(Feb 11): Almost all major banks that have pledged to finance low-carbon steel are backing initiatives that will lead to additional greenhouse gas pollution.
An analysis published Wednesday by non-profit BankTrack found that all but one of 20 top lenders — Lloyds Banking Group Plc being the exception — are funding companies or projects pursuing what the Netherlands-based group calls “false solutions.” These include approaches such as reducing iron ore by using natural gas or injecting hydrogen into blast furnaces, which BankTrack said risk prolonging carbon-intensive processes or driving deforestation.
The steel industry is a major source of carbon emissions, with conventional steelmaking belching carbon dioxide twice: first when coal is heated to create coke, then again when the coke is burned to melt iron ore in furnaces. And with global demand for steel growing, the race is on to develop “green steel,” with companies exploring a plethora of newer, cleaner manufacturing techniques.
“Because steel accounts for 11% of emissions, it’s critical that the sector transitions, and it needs capital to do so,” Julia Hovenier, the report’s co-author and banks and steel lead at BankTrack, said in an interview. “But it’s not only the volume of capital, but also the quality that determines whether the sector transitions.”
Cutting emissions in the steel sector to align with the Paris Agreement comes with a hefty price tag of as much as US$335 billion ($423 billion) by 2050, according to the Mission Possible Partnership. Between 2016 and mid-2023, 354 banks provided US$429 billion to the 100 biggest steel producers, suggesting that finding capital isn’t the main challenge.
Despite banks’ role as major creditors and underwriters, only 7% of total steel-sector financing was earmarked for green or transition activities between 2019 and mid-2024. And only seven of the 20 banks assessed by BankTrack have explicit sustainable-finance frameworks for steel decarbonisation that define which projects and technologies qualify under emissions-reduction standards.
BankTrack has developed its own taxonomy to distinguish between what it considers “real” and “false” solutions for decarbonising steel. “There are good ways and bad ways to decarbonise,” Hovenier said, adding that some methods marketed as green create “a serious risk of greenwashing for banks and steel clients.”
Technologies and approaches that best support decarbonisation include electric-arc furnaces powered by renewable energy and the use of green hydrogen to process iron ore in so-called direct reduction furnaces, according to BankTrack.
Eighteen banks assessed in the report include electric furnaces in their sustainable-finance frameworks.
See also: Corporate governance advocate Mak Yuen Teen launches new body to raise board standards
BankTrack’s list of “false” solutions includes direct reduced iron made using fossil gas, which is less carbon intensive than burning coal but used to justify the development of new gas fields and infrastructure. The nonprofit also criticized the widespread use of carbon capture, utilisation and storage, saying the technology has yet to be proven at commercial scale and risks a “global fossil lock-in.”
The banks “most aligned” with BankTrack’s definition of real solutions for steel decarbonisation were Lloyds, Barclays Plc and Societe Generale SA, according to the report.
Uploaded by Magessan Varatharaja
