Sustainable Finance

Three International Banks Join Forces to Help Decarbonise Aluminium Sector

Published on: 22 June 2022 12:09 PM
by KnowESG

Citi, ING, and Societe Generale, three leading lenders to the aluminium industry, have announced that they will collaborate with RMI's Centre for Climate-Aligned Finance to establish the Aluminium Climate-Aligned Finance Working Group to decarbonise the industry.

The Working Group will develop collective climate-aligned financing (CAF) framework that specifies how lenders might aid in the decarbonisation of the aluminium industry, which generates 2% of all greenhouse gas emissions annually and tracks advancement in that direction.

Participating financial institutions will pledge to assess and disclose the extent to which the emissions associated with their aluminium portfolios are in line with 1.5 °C climate targets by signing up to the CAF framework and to do so under the rules established by the UN-convened Net-Zero Banking Alliance.

The Working Group will be facilitated by RMI's Centre for Climate-Aligned Finance and will include senior metals and mining leaders from each participating financial institution.

In collaboration with prominent organisations involved with aluminium and the environment, including the International Aluminium Institute and the Aluminium Stewardship Initiative, the Working Group seeks to develop a CAF framework.

The framework would bring about consistency and openness in reporting and tracking environmental progress. Financial institutions that adopt the final CAF framework will be in a position to evaluate the emissions of their portfolios of loans secured by aluminium and collaborate with their clients to disclose their emissions, finance low-carbon solutions, and promote investments in emerging technologies.

Despite being a fundamental component of modern life and being used in everything from cell phones to space flight, aluminium has a high emission intensity during manufacture. Producing a tonne of aluminium generates more than six times the CO2 emissions generated by producing a tonne of steel, for example, and requires enormous amounts of electricity.

The aluminium industry would rank as the sixth-largest electricity consumer in the world if it were a nation. To achieve the world's climate goals, it will be essential to transition the aluminium industry to net-zero emissions.

Banks have already taken the initiative in creating decarbonisation frameworks for other challenging industries like steel and aviation, working with RMI. For international banks, assisting aluminium's transition to net zero is yet another once-in-a-generation opportunity.

The three financial institutions leading the working group—Citi, ING, and Societe Generale—are encouraging more financial institutions to participate. Institutions are also encouraged to join the Review Group if they want to be informed about the procedure and offer feedback as it is being developed. Institutions are invited to submit an expression of interest to join the Working Group or the Review Group.

In coordination with current decarbonisation activities, the Working Group will design the measuring technique, emissions baseline, data and reporting framework, and governance structure for the CAF framework. Early in 2023, the Working Group will extend an invitation to more financial institutions to adopt the CAF framework and contribute to the establishment of international best practices for financing climate-friendly aluminium production.

To guarantee that the goals of companies in the aluminium sector and their financial partners are linked and actionable, the Centre for Climate-Aligned Financing will enable communication between the Working Group, top aluminium producers, and partner organisations focused on sustainable finance.

The first Poseidon Principles framework for marine shipping and the soon-to-be-launched CAF agreement for steel will serve as the foundation for the aluminium CAF framework.

With 11 bank signatories, the Poseidon Principles were introduced in 2019. Poseidon now has 28 signatories, accounting for more than 50% of the world's ship financing. The aluminium CAF framework is meant to be created for a similar rapid adoption by financiers of aluminium around the world.

Source: Aluminium Today

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