THE cement industry is one of the world’s biggest carbon polluters.
It is the most widely used human-made material across the globe with about 4.6 billion tonnes produced each year. And it’s remained largely the same for centuries.
“The story goes that if the Roman emperors were in the world today, one thing that would still be familiar to them is cement production,” says Maxime Le Floch, an investment analyst focused on equity impact solutions at Regnan.
It’s an industry that hasn’t innovated very much. Until now.
French-based Hoffmann Green Cement Technologies is changing the way cement is manufactured, drastically reducing the amount of greenhouse gases emitted in the process of creating concrete.
“The reason we got interested in the company is because we need to decarbonise the economy,” Le Floch says candidly.
“The cement industry accounts for about 8 per cent of global greenhouse gas emissions. That’s a big share of industrial emissions, which is going to stand out even more as other sectors decarbonise.”
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Hoffmann Green’s breakthrough was to eliminate the use of clinker in the creation of cement.
Clinker is a mix of limestone and minerals that are heated in a kiln as part of the cement making process. This releases enormous amounts of carbon dioxide.
Eliminating clinker substantially reduces the amount of CO2 released into the atmosphere during the production of cement.
“Hoffmann Green reduces the carbon footprint of cement by a factor of five,” Le Floch explains so was an obvious option for Regnan to consider.
Regnan thinks about stocks in terms of impact, value creation, value distribution and value gap. The impact Hoffmann Green can have in terms of reducing carbon emission is clear.
“Most of the innovation happening in the cement industry is incremental, around existing technology. But Hoffmann Green has removed the clinker chemical reaction in making cement and that’s quite dramatic.”
Hoffmann Green also ticks the value creation box, in part because its competitors aren’t innovating fast enough, burdened by existing infrastructure that risks becoming stranded. Cement is generally a relatively localised industry because of costs associated with transporting the product long distances.
“Hoffmann Green can come in, have a product that’s much more radical and better for the environment, and there’s demand for that. They are able to charge about twice the price of normal cement because of the green credentials.”
Hoffmann Green’s process also means the energy bill to produce cement is lower, reducing the group’s cost base.
“The cost base is quite low. The capital requirements on new sites are much lower than other cement companies. There’s a lot more operating leverage as they scale up,” Le Floch says.
“In terms of value distribution, this is a relatively small company that’s scaling up,” he says. “They’re very committed to sustainability. It’s quite an automated process that doesn’t involve large amounts of industrial heat for instance … so it’s also a much safer process for employees compared to other types of cement making.”
A company like Hoffmann Green should benefit in the future because as they grow, their value proposition will become more evident to customers, who are being pushed to de-carbonise.
“Hoffmann Green is relatively small – a half a billion Euro market cap. It’s the smallest company we have. But as they scale up, we will have the opportunity to scale up,” Le Floch says. “They are in an investment phase. They are building new sites.”
He argues there’s plenty of opportunity for the company. There’s a potential for more sites. There’s also a benefit when carbon prices increase, because customers will be look for low CO2 emission options. And there’s an option for an international licensing model.
Of course, every investment carries risk.
“The key risk is in execution,” Le Floch says. “It’s in delays to building out their manufacturing and production capacity. There is always a technology risk with new processes, though I think that’s reducing over time as they get more confirmation from customers using their cement. And there will be other competitors emerging in the pathway to decarbonisation.”
“But Hoffmann Green has been able to hit its key milestones in terms of its product being validated. There’s a new innovation cycle in the economy around decarbonisation and sustainability more generally … and Hoffmann Green is at the cutting edge.”
Regnan is a responsible investment leader with a long and proud history of providing insight and advice to investors with an interest in long-term, broad-based or values-aligned performance.
Building on that expertise, in 2019 Regnan expanded into responsible investment funds management, backed by the considerable resources of Pendal Group.
The Regnan Global Equity Impact Solutions Fund invests in mission-driven companies we believe are well placed to solve the world’s biggest problems.
The Regnan Credit Impact Trust (available in Australia only) invests in cash, fixed and floating rate securities where the proceeds create positive environmental and social change. Both funds are distributed by Pendal in Australia.
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For more information on these and other responsible investing strategies, contact Head of Regnan and Responsible Investment Distribution Jeremy Dean at firstname.lastname@example.org.
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