Climate Action 100+
QUESTIONS AT THE ARCELORMITTAL 2024 AGM
ArcelorMittal is a long-term holding for Ruffer. We have engaged with the company for several years, both individually and collaboratively via the Climate Action 100+ initiative as a co-lead investor. The steel producer operates in an energy intensive and hard-to-abate sector – that is, one where it’s difficult to reduce emissions. ArcelorMittal has shown good progress in implementing its climate strategy over the six years we have been a part of Climate Action 100+. We continue to engage with the company on its ambition, credibility and ability to create shareholder value as it reduces carbon emissions.
In its 2021 Climate Action Report 2, ArcelorMittal announced gross investment of $10 billion (including government support) to reduce its emissions intensity by 35% in Europe by 2030. Additionally, the company stated its aims to achieve a 25% emissions intensity reduction globally by 2030, and to reach carbon neutrality by 2050. Given the global inflationary environment, along with supply side constraints, we asked whether it has considered revising its decarbonisation budget to reflect the price pressures in the system. This budget is linked to its target of building five direct reduced iron (DRI) facilities and ten electric arc furnaces (EAFs) in Europe, to begin replacing its blast furnace assets. Both the new builds and the proposed retirements are key to delivering its emissions reduction aims.
ArcelorMittal told shareholders that the $10 billion decarbonisation budget set in 2021 will not be revised, which prompted the Climate Action 100+ group to consider how we might escalate our concerns further. The 2024 annual general meeting (AGM) provided an opportunity for investors to pose questions, signalling to the Board that shareholders are keenly interested in the company’s climate transition strategy. The group tabled a letter, with the aim of gaining further insight of, and confidence in, the Board’s oversight of ArcelorMittal’s strategy. The questions centred on the planned decarbonisation budget, the possibility of revisions given inflationary pressures and how competitors are responding, the question of whether this budget remains sufficient to meet the company’s stated goals, and the performance indicators used to measure progress and address transition risk. We also asked the company to elaborate on its approach to capital allocation and its plans to release an updated Climate Action Report.
The complete response to the CA100+ questions can be found in the 2024 AGM minutes on corporate.arcelormittal.com. The company reiterated that it does not intend to revise its decarbonisation budget of $10 billion – it remains focused on achieving the same carbon emissions reduction target and is evaluating different ways this target can be achieved. Where we asked for more details surrounding the plans to build DRI facilities and EAFs, including any potential implications to capital allocation, the company signalled these will be addressed in its updated Climate Action Report due to be published at the end of 2024.
When considering progress against its emissions reduction targets, ArcelorMittal uses key performance indicators (KPIs) such as the operational emissions intensity of the business, as well as a review and assessment of the competitive advantage and rate of return of decarbonisation projects. The combination of both decarbonisation and financial KPIs enables the Board to assess the projects against the company’s overall strategy to achieve competitive decarbonisation. Finally, the company provided a thoughtful response on its capital allocation policy, describing it as balanced between paying a base dividend, buying back shares, investing in consolidated assets and joint ventures, as well as spending on research and development.
We will continue to monitor the company’s decarbonisation progress through both its financial reporting and its forthcoming Climate Action Report. We plan to maintain our dialogue with the company, both independently and as a part of Climate Action 100+, where currently we are establishing some engagement goals for 2024-2025. With 2030 fast approaching, the CA100+ group is eager to see ArcelorMittal deliver on its targets to build lower-carbon steel manufacturing facilities in Europe and, in its global operations, to remain competitive in an ever-evolving regulatory landscape while delivering returns above its cost of capital.