Climate-Related Disclosure for Investor Communications

In this article, we delve into Holcim as an exemplary model for effective sustainability disclosure for investor relations and communication with financiers. Utilizing the data provided by Holcim as a case study, REANGLE conducted a thorough TCFD scenario analysis, showcasing best practices and the seamless integration of detailed information into financial decision-making processes.

For TCFD scenario analysis to be effectively implemented, investors and banks rely on comprehensive climate-related information and data, which are then incorporated into their financial analyses alongside scenario planning. Holcim emerges as an optimal case study for sustainability disclosure, given its global presence in over 70 countries and its steadfast dedication to sustainable building practices.

Diagram 1: Overview of Holcim’s business

Using Holcim as a case study, we will illustrate how the company utilizes its industry position to expand the market and increase income by introducing lower-carbon cement alternatives and decarbonizing solutions.

Holcim's Strategic Shift Towards Decarbonization

As regulatory bodies such as European Securities and Markets Authority (ESMA) advocate for decarbonization, industries with high GHG emissions, such as cement production, face significant challenges. Holcim, a major player in the cement industry, is confronted with the imperative to align with decarbonization goals. Cement production, notorious for its substantial carbon footprint, is under increasing pressure to adopt cleaner production methods and transition towards low-carbon alternatives.

Diagram 2: Illustrates carbon-intensive nature of cement production within Holcim’s operations

Holcim's Sustainable Solution: Decarbonized Cement

Holcim has strategically shifted its focus from being a leader in building materials to becoming an innovator in sustainable building solutions. This shift is propelled by a myriad of factors, including growing demand for sustainable solutions, resilient urban demand, and regulatory pressures. A key aspect of Holcim's decarbonization strategy is the introduction of Ecopact, a low-carbon cement alternative that significantly reduces CO2 emissions compared to traditional cement.

Diagram 3: Illustrates Holcim’s decarbonization strategy

Investing in Decarbonization: Capital Expenditure for Sustainability

Holcim allocates capital expenditure (CapEx) towards decarbonizing its operations, aiming to gain a competitive edge. These investments encompass process decarbonization, clean energy initiatives, carbon-efficient construction, and circular economy practices. By reducing CO2 emissions, Holcim not only lowers operational costs but also strengthens its competitive advantage and facilitates easier access to funding.

Diagram 4: Overview of Holcim’s Green Capital Expenditure

Setting Clear Targets: CO2 Emissions Reduction Goals and Sustainable Performance Targets (SPTs)

Holcim has set ambitious targets to reduce its CO2 emissions per net sales, with yearly reduction goals established. The company employs intensity metrics to gauge efficiency improvements while also considering absolute emissions. Additionally, the release of Sustainable Performance Targets (SPTs) provides a clear benchmark for assessing Holcim's progress in sustainability initiatives, signaling its commitment to environmental, social, and governance (ESG) objectives.

Diagram 5: Holcim's SPTs for Decarbonization

Holcim’s Decarbonization Strategies

Diagram 6: Holcim’s Decarbonization Strategies

Holcim unveiled its comprehensive decarbonization strategies, marking a pivotal moment in its commitment to sustainability. Emphasizing the urgency of addressing climate change, the company outlined three core pillars guiding its efforts: process and material efficiency, harnessing renewable energy sources, and the implementation of Carbon Capture, Utilization, and Storage (CCUS) technologies.

These disclosures are crucial for providing investors with transparency and insight into how Holcim plans to achieve its Sustainable Performance Targets (SPT). By outlining its decarbonization strategies, Holcim is not only signaling its commitment to sustainability but also providing a roadmap for investors to understand the concrete steps the company is taking to mitigate its environmental impact.

TCFD Scenario Analysis

TCFD Scenario Analysis can be conducted on the company's financials to evaluate the potential financial impacts of decarbonization activities. This analysis enables the measurement of financial gains or losses derived from such initiatives. Internal carbon pricing can also be factored in.

Internal Carbon Pricing Set to Become the New Standard

Internal carbon pricing involves setting a price on carbon emissions within a company's operations or decision-making processes (i.e. how much the company invest in order to reduce one metric ton of carbon). By assigning a monetary value to carbon emissions, organizations can internalize the costs associated with their environmental impact. This practice serves as a strategic tool to incentivize emission reductions and encourage investments in low-carbon technologies and practices.

It's crucial to recognize that decarbonization efforts not only influence ESG considerations but also have significant implications for the company's financial performance. For further insights into TCFD analysis, refer to Part 1 of this series - TCFD Scenario Analysis: Where Sustainability Meets Financial Analysis.

Diagram 7: Example of how TCFD Scenario Analysis can be conducted

Conclusion

In a landscape where many companies remain reluctant to disclose quantitative sustainable information, Holcim's proactive stance on sustainability and decarbonization sets a commendable example. By embracing transparency, setting clear goals, and implementing concrete strategies, Holcim not only demonstrates leadership but also highlights the necessity for others to follow suit.

As regulatory pressures mount and investor expectations continue to rise, the imperative for companies to disclose their sustainable practices grows stronger. More companies should heed the example set by Holcim, recognizing that sustainability disclosure is not just a choice but an essential step towards a more resilient and environmentally responsible future.

REANGLE Services

REANGLE extends its Green Finance Consulting services to institutional investors and corporations across Southeast Asia, Japan, and beyond, harnessing Singapore’s pool of talent. With global sustainable finance platforms and highly motivated green talent, REANGLE delivers Green Finance Analysis and Green Data Analytics services quantitatively, alongside providing Green Investor Relations advisory service to drive authentically sustainable investment decisions.

Do check out REANGLE’s past articles for further clarification or reach out to us at kazu@reangle.co (Kazu Watanabe).