Net Zero: All it takes is a title

For decades, investors have supported vaguely-articulated and easily-ducked carbon reduction activities by companies.  These have had some (but very limited) impact. Within months, however, the concept of 'Net Zero' has caught on.  It has a snappy title; it has a positive and clear goal; it has caught the public and governmental attention; it is here to stay

Then Larry Fink's recent letter to CEOs dispels any doubt that may have existed in company minds about investor interest in this objective.  'Net zero' is a solid benchmark against which they will be measured, in perpetuity, by investors. The choice facing companies now is whether:

• they want to be the ones who define the context within which investors measure their 'net zero' trajectory or whether
• they are happy for civil society to set that context or whether
• they are happy for mindless quantitative data models to do that.

… and they need to decide now - because society and the data modellers are moving ahead on this at full speed.

Net Zero briefings: EN+ Group showcases the 'new necessary'

From its recent 'fireside chat', we conclude that EN+ Group is one company that wants to articulate the context around 'net zero' for its investors.  We participated in the event and share our reflections below.

Context

• What: EN+ Group ‘Fireside Chat’
• When: 25 January 2021
• Which company: EN+ Group which describes itself as ‘a global leader in low-carbon aluminium production and renewables.’ It has a well-established presence across five continents and an operational hub in Siberia. It operates hydro-power assets that supply the energy required for the production of aluminium. Substantial production capabilities make it the largest aluminium producer outside China.
• What subject: EN+ Group’s ambition to become Net Zero by 2050 and to reduce greenhouse gas emissions by at least 35% by 2030.
• Who (presenters): Lord Barker of Battle, Executive Chairman of the EN+ GROUP was joined by Roman Andryushin, Sales and Marketing Director for RUSAL. The discussion was moderated by Keith Tuffley, Global Co-head of Sustainability and Corporate Transitions at Citi and the Q&A session was moderated by Yulia Chekunaeva, Director for Capital Markets and Strategic Initiatives for EN+ GROUP.
• Who (audience): Investors, analysts (including ESG analysts), rating agencies, investment bankers, financial markets consultants and internal stakeholders

How?

EN+ Group hosted an online briefing billed as a ‘Fireside Chat’ to discuss the company's roadmap for decarbonisation. Fireside chats are becoming more commonplace in investor communications circles as an alternative to more rigid and traditional IR presentations and are popular with event organisers.

They freshen up a conference, enable presenters to showcase their depth of knowledge and allow the audience to uncover the speakers’ views, skills, vision and ideas. 'Fireside chats' are inclusive and conversational and typically start with a moderated discussion and then open to questions from the audience.

They appear, in our view, well suited to the nuances and complexities inherent in the 'net zero' transition process.

What ... the company communicated

From the session, we interpreted that the EN+ Group aimed to:

• Articulate how well the company is positioned for the transition to 'Net Zero'
• Demonstrate that - in the face of this and other business challenges - the company is effectively and responsibly governed
• Gauge the depth of investor understanding of / interest in the company's low-carbon trajectory

For the benefit of other companies that may be considering similar events in future, we evaluate how well the company met these objectives and the extent to which the format helped or hindered them:

Articulate EN+ Group's positioning for 'Net Zero'

• EN+ is developing a new strategy that aligns it with a shifting pro-climate international agenda (COP26, a more climate friendly US administration under Biden, and stronger commitments from China and Russia on action to mitigate climate change).
• The fireside chat format worked well for this. Although the style was relaxed, the discussion was information-rich and nuanced.
• Mr Andryushin, the company's Sales and Marketing Director was able to set out the business case for low carbon aluminium (LCA) by citing growing demand from sectors including automotive, renewable energy generation, construction and packaging.
• His use of market statistics - notably on changing consumer sentiment in key markets and consumer willingness to pay a quantifiable price premium for LCA - made the case convincing. In this respect, the format enabled depth.
• EN+ stressed that the route map to 'net zero' is a difficult one and must be based on partnerships and collaboration with all stakeholders and across the value chain. In this respect, the format allowed the company to explain the nuances inherent in such multi-stakeholder activity.
• The Q&A session is also important in this respect as it required the company to address aspects of its 'net zero' challenge that may prove difficult such as its CHP legacy and the high energy intensity of current smelting processes.

Demonstrate effective and responsible governance

• From participating in the event, we concluded that EN+ Group wants to be seen as a good corporate citizen and a responsible producer of aluminium. This aligns with the wider investor rehabilitation strategy that the company has been pursuing over the past three to four years.
• The role of the Executive Chairman is critical to this process. So, this event provided a good opportunity for EN+ Group to demonstrate how Lord Barker's past experience - as a UK Minister of State for Energy and Climate Change - provides him with the skills required to develop an international investable profile for the company, to demonstrate a robust governance framework is in place and to articulate how that the company's investment in low-carbon aluminium is relevant to the company's strategic and commercial direction.
• Given the commercial and political complexities of the path to 'net zero' investors will want to see that the most senior executives and non-executives within companies are involved. In our view, EN+ Group used this opportunity effectively.
• However, 'net zero' is an 'execution' as well as a 'governance' challenge. As such, the two company presenters made a good 'tag team'. Lord Barker was able to present the international investable profile that the company wishes to convey and communicate the strategic importance of 'low carbon' concept. Then, to ensure the company presented itself as an investable opportunity (i.e. as more than just a responsible company) the sales and marketing director linked the sustainability agenda (low carbon strategy) with the business case by highlighting the customer demand side for low carbon aluminium (LCA).

Gauge the depth of investor understanding of / interest in the company's low-carbon trajectory

• At the end of the 'chat', the presenters fielded some challenging questions from investors and analysts including from Credit Suisse, Barings and Citi.
• This gave the company an insight into the depth and nature of investors' interests.
• However, they also retained good visibility as most of the questions had been submitted in advance.
• Analysts and investors asked about the emissions impact of legacy CHP and contingency plans if the strategy prove difficult to deliver on the expected timeline;
• The use of an investment professional (from Citi) as moderator helped to focus the discussion on investable relevance. Mr Tuffley's role was - in effect - to organise and ask probing questions on behalf of the investor community that were listening in.
• The presentation was followed by an email to all participants inviting feedback and a reminder that EN+ Group will be publishing a Group Report on the LCA pathway in September 2021. Importantly, it appears that the conversation will continue.

Other factors to consider:

Other companies considering similar presentations might also focus on:

• Explicitly contextualising the presentation with (third-party) research:
  • Mr Andryushin mentioned a report by Harbor Aluminium who have recently published research showing a price premium for green aluminium.
  • This reinforced the commercial nature of the LCA strategy. However, he did not provide immediate reference to this - leaving us to find it ourselves.
  • The overall communication might have benefited from two or three 'shared-screen' slides to reinforce this message and to direct investors towards other information sources. Alternatively, links could have been provided at the end or circulated after the event.
• Wide circulation of the event invitation and pro-active calling to ensure that all relevant analysts (including from ESG agencies and independent research firms) participate in the session.

Support

Sustainable-IR thanks Yulia Chekunaeva of EN+ Group for her support in writing this case study.