Episode 13: Irina Gorbounova, ArcelorMittal

This is the Green Steel Challenge. Hi, I'm Astrid Corp and this is the Green Steel Challenge. My father, Willie Corp, revolutionized the steel industry in the late 60s with his Minimals and his new energy-saving technologies. My mission today is to help make steel production greener. But what is Green Steel? How can we make it? And how can we speed up the progress? In this podcast, we will challenge the steel industry to get specific about how to get to zero carbon steel. We will meet global industry leaders to push the conversation and the innovation forward. Joining me on this journey are two of the keenest observers in the space, Dr. Mike Waldt and James Moss. Let's welcome today's special guest from London, Irina Goponova, Head of X-Carp Innovation Fund at Asylomital. Welcome, Irina. Thank you for this introduction. Mike and James, over to you. Today, we've got Irina Goponova. This one is a bit different. She is Vice President, M&A, and Head of the X-Carp Innovation Fund at Asylomital. The world's biggest non-Chinese steel producer and about 70 million tonnes with production, certainly all over the Western world and a bit of the East, too. All products, all production routes, driver of most technological processes. At first and foremost, this is all about X-Carp in the Innovation Fund that is run by Asylomital for their decarbonisation ends. So, over to Irina, can you please tell us a little bit about the X-Carp Fund, Asylomital, and where you're coming from in general? Indeed, we believe that steel has a crucial role to play in helping society to decarbonise and it's going to be very much a solution to the problem. And as Asylomital, we have an important role to play in helping society deliver the objectives of the Paris Agreement. X-Carp is designed to bring together all of Asylomital, reduced and low and zero carbon products and still make in activities, as well as wider initiatives and green innovation projects into a single effort focused on achieving progress towards carbon neutral steel. So, we have launched two solutions under the X-Carp brand. One is X-Carp green steel certificates and another one is X-Carp recycle and renewable produced. Steel is recyclable and that's the reason one of the clear technology pathways to produce low carbon steel is to recycle steel and use renewable energy to produce low carbon steel. So, that's the initiative. The X-Carp innovation fund forms part of the X-Carp branded initiatives. It's really our corporate venture capital fund in nature. And the purpose of the fund is to invest in companies developing breakthrough technologies that will accelerate the steel industry transitions to carbon neutral steel making. So, as we said, a target of reaching net zero by 2050 with the X-Carp innovation fund being testament to our commitment of supporting and development of technologies that can really support our decarbonization of our company and also the industry. When did the X-Carp fund start? And what was the thinking about putting it into a venture capital type structure? So, we've launched the funds in March 2021. So, actually, this month is the three-year anniversary of the fund, we have thank you. And the thinking behinds, I think we've got a lot of very talented R&D specialists within the group. We've got a lot of initiatives within the group and within our city and technology teams. So, it wasn't the lack of technology innovation. There was more about, in addition to all that, we really want to ensure we don't leave a stone and turn and we tap into the innovative ecosystem outside of the group to ensure that we progress in our decarbonization during and the fastest space we can. From what I can tell, you've made about 10 sort of reasonable investments all over the world and I'm sure we'll come back to those in a minute. So, the process and the fund is well and truly up and running. Can you tell us a little bit about the process? How you identify, you'll find out about opportunities. How you assess them, what your goals are, and how do you see the investments going? So, the mandate of the fund is really intentionally brought. There is no limit of the number of companies we can hold in the portfolio. There is no set limit on the monetary figure of the investment. Each potential investment opportunity they are assessing on its own merits. However, we are looking to build a diversified portfolio of technologies and companies. And we feel there is no one technology just to say, you know, the whole decarbonization challenge. The main criteria is really about the potential of technology to support our decarbonization efforts, to help us decarbonize our operations. So, it's really around can the company, or can the technology rather than the startup or the early phase company develop? Can we deploy it's in our facilities? Can we be part of the business of this whole still-making value chain puzzle? I know there are some venture funds out there that I purposefully said to diversify from the core business and invest outside of the core business in different technologies. But I think the focus here is really strategic. We want to ensure that we accelerate our net zero efforts by identifying some of the most promising and bright technologies to decarbonize the value chain. How do you find out about them? Do they contact you or is it part of your whole job to detect these opportunities? There are a number of ways. We are quite well blocked into the ecosystem and well connected. And I think we have also established the name already in the industry. Whenever there is a startup or early phase company working on a solution that