Analysts and investors are pressing Alcoa Corp. to make good on its promise of a greener future.
The biggest U.S. aluminum maker spent a good chunk of its quarterly earnings call on Wednesday fielding questions over efforts on environmental, social and corporate governance issues -- in particular its pledge to cut greenhouse-gas emissions.
Metal producers including Alcoa are working to improve their environmental standing, with investor interest in ESG on the rise and customers such as automakers demanding less-polluting supply chains. Even as Alcoa grapples with fallout from the virus pandemic that has battered demand, Chief Executive Officer Roy Harvey seized the chance to explain plans for “green aluminum,” saying customers will increasingly shift attention to the carbon impact of raw materials.
“Investors like us are looking at these companies to do better, and we are rating them on it and including that into our decision-making process,” said Michelle Dunstan, the global head of responsible investing at AllianceBernstein Holding LP, which manages US$631 billion in assets. “Investors are learning more about how capital flows can shape action and consequences for the world and we’re seeing more and more asset owners question the process and strategy.”
While aluminum is recyclable and lighter than steel -- which means it makes fuel-efficient cars -- it needs huge amounts of power to produce, and accounts for an estimated one per cent of greenhouse gas emissions by the industrial sector. Coal is used to make much of the metal in China and other global suppliers. Alcoa and competitors such as Rio Tinto Group and United Co. Rusal are beginning to brand some of their aluminum as low-carbon because, in part, they use hydroelectricity as the power source.
Last month, Pittsburgh-based Alcoa said the raw material it uses to make aluminum will emit half the industry’s average carbon dioxide.
Alcoa, which saw its shares slide this week after it projected a disappointing fourth-quarter outlook, may give investors a potential bullish case with its increasing focus on “green aluminum,” according to analysts including those at Citigroup Inc. and Berenberg Capital Markets LLC.
AllianceBernstein’s Dunstan said ESG-minded investors need to do a lot of research to see if companies are following through on steps that will lower carbon footprints, improve working conditions, develop local communities and enhance company governance. She also said investments can’t be limited to a handful of companies with good track records, as that could cause overcrowding and is unlikely to drive overall positive change across sectors.
“We actually need these producers in the world to survive, and rather than ignoring them our philosophy is engaging them, we want to force them or make them to do better,” Dunstan said. “Those are the ones we want invest in -– because we can actually demonstrate that improvement on ESG issues leads to outperformance.”