Cemex and the power of regulation

Why Cemex?
‘As PGGM we see our portfolio companies move into the right direction (decarbonize). Within the foreseeable future all our portfolio companies should have a decent plan for the energy transition and contribute to decarbonizing the society. Our investment in Cemex suits our policies and what we are looking for in green investments. It is one of the biggest cement producers in the world and one of the first cement companies to get its targets verified by SBTi. This means they are following the 1.5 degree Paris aligned pathway and aim to be net zero in 2050. They also have a mid-term 2030 goal where they want to reduce their CO2 emissions by more than 40% and use cleaner fuels.’

Green bond EU framework
‘The most efficient way to get companies to decarbonize is regulation: good quality data, reporting, setting targets and pricing emissions. The EU green bond framework takes care of all the requirements, so it helps if a company like Cemex develops a credible framework, preferably along the lines of the EU Taxonomy. The specific EU Taxonomy requirements for manufacturing cement are very detailed and therefore of use to both issuers and investors (Manufacture of cement). In Europe we have carbon pricing and a push from the government for cement producers - or anybody with high CO2 emissions - to decarbonize. This means that there is a business case to invest, as that of a cement producer who develops ways to decarbonize the production process. At the same time there is a lot of demand for greener products, because everyone needs to reduce their CO2 emissions. Cemex produces ‘green’ cement; a type of cement that was produced with significantly less CO2 emissions compared to other types of cement. So even if the price is higher, the product still sells. This is purely the result of strict regulation, carbon pricing scheme and emissions trading scheme that we have in the EU.’

No strict guidelines in the US, Mexico and Canada
‘Mexico has developed a taxonomy, but it is unclear how it differs from the EU taxonomy. Furthermore, Mexico is a developing country and mostly just wants assets, clean or not. The US has the Inflation Reduction Act which gives incentives and subsidies to companies to build new greener assets, but they also have all kinds of local building regulation which often prescribes that cement has to be produced in a certain way. This basically prevents the cement producers to start producing cement with significant less emissions. Canada, the US and Mexico do not have requirements like we have in Europe and therefore less eligible projects that qualify for green bonds. Companies do not always have the right incentives to change anything or to improve. So coming back to regulation: there is no push from the government, so companies make their own judgement call whether or not to improve.’

Change is happening
‘This will definitely change. The Inflation Reduction Act in the US is already incentivizing companies to produce solar or wind energy. In Mexico, companies get incentives to build a factory near the selling point (nearshoring). Cemex is voluntarily collecting waste and making (bio-)fuel out of this waste, instead of using gasoline or petroleum products to power their operations. They want to start using this model in the US, Canada and all other countries where they are operating. Furthermore, Cemex partnered with a company that produces concentrated solar thermal energy, which is used to make the first-ever solar clinker. Change is small and slow, but it is happening. We want to have companies with good transition stories in the portfolio. Green bonds based on a credible and science based taxonomy such as the EU Taxonomy helps with that. Hopefully in the future there will be one leading global taxonomy that is useful for all. Eventually we need change happening in the real world and not just getting to a clean portfolio.’