Access to financial resources

Background

Because of the high costs associated with switching production routes, the net-zero transition of the steel industry will likely require an additional annual investment of USD 8–11 billion, an equivalent to USD 235–335 billion by 2050.^[1] Affording this cost will require extensive help from governments, banks, and investors.

Other carbon-intensive industries also face increasing costs from decarbonization efforts — and because government funds are finite — it is difficult to cover all costs with government investments only. Banks and private investors — who are already the largest source of capital for the steel industry — will have to play a significant role in this transition.^[2] However, there are several reasons that such institutions may not currently want to invest in the steel industry: lower profitability caused by green premiums and overcapacity, potentially poor credit histories if the industry is asked to shut down BF-BOF plants before achieving profitability, and higher distrust in the low-emissions steel market and future of returns on investment. Moreover, many of the costs are upfront, increasing investment risks and requiring very strong cases to be persuasive for investors.^[3] Making sure these challenges are addressed and that investment in low-emissions and green steel is incentivized is essential for success.

Policy Action

Policy targets to increase access to funding include:^[4]

Enable access to finance through frameworks for sustainable finance.^[5] This should include criteria or definitions of green and low-emissions steel.^[6]
Create climate-aligned investment principles.^[1] This should include recommendations for client engagement, information disclosure, and exclusion and inclusion criteria.^[6]
Collaborate with banks and investors to create partnerships and align on investment criteria.^[6]
Increase the availability of funding for low-emissions steel producers, through increased government spending and green projects, or collaborations with other financial stakeholders, e.g., with green funds, PPPs, carbon credit funding, future contracts, etc.
Accelerate projects towards final investment decision status (FID) to reach the necessary decarbonization milestones.^[1]
Use regulations or financial incentives to encourage investments in low-emissions steelmaking.