can be applicable to still-making, I do believe that they get in touch and we do find out about them. And then of course, you have various advisors and bankers in this space. So we get a number of opportunities being sent to us pretty much on a daily basis again across the value chain. Because if you think about the value chain, it's not just for still-making operations. It starts with energy. There are enormous energy requirements. We all know that still industry is really energy-intensive. So for that reason, if you look at the energy, there are so many different technologies being developed and the renewable energy space and the energy storage space. It's quite a number of various opportunities that come to the fund for review. Can you talk about a couple of the investments that you have made that you're particularly excited by? So I just actually came back from integration of Boston Metal operations in Brazil, which is really a novel technology. It's a molten oxide electrolysis of ores. And I think it offers a high potential in producing steel in the most sustainable and clean ways. I think that's one example I can give. Again, there is lots of discussion around hydrogen-based DRI. And of course, we do know that hydrogen will play a role in the decarbonization of the industry. But of course, economics still remains a challenge when it comes to hydrogen. So we actually also invested in the novel. Hydrogen in the startup developed in the novel. Hydrogen technology is a company called Aged Supra based out of Israel. So that's not the example I can give you. When we talk about renewable energy, we all appreciate the challenge around intermittent and nature of renewable energy. And for the reason, energy storage is going to be really critical. And one of our investments is a company called Form Energy, which is working on energy solution. A hundred plus hours, long duration, energy storage solution, which I think is exactly what we need considering that still making operations require energy 24/7. It's really, it can't just rely on energy when the sun shines and the wind blows. And you also believe you have an investment in new clear as well? That's correct. You know, speaking of energy around the clock in the 24/7, I think nuclear has to be part of the mix. So we invested in a company called TerraPower, which is advanced nuclear, a natural based technology. And what's your sort of time horizon? Or do you have a time horizon for when the technology gets deployed? Are you willing to invest at the very basic level of exploration of a technology? It's a long game, right? So if you look at our objectives, you know, be aimed to decarbonize or to reduce our carbon emissions by 25% globally by 2030. And we aim to get to net zero by 2050. So there are different horizons to get those technologies to commercial scale. And some of them are still at the earlier level of maturity. from getting close to being able to see. deploy it. So there are different time horizons. We have to take a long term view of how we going to achieve our net zero emissions. So net zero targets. And for that reason, you know, we need to look at both short-term, long-term, and medium-term and how we're going to optimally develop those technologies to get us to our end goal. You also operate across developing economies and developed economies where the technology requirements are quite different in terms of decarbonizing. How do you balance that? We are not particularly geographically focused when it comes to technologies. It's really around, can we find the technology that we can then replicate across our different facilities. But in most of our investments, until now, we're mainly in the US, which is more to state that it's really solid and established and very well developed innovative and startup ecosystem. But it doesn't mean that, for instance, I'll give you an example. One of our portfolio companies is based in the US, but we are working with them. We have a joint collaboration and joint project in Belgium. I'm speaking about Lancet X. It's an interesting technology to support our decarbonization and we have built the pilot plant in Belgium, which we have commissioned last year to leverage the US and use the recycled gases from the last furnace to produce ethanol. That's a fairly wide-ranging set of energy type. I think we talked about every single possible energy available though. New clear, solar, storage, etc., etc. Unlike a typical private equity company, which has their rigid risk profiles, return formula, etc., you must have to be extremely open and flexible as to the financial assessment of each of these incredibly varied companies and startups. What sets us apart is that X-carp innovation fund has access to the resources and capabilities of the whole group, which is really the key to our investment process. We have a dedicated investment team comprising the members of our corporate M&A and investment team, and we also have a very strong technical team that consists of members of our situa and research and development team. When we look at the potential investment, we really take a business case of a standalone basis, but we also want to evaluate the ability of the company to decarbonize this industry. We do invest from our balance sheet, and we do believe that this creates a strategic alignment between the objective of the fund and the group. And also, as a strategic investor, we support our portfolio companies through collaboration and joint development agreements, which include pilots and our premises and access to our resourceful research and development colleagues. And I can also imagine that the end game, if that's