ESG Virtual Conference Summary – “Embracing ESG into a company’s DNA: CF Industries Case Study”
CF Industries is the world’s largest producer of ammonia products and has long held a leadership position within this industry for its safe and efficient operations. CF Industries has been publishing annual sustainability reports for a decade, and in 2020 they took a step forward in their sustainability journey to ESG. They took significant steps to support global hydrogen and clean fuel economy: they plan to target net zero emission by 2050, and a 25% reduction in 2030.
This summary reviews the in-depth discussion with Kelvin Roth, VP of EHS and Quality from CF Industries about the company’s approach to decarbonizing ammonia production through its “blue” and “green” ammonia products, as well as the internal changes (from the board of directors to individual departments) that have facilitated an “ESG first” corporate culture. Kelvin also highlighted some of the key drivers and benefits associated with assuming a leadership position in ESG.
Q1: How did the sustainability program at CF Industries come to be?
A1: As a public company, it was a good opportunity for CF Industries to put together an overall sustainability report and start sharing their story. In the first report, they shared mostly stories and very little data, helping them identify what really resonated with their stakeholders. The early stages consisted of identifying what data to share and how it would be shared, starting with the key GRI metrics pertaining to their industry and operations. The next big push came from their CEO saying they wanted to report on all of the GRI metrics that very same year. Year one consisted of identifying, collecting, and verifying all the necessary data. Things progressed by then moving up and aligning the reporting schedule with their annual report. Based on feedback from stakeholders and investors, they have now expanded their reporting to include Global Reporting Initiative (GRI), Sustainability Accounting Standards Board (SASB), and TCSV.
Q2: How did CF Industries approach their materiality assessment?
A2: CF Industries chose to conduct their own materiality assessment and looked to key aspects of the organization to help gather feedback regarding areas to focus on, taking into account how large or relevant each issue was and their ability to control each issue. Conducting the materiality assessment and identifying topics helped them set goals and publish their targets for the first time. Negative feedback from ratings agencies and investors regarding their "lack of transparency" is what pushed them to publish as much as they could including the full GRI. Follow-up questioning related to focus areas and goals because of the transparent data led to them setting specific goals and publishing those targets.
Q3: What intensity measures did CF Industries choose?
A3: CF Industries chose ammonia production tons because that was the most consistent part of the operation. When looking at the fertilizer or agricultural market, there are a variety of nitrogen-based products, but they all start with ammonia. Therefore, this is the most consistent source of GHG, and intensity goals were set based on this.
Q4: What are “blue” and “green” ammonia and any commitment around it?
A4: Ammonia is a compound with one nitrogen and three hydrogens. Blue ammonia is when ammonia is created in a traditional process, where methane was used as the source of nitrogen. However, carbon dioxide is produced during this process and needs to be collected. Green ammonia is produced using water as the source of hydrogen which makes green ammonia a clean fuel. The shipping industry has committed to reducing their carbon footprint by 2030, and ammonia is a primary fuel they would use to accomplish that. CF Industries’ announcement regarding “blue” and “green” ammonia is to use it as a fuel replacement. They plan to use it in two major ways, by itself as fuel ammonia and by combusting it.
Q5: What does CF Industries look like now with the pivot to ESG goals?
A5: The change to ESG is more of a business pivot than a sustainability pivot. It was a new business strategy, and one of the challenges of this new economy is the situation of “chicken and egg”: the market does not exist therefore people are unlikely to build it until it exists, and because it is not built there is no market. CF Industries had a lot of discussion on this scenario in the early stage, and they wanted to learn how things work from a technology standpoint for “blue” and “green” ammonia.
Q6: What are some of the drivers of external stakeholders, and were there any pressure from shareholders, investors, or employees? What was the working environment like after those major ESG changes occurred?
A6: When looking at sustainability and ESG, it is about managing the long-term risk. From an internal perspective, what drove the bigger changes in CF Industries was understanding what the risk looks like, and identifying those opportunities to grow and become a better organization. Ammonia as an energy source does have tremendous opportunities to grow in the future. Moreover, it is also important to look at the growth aspect. When looking at the future growth plan and how to continue to grow to a larger organization, it is important to look at any opportunity that existed within the risks and pivot them into a positive opportunity.
Q7: What are some of the software benefits you have seen in terms of direct economic benefits, and how has your ESG program helped your organization overall?
A7: From a stakeholder to shareholder perspective, GHG emission is a real challenge. An ESG plan does not only address GHG emissions, but also addresses them excitingly because the other way would be stopping production. When CF Industries announced their new ESG strategy, all their engineers were excited about the new technology and wanted to get involved. The shareholders also liked the program and CF Industries’ CFO has been invited to several conferences since the announcement because they do have the upside on the energy market.
Q8: What are the next steps and what will CF Industries look like in the future with ESG?
A8: There are some short-term items: one is improving the reporting to TCFD that includes scenario analysis. CF Industries also wants to set science-based targets across scope one to three. Partnerships are also very important for CF Industries. The green ammonia has technology partners, and blue ammonia has carbon capture partners. NGO also supports them on scope three emission.
Q9: What advice do you have for companies that want to start ESG or are at the primary phase?
A9: Do not try to do it alone. No matter what industry you are in, someone has done it before. Look at what they have done and what they focused on and learn from them. Create a network and reach for help actively. Highlight and address the key stories, challenges, and search opportunities from the challenges. Think about framework that is important to the organization.
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