbonise to be in line with the EU’s goal to reduce carbon emissions by 55% by 2030. Erik van Doezum, ING’s steel lead, shares some insights on ways the industry can cut emissions, and what ING is doing to help.

steel factory

Steel is everywhere: It’s in the white goods we use, the cars we drive, in our windmills, and the houses we’re building. There’s no alternative for it – it’s essential for modern life – and demand will continue to grow. What does this mean for the industry then in the face of the climate crisis?

Producing steel is carbon intensive. Iron ore is heated and melted at very high temperatures in furnaces, which are very energy intensive. Producing one ton of crude steel generates 1.83 tons of CO2 on average. Steel production accounts for an estimated 7% to 9% of global emissions. Those are significant numbers.

Then, how do we decarbonise the industry? The simplest option is to use more scrap – recycle more. But a very high proportion of used steel is already recycled. Another way to reduce emissions is using natural gas to produce iron ore, saving roughly one ton of CO2 per ton of steel. This process can be tweaked by using hydrogen instead of natural gas. And if this hydrogen is made from green electricity, you will get green steel.

It’s a big challenge though. The investment needed to decarbonise the European steel industry alone is more than three times the book value of its current assets. But there are some positive signs: four hydrogen-based steel plants in Europe are scheduled to be operational in the mid-2020s. 

Using deep industry knowledge to lead the transition

At ING, we’ve committed to aligning our steel portfolio with the net-zero by 2050 pathway. We’re doing quite a bit of work on sustainability improvement loans, supporting companies to improve their target setting, and start using science-based targets. At the same time, we’re talking to them about their transition strategy, looking at how they can remain financially responsible, keeping shareholders and lenders happy, and generating sufficient cashflow in a business that is extremely cyclical.

ING is also leading a workstream on climate-aligned finance with five other banks to come up with common standards for steel companies to report on CO2 emissions. This gives us insights into where companies are in their decarbonisation journeys, and talk about how we can help them get there.

As lenders we try to help companies decarbonise, like with the climate-aligned finance working group. But the industry itself needs to be able to make business cases for going green since, at the end of the day, banks can’t lend to business cases that aren’t viable. Without a clear regulatory framework this will not succeed. This could be for things like carbon pricing, protection from less green imports, guarantees for the large investments needed, and government grants or subsidies.

We’re very selective in who we bank. We look at steel companies with clear competitive advantages, whether on cost, product quality, or geographical location. And we make sure we know what our clients are doing, especially around the energy transition. They might not have a solution today, but they need to start thinking about one.

Decarbonising the steel industry is huge challenge, but it is an industry where we can make a real difference. It's an opportunity for the industry to reinvent itself. For new technologies and innovation. As banks we can team up with our clients and realise the future together.