the right term or the exit strategy, could be completely varied along these. Some of these you might finish up owning 100% or majority owned. Some of them might be nothing but can be brought to bear for our slow meta. Okay, every eventuality is a possibility for you. I agree. I think for now, we're really trying to identify some of the most interesting technologies, but we take a minority position. We actually look at the potential of the technology to be applied across the value chain. But of course, it's in a completely different case. It's going to be different strategies in terms of how we're going to deploy, how we're going to work with the company, how are we going to collaborate in the future? The point has been raised to us in some of the prior podcasts that collaboration is a particular feature of trying to solve the decarbonization problem and both up and all the way through the value chain. Companies find themselves trying to cooperate or collaborate with competitors. In many cases, there are legal prohibitions of that. Have you run into situations where you've had to be very careful about how you participate or have you been able to find the space to collaborate with possible competitors around specific technologies? I do believe that collaboration is going to be promulgately important. I'm really also focused on the cross-industry collaboration. I think cross-industry collaboration should play a significant role. We are not the only energy-intensive industry, and therefore industry needs to work together to support the development of the clean infrastructure and really the clean energy infrastructure that we all require that may solve some self-development. We have around two gigawatts of renewable energy projects underway at Arsenal and its style, primarily in joint ventures with renewable energy providers, but it's more about coming together and really committing to projects to ensure that we get them to the scale where they become bankable. That brings me to the point around breakthrough energy catalyst. The platform designed to really address this chicken and egg situation, if you look at a lot of clean energy infrastructure projects, they're not yet at the bankable stage. To get them to the bankable stage, you really need to scale them. This is the value of this, some people call referred to. How do we address that? We really need this catalytic capital and breakthrough energy catalyst where the end partner aims to target exactly that, to provide this fund in the catalytic capital to get some of those projects to set off and really deploy in order to scale to the necessary level and get them to the scale we need. How easy or difficult is your job? Are there hundreds of these opportunities out there and it's just the case of prioritizing them or is it really hard work trying to find these? I think of course when we started we had to think about where we're going to bring all those, how are we going to source those opportunities. But I'm pleased to share that since we launched the fund, we don't have a shortage of opportunities to look at. It is indeed the constant prioritization and assessment of those opportunities. I will also give an example of our accelerator program that will launch the year before. The objective of that was exactly what you're asking. Mike, we decided to take a step back and say, instead of reacting to every opportunity that we get, how about we take a step back and think what exactly are we after? We have developed, we have identified seven technology domains and we invited interested startups and early phase companies to apply in each one of those domains. We were pleased to receive more than 100 applications in the first accelerator within a couple of weeks. That gave us an opportunity to really group all of those opportunities by technology domain and benchmark them against each other and see which ones stand out in particular related to steel, steel making, like really deployment of those technologies and steel making. We also launched last year a country specific, India specific accelerator. You would ask why and there was a reflection of our growth ambition in India. We have a significant operations in India. We also look at renewable energy projects and therefore we thought we need to tap into the innovation ecosystem in the country and there is a lot of innovation going on. Again, I was really pleased to see the quality applications we have received from the local entrepreneurs operating in India regularly reflecting on what we are after. What is the challenge we're trying to solve? Of course, some of them are very broad, like energy. We need to solve energy challenge. Some of them are more specific. I'll give you another example, for instance, a big fan of circularity. Can you use some of the waste or byproducts of steel making to produce something or to extract value? One of the example would be a slack from steel making operation and we've looked at a number of technologies that have a process to treat this slack to produce, for instance, alternative cementous material. That's also a good example of the cost industry collaboration where waste from our production can potentially be valuable input into another industry. That's something like that. I'm really something like that. The really all this on the lookout for. You're a natural conduit for sort of cross pollinating between these various different technologies anyway, but have you got to the stage of like they do in the IT industry of bringing different people together in a hackathon and exploring technical solutions together? Are you an active proponent of sharing technologies between the