The steel sector as a model for circularity

With Tata Steel in IJmuiden leading the way, the steel sector needs to green up and become more sustainable to become ESG-proof according to European guidelines. The IJmuiden company says it can only do this with help from the government and businesses. Reason enough for to ask Steven van Dalen and Stefan Starke of Boer & Croon five questions about the consequences of sustainability for, among other things, financing business activities in the sector.

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How (little) circular is the steel sector in the Netherlands at the moment?*
Boer & Croon: 'In theory, steel is a material that is 100% recyclable, so it offers potential for sustainability, especially when compared to other products that are less recyclable. However, It should be noted that it is impossible to make high-quality steel from recycled metal such as scrap (using an electric arc furnace). This is because including other metal or steel coatings, such as paint or zinc coating, makes the metal less pure. Despite this caveat, 160 million tonnes of steel are produced annually in the EU, roughly equivalent to over 1 million mid-range cars. Figures from Eurofer show that 56% of the steel produced is made from scrap metal - amounting to around 100 million tonnes. Examples of where this is happening can be found in northern French Dunkirk and near the Netherlands, Duisburg, a website on hydrogen use describes.

'In the short term, 'doing things sustainably' will not directly mean cost-effectively best.'

How much do companies in the Dutch sector estimate they need to invest in total for the sustainable reuse of steel and iron, and what are the calculations based on?
Boer & Croon
: 'This is difficult to estimate. Tata Steel IJmuiden hopes the Dutch government will financially support greening. This state support would then be part of the agreement between Tata and the government, currently being discussed. According to board chairman Hans van den Berg, Tata is counting on at least 1 billion euros in aid. Speaking to the Financieel Dagblad, he even said he hoped "that the state aid will account for a little less than half of the total cost of rebuilding the plant"-so that may give an initial estimate. What is clear is that iron and steel producers need more capacity, especially in the plants needed for recycling. Think of DRI or EAF techniques. DRI can be done with energy from hydrogen, but the whole hydrogen economy is still in its infancy. EAF is relatively less complicated from an energy demand perspective, but it has the disadvantage that the process can only produce some steel qualities. It is also important to note that the com camera sensors are increasingly used for different types of metals. Finally, 'material passports' can also play a role in estimating costs.'

What can and should CFOs in the sector do to comply with this European sustainability directive?
Boer & Croon: 'It will be quite a task for many companies to comply with the new European directives around sustainability, involving not only the now increasingly well-known CSRD but also, among others, the Corporate Sustainability Due Diligence Directive (CSDDD). The latter directive means that the steel sector and other sectors will have a due diligence obligation towards their partners in the value chain regarding sustainability's social and environmental aspects. It is important to remember that reporting and better internal processes are not the ultimate goal but a means to ensure that companies become more sustainable. So, through more transparency, science and knowledge about CO2 emissions and other harmful impacts, other decisions can be made or enforced. In any case, it is clear that at the moment, many companies need to speed up considerably to report on time and sufficiently. The knowledge to meet this is currently too limited.'

To what extent can it be said what the reuse of scrap and steel could mean for corporate finance of companies in the sector?
Boer & Croon:
'Business financing will adjust accordingly when the CO2 price is increasingly passed on in products. In addition, customers throughout the chain will make choices in this respect as Scope 3 becomes more visible. Moreover, we increasingly see the tendency among shareholders - for instance, large pension funds - to expect sustainability from participation. Among lenders, too, a perspective on sustainability is increasingly expected. In short, corporate finance will grow along with sustainability requirements.'

Should financial management, CFOs and chartered accountants look at figures differently in greening?
Boer & Croon: 'Business cases for investments should include not only the hard figures in the short term but also the true prices, such as the negative impact of social costs, including any reputation damage for the company itself. So long-term effects should also be included more in the figures. In the short term, 'doing things sustainably' will not directly mean it is cost-effectively best.'