There has been a revolution in sustainability and investors care more than ever about carbon footprints.

Gregory Barker

A former UK minister for climate change and now chairman of a hydropower and metals group, Lord Gregory Barker is keen to talk about carbon emissions. At the helm of Russia’s EN+, he not only oversees renewable energy production, but also the production of aluminium. Through a controlling stake in Rusal, he is in a position to influence the world’s largest producer of the metal outside of China. 

The aluminium sector is responsible for about 2% of global carbon emissions, according to the World Economic Forum’s analysis of the International Aluminium Institute data, but it is an important component of the transition to a greener economy as it allows, for example, lighter and, therefore, more fuel-efficient vehicles than steel, and is easily recyclable.

Mr Barker wants to position EN+ as a clean producer of the metal. He calls for greater transparency and a price differentiation between cleaner and more polluting producers, which, right now, can be achieved without spooking the markets. 

Q: How has the coronavirus pandemic shaped the chances of transitioning to a low-carbon economy?

A: I think there are more voices now being raised in favour of a green recovery and a greater focus on sustainability. These views are being advanced more now, as a result of Covid-19, then they were in January.

The big danger is that the other immediate imperative of restarting the economy, which obviously is crucial, would unintentionally give rise to more pollution. A very clear example is aluminium. The UK and Europe are saying ‘let’s spend on big green infrastructure projects’ — whether that’s on renewable energy, electric vehicle charging infrastructure or more sustainable homes. People want to spend money — public money — on projects that have a green outcome.

But the danger is that in building these projects, in manufacturing these products, we actually unintentionally drive up carbon emissions. For example, electric vehicle charging infrastructure uses a lot of aluminium; 85% of the components for solar photovoltaic panels are aluminium, to keep them lightweight; electric vehicles use aluminium. But the EU is not self-sufficient when it comes to the metal: last year, from the about 7 million tonnes of aluminium consumed in the EU, about 6 million had to be imported from overseas. There are differences in carbon footprint between a producer of aluminium who uses clean energy — we emit on average 2.6 tonnes of carbon to produce one tonne of aluminium — and the Chinese equivalent, which is exactly the same product to all intents and purposes, but emits about 16 tonnes of carbon. At the moment, there’s no transparency in the market; there’s no differentiation in price for the prime commodity.

Q: How do you define ‘clean’ producers?

A: The Carbon Trust published a report earlier this year; they came to the recommendation that, given this huge differential between the carbon footprint of basically the same metal, low-carbon aluminium should be deemed to be anything with a footprint of four tonnes of carbon or less per tonne of aluminium. In order for it to be taken seriously as an asset class, you need a cohort of credible large-scale producers. If you define low-carbon producers as emitting four tonnes of carbon per tonne of aluminium, that would cover about 20% of the market [based on 2018 production, according to the Carbon Trust]. That would send a very clear signal to the other producers that this is the direction of travel.

Q: Will investors be willing to pay a premium for low-carbon aluminium?

A: Investors have been our strongest allies, actually. When we talk to investors, fund managers, bankers, what they’re really worried about is finding themselves tied to high-carbon assets or invested in businesses that are dependent on a high-carbon value chain. They are worried that there’s a hidden carbon footprint that they are not fully aware of. I think that investors want transparency; they want to be able to make their own informed judgement. Whether or not low-carbon aluminium can be sold at a premium, or whether high-carbon aluminium ends up being sold at a discount, it’s very difficult to call. At the moment there is a significant oversupply of aluminium in the global markets because of lower demand caused by the current economic situation, but also because of general overcapacity, so a premium would not cause any immediate, huge price distortion. 

Aluminium is often a very small part of the overall mix for some products. But where it is a significant component, like for an electric vehicle, a solar panel or a can of Coke, you want to know about the carbon emissions related to it. With the ability to voluntarily disclose that information on the London Metal Exchange [the exchange plans to launch a platform to trade low-carbon aluminium in 2021], it will become very clear that there is a market for it.  

Q: Are you concerned about the implications of trade tensions and the general push against globalisation for the group?

A: We’re a global business [operating in 12 countries across Europe and beyond]. We have mines in Jamaica and on the west coast of Africa; we have a joint venture in Australia. Obviously we have huge assets in Russia. So we fully understand the importance of open and free trade between countries. Anything that produces friction on trade is bad news for us. We’ve got such big supply chains, but that doesn’t mean that you can’t have a more local, sustainable procurement [strategy], particularly when it comes to energy. I think that the days when people shipped oil and coal halfway around the world in tankers [are numbered]. Instead, people are using more locally produced, sometimes very locally produced, sources of clean energy that is generated much closer to the point of use. Provided that the borders remain open, I think that local procurement and sourcing are not necessarily a bad thing.

Q: Does it mean that the bigger push towards a low-carbon economy will come from local communities, rather than from global leaders?

A: Local communities are some of the biggest drivers of change. When I was in politics, I was a big champion of decentralised energy. Solar energy was my particular passion. When I became a minister [in 2010], there were, I think, 10,000 homes in the UK with solar panels; when I left [in 2014] it was getting closer to a million. It was a huge revolution. I began writing about the benefits of decentralised energy 15 years ago. Solar energy is a great way of connecting people and reminding people that their communities are actually much closer to the point of energy generation that they might think, and that they can even generate energy themselves.

Q: What about the corporate world, is there real commitment to environmental, social and governance (ESG) principles?

A: Firstly, there’s been a massive sea change. Our group was listed in London in 2017 and, while institutional fund managers were interested in ESG issues then, it was by no means the main source of conversation or interest — some would not mention it at all. Now, it’s impossible to go to a fund management meeting, to meet institutional shareholders, and not discuss ESG. Even pre-Covid-19, during the last trip I did to New York, I met with some very tough, very aggressive hedge fund managers and they wanted to talk about ESG, about our carbon exposure, our disclosures and our broader sustainability metrics. The switch has flipped because, I think, the main factor driving this now is fear, as opposed to hope or optimism. 

I’ve been involved in this agenda, around sustainability, for nearly two decades. There’s always been a cohort of visionary business leaders who’ve been banging the drum for climate change and environmental issues — people like Paul Polman at Unilever, for example, and even John Browne at BP. But the reality is most people have been mouthing a few words about it but haven’t really taken it on board. Suddenly, business leaders and investors in ESG — and not just climate, all ESG factors — are afraid that they’re going to see value destroyed, either in their business or in their portfolio, by failing to take into account ESG properly.

Q: What does the future look like?

A: With Covid-19, people are much more aware of external risk factors to investments and to businesses, and are wanting to de-risk portfolios or even de-risk their lives — we don’t want to be caught out by existential risks that are real, but we’ve just failed to notice.

There will be winners or losers in a low carbon economy. Of course the net benefits are all positive, but there will be some industries that end up going to the wall, that won’t survive, as well as some amazing new companies that probably haven’t even been started yet that will flourish. 

There’s a real opportunity to fast forward and make much more progress in the early 2020s than we dreamed possible only six months ago. The biggest danger is not the lack of awareness, or the lack of willingness to act on climate or environmental issues, it’s the danger of creating unintended risks — the danger of unintended consequences of good intentions.

Lord Gregory Barker is chairman of EN+ Group. This Q&A has been edited for brevity and clarity.


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