investment groups? I think since we launched the funds, I'm really pleased to share. I had a lot of positive feedback from within the group. A lot of, especially technology and research and development teams told me that the fund was like a door opener for them. to the outside ecosystem. There is so much learning going on. So in addition to the investments, I think there are so much knowledge and insights that have been accumulated within the group. We've learned so much and I think with that we can really accelerate. I don't know if IT is a good example, but I think we can really accelerate both, you know, support of some of those innovative technologies, but also development and R&D initiatives within the group. And I was really also pleased to see so much enthusiasm, because I think what's important here is also the innovative culture. And I'm, you know, it's incredible how much innovation we have in the group, and it also boils down to incredibly talented and driven people. So since, you know, since we started the fund, we went to so many different departments and teams within the group. And I think that's one of the huge advantages of the fund that really does. There is so much knowledge in addition to the platform, in addition to Mike initially was saying we have really geographically spread operations using all the technology pathways. And with that comes, you know, a wealth of knowledge, benefits and insights that we can then really use to piece the business of the puzzle together. If you think about the future and you want to ensure that, you know, you're ready for all the future trends, you know, any disruptions or any innovations taken place in the industry that they're really driving it or as a minimum on top of that. So all the examples that we've talked about, and I think all the ones that are actually in X-Carb are sort of upstream. Could it be the case that you might finish up investing in your downstream consuming sectors, you know, electric vehicles, construction applications, that kind of thing or towards net carbon needs that possibility? I'm not excluding, you know, moving away to a certain extent, but again, primarily, it's really around for business. It's really around, I mean, X-Carb, X-Tense for the doubt, carbon, it's really around decarbonization. So that's the primary objective of the fund. It's really around decarbonization of the steel making industry. Of course, I appreciate the right number of different initiatives, you know, not directly related to steel making, but can be supported. I'm not excluding that in the future, we might diversify also into another areas, but I think at this stage, we're very much focused on our core business. This is all about your scope, one, and well, even more scope to emissions. The world that you live in Arena, you're almost living in the future conceptually. You're exposed daily to all these new technologies, technologies that you've already invested in. Your portrayal of a steel industry, a future steel industry is quite different from the one that most people think about when they think about the steel industry. Does that help with recruitment of younger people into your initiatives? Does it help translate that enthusiasm that you've talked about for the technologies back into the group? Absolutely, James. I think you're spot on. There is definitely so much more interest than we've been approached by a number of universities and a number of, say, MBA graduates who are quite interested in working on the case, on the strategy for ex-carbonization funds. So there is definitely much more interest and more young people interested in come to the industry, despite, if you think about it, you know, it still has certain, not necessarily, well, it has still a pollutant image amongst the minds of many people. But one point I wanted to share, I actually had a discussion with my son yesterday who asked me, "Mommy, who do you think I should become in the future?" And my answer was, you know, you need to think about two things. One is, you know, what are you truly passionate about? What gives you joy? What excites you? And the second one is, you know, what does the world need? What is good for playing it Earth? How is, you know, it's going to be required in the future? And of course, we are here not to talk about my son's passions and joys, but it's really around what will the world require in the future? How is our future going to look like in 5, 10, 15, 20 years? And, you know, there are a number of trends, of course, shape in the future, but in some of them, you know, are really so exponential, like in case of AI or, you know, digitalization, but also growing population and climate change. And if you think about all of those three trends, i.e. growing population, climate change, and growth of AI, still is going to be so fundamental. If you think about growing population, then you don't need more housing, more infrastructure. And this infrastructure needs to be low carbon and clean, so if you think about climate change, we need to ensure the energy is clean, so for that reason, you know, everything started from solar panels, wind towers, nuclear, just name it, will require a lot of steel in the electrical vehicles you were mentioning. If you think about AI, all those data sensors and, you know, all the literature requirements. So, all I'm trying to say, you know, the future might not be clear to everyone, how we're going, you know, how things are going to look like in 20 years or, you know, by 2050, but one thing is clear that, you know, steel is so fundamental, there's going to be a lot of steel required. Of course, you know, you can debate the