Despite making significant progress over the past several years, the environmental, social and governance (“ESG”) space still faces significant challenges in heavy industry financing. ESG considerations are a set of standards that investors use to analyze a company’s social and environmental impact before deciding on their investment strategy.
Given the major role institutional and large investors play in determining the success of companies and entire industries, incorporating ESG into financing strategies is a great way to encourage the corporate adoption of clean energy. Unfortunately, heavy industries such as oil and gas, petrochemicals and steel face plenty of unique challenges that make it incredibly difficult for them to incorporate electrification and environmentally friendly practices into their operations. As such, heavy industries typically tackle greenhouse-gas emissions via technologies such as clean hydrogen as well as carbon capture, utilization and storage.
Scaling up these technologies requires significant capital investment, and the International Energy Agency approximates that carbon capture, utilization and storage (“CCUS”) technology will need $5.3 trillion in capital investments and clean-hydrogen projects will require a whopping $10.3 trillion to support over the next 30 years.
However, current investment in clean hydrogen and CCUS technology is still far below what the industry needs to cut greenhouse gas emissions, creating a significant investment gap that needs immediate attention.
As they have in the past, government incentives and regulations will be critical to pushing heavy industry financing to decarbonization. Regulations such as the European Union’s Carbon Border Adjustments Mechanism and North America’s Inflation Reduction Act, for instance, provide incentives to encourage businesses to adopt cleaner practices.
The Inflation Reduction Act pays American businesses for each unit of hydrogen produced or carbon captured, granting heavy industries an extremely attractive incentive for investing in sustainable technology. In the EU, the Carbon Border Adjustments Mechanism acts as a deterrent by penalizing the import of contents with high carbon, especially products developed by carbon-intensive sectors such as hydrogen, steel, iron and cement.
Recent BloombergNEF projection data now shows that many European, Canadian, British, American and even Asian companies issued clean hydrogen and CCUS project-related announcements. Most of these projects (98%) are still in their infancy and can expect to experience mounting financial challenges as they mature.
Consequently, only time will tell how viable the newly announced CCUS and clean-hydrogen projects are or how many will come online. Heavy industries will also have to overcome supply chain issues as they nurture these projects to create a robust supply chain that guarantees the smooth movement of critical inputs.
As efforts are directed toward making ESG considerations workable within heavy industry, luxury goods makers such as Coyuchi Inc. are making headway in implementing ESG principles in a way that is clearly verifiable.
NOTE TO INVESTORS: The latest news and updates relating to Coyuchi Inc. are available in the company’s newsroom at https://ibn.fm/COYU
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