Driverless trucks are humming about in this eastern China factory, where high levels of automation, swaths of greenery and a sparsity of workers all ooze with vibes of a tech firm. Yet this is a cement plant owned by Anhui Conch, a top Chinese producer of the building material, which Fidelity International analysts recently visited to carry out research into sustainable investment practices.
Since 2020, we have been engaging with Conch as one of our investees, advising it on how to improve across several environmental, social and governance (ESG) factors. In our most recent dialogue, Fidelity analysts met Anhui Conch CEO Qunfeng Li in Wuhu city in November.
The cement industry is one of the world’s worst polluters. Production of this key ingredient in concrete contributes about 7 per cent of annual global greenhouse gas emissions. China, in turn, pours more concrete each year than the rest of the world combined, with an estimated output of 2.1 billion tonnes of cement in 2022 compared with a global total of 4.1 billion tonnes.
But new innovations in production mean that cement may start to be a bit less polluting - or potentially someday start to bring net environmental benefits. In Europe, new technologies are emerging as scientists seek to revolutionise how concrete is made. Novel processes are being developed that could not only reduce cement’s carbon footprint, but could potentially turn it into a carbon negative material.
In China, cutting emissions in the cement industry is crucial to the national drive towards net zero. Chinese leaders have pledged to hit peak carbon emissions by 2030 and to achieve neutrality by 2060. In line with these priorities, Fidelity analysts began speaking to Anhui Conch’s management about emissions targets in November 2020.
Even before our engagement started, Conch’s management had shown a strong desire to improve the company’s ESG practices, and progress has become more tangible over the last two years. Reflecting some of the improvements, MSCI raised Anhui Conch’s sustainability rating to B in July 2021 from CCC and further raised it to BB in August 2022.
More recently, Chinese cement prices have been trending down this year, with demand from homebuilders slowing as the property market slumps. Meanwhile, rising coal prices are putting another squeeze on the profit margins of cement production. These industry headwinds add to the difficulty of pushing through a decarbonisation agenda, especially for China’s smaller or more weakly capitalised producers. However, Anhui Conch has indicated that it aims to stay the course on cutting emissions and sticking to its sustainability targets, aided by a balance sheet that is among the strongest in the sector.
“Even in a downturn, we as an industry leader will try to maintain industry stability as well as our good image,” Anhui Conch CEO Li told our analysts in the November meeting. “In the current downcycle, our ESG spending will only increase, and this will add to our competitive edge,” he added.
Hard gains
Cement production relies heavily on coal-fired power plants, with each tonne of output typically emitting 0.6 tonnes of carbon. In addition, the mining of lime, a key cement ingredient, can be highly pollutive, and cement itself, once turned into concrete structures, can contribute to urban heat effects.
To cut its own emissions, Anhui Conch has focused on limiting the use of coal and electricity per tonne of cement, as well as boosting its overall operating efficiency. It is switching to biomass fuel, capturing carbon dioxide, and reusing waste heat to generate electricity. As a result, emission density has dropped to 839 kilograms per clinker tonne in 2021 from 855 kilograms in 2017. Clinker, the main material for making cement, typically contributes to 80 per cent of cement’s weight. Anhui Conch has set a very specific target - 6 per cent total reduction in emission density in the five years through 2025, when it aims to achieve 790 kilograms per clinker tonne. Currently, the world’s biggest cement producer, Lafarge Holcim, emits about 743 kilograms of carbon dioxide per clinker tonne.
Driverless trucks are humming about in this eastern China factory, where high levels of automation, swaths of greenery and a sparsity of workers all ooze with vibes of a tech firm. Yet this is a cement plant owned by Anhui Conch, a top Chinese producer of the building material, which Fidelity International analysts recently visited to carry out research into sustainable investment practices.
Since 2020, we have been engaging with Conch as one of our investees, advising it on how to improve across several environmental, social and governance (ESG) factors. In our most recent dialogue, Fidelity analysts met Anhui Conch CEO Qunfeng Li in Wuhu city in November.
The cement industry is one of the world’s worst polluters. Production of this key ingredient in concrete contributes about 7 per cent of annual global greenhouse gas emissions. China, in turn, pours more concrete each year than the rest of the world combined, with an estimated output of 2.1 billion tonnes of cement in 2022 compared with a global total of 4.1 billion tonnes.
But new innovations in production mean that cement may start to be a bit less polluting - or potentially someday start to bring net environmental benefits. In Europe, new technologies are emerging as scientists seek to revolutionise how concrete is made. Novel processes are being developed that could not only reduce cement’s carbon footprint, but could potentially turn it into a carbon negative material.
In China, cutting emissions in the cement industry is crucial to the national drive towards net zero. Chinese leaders have pledged to hit peak carbon emissions by 2030 and to achieve neutrality by 2060. In line with these priorities, Fidelity analysts began speaking to Anhui Conch’s management about emissions targets in November 2020.
Even before our engagement started, Conch’s management had shown a strong desire to improve the company’s ESG practices, and progress has become more tangible over the last two years. Reflecting some of the improvements, MSCI raised Anhui Conch’s sustainability rating to B in July 2021 from CCC and further raised it to BB in August 2022.
More recently, Chinese cement prices have been trending down this year, with demand from homebuilders slowing as the property market slumps. Meanwhile, rising coal prices are putting another squeeze on the profit margins of cement production. These industry headwinds add to the difficulty of pushing through a decarbonisation agenda, especially for China’s smaller or more weakly capitalised producers. However, Anhui Conch has indicated that it aims to stay the course on cutting emissions and sticking to its sustainability targets, aided by a balance sheet that is among the strongest in the sector.
“Even in a downturn, we as an industry leader will try to maintain industry stability as well as our good image,” Anhui Conch CEO Li told our analysts in the November meeting. “In the current downcycle, our ESG spending will only increase, and this will add to our competitive edge,” he added.
Hard gains
Cement production relies heavily on coal-fired power plants, with each tonne of output typically emitting 0.6 tonnes of carbon. In addition, the mining of lime, a key cement ingredient, can be highly pollutive, and cement itself, once turned into concrete structures, can contribute to urban heat effects.
To cut its own emissions, Anhui Conch has focused on limiting the use of coal and electricity per tonne of cement, as well as boosting its overall operating efficiency. It is switching to biomass fuel, capturing carbon dioxide, and reusing waste heat to generate electricity. As a result, emission density has dropped to 839 kilograms per clinker tonne in 2021 from 855 kilograms in 2017. Clinker, the main material for making cement, typically contributes to 80 per cent of cement’s weight. Anhui Conch has set a very specific target - 6 per cent total reduction in emission density in the five years through 2025, when it aims to achieve 790 kilograms per clinker tonne. Currently, the world’s biggest cement producer, Lafarge Holcim, emits about 743 kilograms of carbon dioxide per clinker tonne.