numbers. I've seen different estimates around steel production, by say, 2050, ranging between 2.2 to 2.5 billion tons per steel per year. But, you know, again, regardless if you talk about, even if you think about 2 billion, it's just a lot, a lot of steel to decarbonize. So, that's one trend that's quite clear. And I think I'm quite excited that, you know, we are focused on innovation and, you know, we also attract a lot of talent and, you know, people are quite enthusiastic about supporting our efforts to getting a zero. So, the European industry now, as we've talked about in many of the previous episodes, it's all about using more scrap and moving to DRI and the limitations are all about, you know, the German state, for instance, building enough renewable energy, etc, etc. There are plenty of issues right here and now in Arsenal, and it will be very, very aware of those. In order to get to Arsenal, Mittal's goals in 2030, 2040, 2050 for Arsenal, Mittal and for the global steel industry, do you think several of these brand new game-changing technologies have to come to fruition? Some of these have to succeed for us to achieve our aims. That's a very good question, Mike. And I think the answer to that is not just one solution. For sure, you know, technologies need to get to the necessary material and all the innovative technologies we're looking at should help us to get to achieve our objectives faster. But it's not just technology, right? I mean, it's a very capital intensive industry. So there is a lot, a lot of investment required. And unlike, say, software or IT industry, which are not as capital intensive, and you can probably have, you know, luxury of doing more trial and error to get there. I think in our case, it's really before you start investing into a multibillion project, you really need to get the case and the technology right. So if you ask me, the biggest challenge now is really to solve the economics of the green steel case. I even had a discussion at around a couple of months ago where people were saying, "Well, we need to really accelerate and multiply and deploy fast some of those decarbonization projects." And I said, "Well, if some of them, if economics doesn't work and, you know, they're lost making, there is no point of multiplying something which is lost making. You really need to fix the business case before and then the rest will follow." I think one of the biggest challenges is still that, you know, if you talk about DRI based on Hydrogen, I had a sit down with our strategy team to understand the economics, but whichever assumptions you'd take as a stance, they still produce through that fast way they'll result, you know, in the cost at least 40% higher if not more. So I think this is something that we need to address. You know, there are a lot of efforts that are put into this. There are a lot of projects and initiatives, you know, both from the leg regulatory, from the technology, from the funding perspective. You just know just, you know, one effort, the one technology that will solve it also. I guess what I'm trying to say is that all of those forces need to come together in order to resolve this. How do you judge your success? I mean, you're in early stages. Nobody would have expected after two or three years that the kinds of risks, a technological and financial that you're taking would have yielded much at this point. How will you personally measure your success? And how does the company measure your success? Is it financial or technological or by the amount of contribution to decarbonization? What's the funds measure of its success? I think, of course, ideally you want to ensure that financially there are returns on the capital invested. The primary objective is really strategic. So do the technologies that we support? can we really use them and deploy them and work with those companies to reduce carbon emissions. So I think the key measure of success for me would be reduction in the carbon emissions in still making operations. Can the technology support our decarbonization at scale? So that for me would always be the key measure of success. When I looked at the list of your investments, I couldn't help notice about 90% of them are North American and none, apart from the Belgium exception, are based in Europe. Can we read any more into that? Does that say something that this is at the moment? It seems to be a very, very North American based exercise. I don't think you should read too much into it. I think it's just reflects as initially this strong and well established clean tech startup ecosystem in North America. And obviously we also have operations in North America. We don't have any geographic preference of where companies ahead water provided that technologies are transferable and can be integrated into our civil middle process. Again, remember I was given the example of Lanzatech, which is headquartered in the US, but we have the joint plan, the still and all facility. And now again, facility providing a CCUS solution, which supports our civil middle, European targets. We have also announced the final list of our accelerator program in India. So you will see us focusing also on supporting some of the startups working with solutions for our industry. Are there any technologies that you've not yet invested in that have made you catch your breath in terms of what they might contribute, the stuff that's coming across the transom on a regular basis. Is there anything that's jumped out at you as being particularly exciting? You can't wait to get invested in it. I think if you look broadly at the energy, there are a number of trans that gets people excited. A