Global innovations driving zero-carbon cement

Company-level metrics provide only half the picture of zero-carbon cement. Our Emerging Market Equity and ESG teams’ on-the-ground analysis provides the other half.


    As the glue that binds sand and gravel to make concrete, cement is an integral part of our everyday lives. We build houses, skyscrapers, hospitals and bridges from it, and even use concrete to anchor wind turbines. Beyond infrastructure, cement is a cornerstone for nations seeking to improve the prosperity and quality of life of their citizens. Essential to China’s modern urban landscape, cement is projected to play a similar role across regions, like India and Africa, making cement a high-profile sector for our emerging market equity analysts.


    And yet, cement is also one of the most carbon-polluting industries. If we rank cement with the world’s largest economies, it ties with India as the fourth-largest carbon dioxide (CO2) emitter after China, the United States and the European Union (EU).1 For climate-focused investors, cement is a thorny issue for the “E” in ESG analysis (Environmental, Social and Governance). There is currently no low-carbon replacement for cement’s core ingredient—called clinker—that also matches the scale of growing global demand. This puts cement in a tug-of-war between two global trends: improving standards of living and decarbonizing national economies.

    Luckily, there are well-known levers that cement operators are already pulling to reduce cement’s carbon intensity—measured as CO2 emissions per metric ton (MT) of cement. Total decarbonization, on the other hand, is quite difficult, though not impossible. With this backdrop in mind, our discussion dives into the mechanics of decarbonizing cement production, with a focus on recent developments and ESG research across the EU, China and India.


    • When analyzing the scope of cement carbon emissions, equity research typically hones in on ESG metrics like “clinker ratios”—which measure the percent of clinker in cement versus lower-carbon ingredients—and the ratio of “alternative fuels” used to heat cement kilns. Our on-the-ground analysts in China and India explain why some of these yardsticks can unravel upon closer inspection.
    • To gauge prospects for zero-carbon cement, company-level metrics give you only half the picture. The economics of carbon capture technology, for example, don’t work without national carbon pricing and publicly financed infrastructure. When grading country-level policies for capacity to decarbonize, our analysts think China may hold an edge in the coming years, compared with a more slow-moving EU.
    • The EU plans to be the first carbon-neutral continent, with China pledging to decarbonize by 2060. Since India isn’t following a similar glidepath (for now), two equity research shops recently predicted India could sell lower-priced (but higher-carbon) cement into Europe, benefiting from “carbon leakage.” We explain why future carbon border adjustments will likely prevent this scenario from playing out.


    1. 2017 CO2 in gigatons (Gt): China 10.9 Gt, United States 5.1 Gt, European Union 3.5 Gt, India 2.4 Gt. EDGAR database 2018.


    All investments involve risks, including possible loss of principal. Stock prices fluctuate, sometimes rapidly and dramatically, due to factors affecting individual companies, particular industries or sectors, or general market conditions. Special risks are associated with foreign investing, including currency fluctuations, economic instability and political developments. Investments in emerging markets involve heightened risks related to the same factors, in addition to those associated with these markets’ smaller size and lesser liquidity. The companies and case studies shown herein are used solely for illustrative purposes; any investment may or may not be currently held by any portfolio advised by Franklin Templeton Investments. The opinions are intended solely to provide insight into how securities are analyzed. The information provided is not a recommendation or individual investment advice for any particular security, strategy, or investment product and is not an indication of the trading intent of any Franklin Templeton managed portfolio. This is not a complete analysis of every material fact regarding any industry, security or investment and should not be viewed as an investment recommendation. This is intended to provide insight into the portfolio selection and research process. Factual statements are taken from sources considered reliable, but have not been independently verified for completeness or accuracy. These opinions may not be relied upon as investment advice or as an offer for any particular security. Past performance does not guarantee future results.