In the world of responsible investing, it can be easy to get stuck in the bubble of ESG methodologies, disclosure requirements, materiality assessments, etc., and to forget that companies out in the “real” world are positioning themselves for the Transition, and taking tangible actions to limit their emissions.
For this reason, the news that Kimberly-Clark had signed two long-term agreements for green hydrogen certainly jumped out to us here at Ethical Screening. These agreements have been made as part of the company’s GHG emissions reduction strategy, and will result in green hydrogen facilities being developed in the vicinity of its plants in Barrow and Northfleet.
While the proof will be in the pudding, of course, this is the sort of news we like to see. It represents a perfect example of a company that has identified an area of improvement (in this case the use of fossil fuels for steam generation), and started to lay the groundwork for a major change in the way it operates.
While hydrogen has its flaws and its critics, it still holds the potential to be a highly valuable tool for decarbonisation. Within heavy industry, for example, the use of hydrogen is a more viable option that electrification for certain processes. You can burn it, after all.
That being said, we believe hydrogen should really be green to be considered sustainable. We are of the view that hydrogen production as a tool for energy transfer and storage can play a key role in the Transition, but only if renewable sources of energy (think wind or sunlight) are transformed into hydrogen, a Kimberly-Clark are planning to do.
For us, the notion of using fossil fuels to power to create hydrogen is questionable. The use of carbon capture and storage (CCS) as part of such a process has of course been suggested, as is the case with blue hydrogen, but the jury is still out on whether CCS should be considered as a sustainable solution.
Now, coming back to the world of money, we believe that hydrogen could be a high-growth area for investors to tap into (N.B. this does NOT represent investment advice), as well as an opportunity for investors to direct capital towards a decarbonisation solution. However, as with any potential solution to a problem, it is vital to approach with caution.
In the case of hydrogen, investors should take extra care when it comes to assessing corporate claims regarding its use or production. Companies seeking investment may overstate the benefits of using hydrogen in their operations, and those which are producing hydrogen may be vague in how they are doing so. In essence, be on the lookout for greenwashing.
Furthermore, how hydrogen is produced will likely be an area for engagement as the sector develops. The technology is still in its early years, and it is therefore fair to assume that best available techniques (BATs) and best practices will evolve. As part of stewardship efforts, investors may wish to work with hydrogen producers to ensure they are prepared for regulatory changes and the evolution of BATs and best practice.
In summary, it’s nice to see solutions to our problems on the horizon, and while investors should be excited, caution is always advisable.