lot of, a lot has been said around geological hydrogen and there are different colors, I think, attributed to this hydrogen, I'm sure it's white and gold hydrogens. There is a discussion around that. I think it's still, of course, at the very nascent stage, but potentially offers a good solution to address the cost of hydrogen because, you know, if there is really a lot of hydrogen trapped underneath the earth that we can get to in the cost effective manner and find a way to transport, of course it can offer an interesting solution. Fusion, I'm always fascinated by fusion, but I appreciate the term or the time and around getting into the commercial scale. The term is another area where we look and ask because it's again something that's quite exciting. On the more niche or more specific things, like I said, you know, finding a technology that can support processing of our electrical art furnace slack into something useful, there would be something that, you know, I would get excited about. So if there's somebody out there listening to this who thinks they've got the technology, they contact you? Of course, absolutely. I start on a vision and find out our solimetall.com. Very soon. I've noticed that somebody's name comes up in this all the time and is affiliated with a couple of your investments is Bill Gates. How important is his foundation in all of this arena? So we're an anchor partner in Breakthrough Energy Catalyst platform and Breakthrough Energy Catalyst was launched to address this chicken and excitation around clean energy infrastructure. We have this emerging clean energy infrastructure which is not yet, in most cases, is not yet bankable, not yet at the FID level. And to ensure that, you know, we get shovels in the ground as soon as possible, we really need to find the way to define the solution to the funding challenge. And if you speak to a lot of banks, they're saying, well, it's still not bankable, you need to scale it, but it's become bankable, but then you can't scale it, given that you don't have funding. So I think that's an important tool, an important way to get this emerging clean infrastructure to the scale it needs to be at. That's the reason we invested in Breakthrough Energy Catalyst. And the Catalyst program brings together public and private finance with the objective of us tracking the deployment of projects which can deliver significant carbon reduction. I think partnerships like these are critical to reaching our collective climate goals and they're proud to be in an compartment built in Breakthrough Energy Catalyst program. The thing that fascinates me about your personal job is that I always consider our small metal as being one of the ultimate corporate organisations in the world and you're dealing with these most uncorporate organisations. It must be fun on a day-by-day basis arena being in your position. I'm definitely not going to go into a completely naive way. I think it's a lot of joy and excitement and you meet so many interesting entrepreneurs and bright people and some of the most talented guys working on those solutions to address the climate change. It's truly fascinating. So I think I'm really blessed and being able to interact with so many interesting entrepreneurs and companies driving this. One of my challenges is I'm trying to bring this venture pace to our process of evaluating technologies because, of course, our traditional R&D would have slightly different approach to look in various projects and do we skin them and if you are the venture investor it's somewhat different. So marrying those two is of course challenging but simultaneously exciting. When we come back and talk to you again in a couple of years arena, where will we be? I do hope that I'll be able to proudly tell you that some of those companies we have invested now reach their industrial scale, reach the necessary maturity to be deployed at the industrial scale and rebuild in the first industrial scale facilities using their technologies. How old is your son, by the way? My youngest is 11. My oldest is 14. Which one were you having the conversation? I had actually a discussion with both but yesterday there was the one who is 14. One point I can mention is speaking of my son, I received the call from one of the tutors of my son who said, "You know, arena, I had the most fascinating discussion with your son, he's talking about the organization of steelmaking. Is this something you do?" I said indeed, indeed, that's what I do and so the school asked me to come and talk to children about it. I remember the first slides I looked at from my team that I wanted to present to school. I said, "Well, guys, you don't know how children think. They will not get excited by this. We need to find a way to bring the points around the urbanization of steelmaking and the most exciting and engaging way. So I'm happy to share that we now have developed a very good presentation that we want to present to schools and see if we can engage children because I think education is so important and we need to really get children to understand how exciting the industry can be." That's great. Well, many thanks for that, Arena. It's been a really, really interesting, a very different discussion. Plenty to think about and it's one that would be really suitable for revisiting, hopefully, quite soon. So many, many thanks, Arena, for a very interesting discussion. Thank you. Thank you, Mike and James. Thank you very much. Thank you, Arena, Mike and James. That was a very interesting discussion to listen to today. Please join us in our next episode where we will welcome from Germany, Thomas Hansmann, CTO of the CMS Group.