Welcome to the Impact Economy

Kai Gray
|
September 20
|
5 min read

In this post

Novelis invests $2.5B in Bay Minette, Alabama to produce low-carbon aluminum.

Low-carbon, sustainable aluminum is being demanded by Novelis' customers.

Markets are changing, companies are responding. This is the Impact Economy.

On May 11, 2022 Novelis announced that they were going to invest $2.5B to build a new aluminum plant in Bay Minette, Alabama, the northernmost town in Baldwin County, situated on the eastern shore of the Mobile Bay. Novelis is a producer of rolled aluminum and a leader in aluminum recycling. They employ 11,000 people, are headquartered in Atlanta, Georgia, had revenue of $17B last year, and are a subsidiary of India-based Hindalco Industries.

A big company building an industrial site in Alabama is a big win for the region’s economic development but otherwise isn’t particularly groundbreaking. Sure, $2.5B is a lot of money and the promise of a thousand jobs is always good news but we’re not talking high tech here, this is rolled aluminum, after all. Why should anyone outside of the region pay attention to this, or even care? The answer is plainly hidden in the company’s headline announcing the new plant: “Novelis to Build $2.5 Billion Low-Carbon Aluminum Recycling and Rolling Plant.”

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Why is a company investing $2.5B to produce low carbon aluminum? Well, when we dig a bit deeper into the press release the story becomes much more interesting.

It turns out that there is a demand for low-carbon, sustainable aluminum. This according to Novelis’ President and CEO, Steve Fisher, “We are making a demonstrative commitment to continue to grow alongside our customers and meet their needs for low-carbon, highly sustainable aluminum solutions.”

Again, from Novelis’ own press release: “In addition to the beverage can market, the facility will also serve the automotive market, where aluminum is the fastest growing material as automakers make plans to achieve their sustainability goals.”

If we stop right here, this story is still interesting: $2.5B is being invested in Bay Minette, Alabama in order to satisfy demand for sustainable aluminum–a demand that is being driven by beverage manufacturers' need for sustainable packaging and automaker’s need to hit their publicly stated sustainability goals.

But the story doesn’t end there.

In a region dominated by the oil and gas industry, Novelis announced that their new plant will aim to be net carbon neutral for Scope 1 and 2, be powered primarily by renewable energy, use recycled water and be a zero-waste facility.

Low-carbon, sustainable aluminum being produced in a plant powered by renewable energy and recycled water all within eyesight of the off-shore oil platforms sitting just miles away in the Gulf of Mexico. Could there be more to this story?

On May 16, 2022, just 5 days after the announcement of the new Bay Minette site, Novelis issued this announcement to significantly less local press coverage: “Novelis' First Green Bond Report Highlights $140 Million Allocated to Increase Recycling Capacity, Reduce Usage of Primary Aluminum.” Back in March 2021 Novelis issued €500 million Green Bond at an interest rate of 3.375% with the proceeds committed, in part, to further investment in sustainability. Novelis’ last bond issuance (not green) from the previous year carried an interest rate of 4.75%, meaning Novelis lowered their cost of capital by 1.375% while creating capital to invest in areas that expand their market share and lower their cost of capital.

Let’s take stock for a moment: $2.5B invested in Bay Minette, Alabama to build a plant powered by renewable energy, employing 1000 people at an average annual salary of $65,000 (according to Novelis), producing low-carbon, sustainable aluminum in order to meet customer demand, funded by less expensive capital generated by sustainable business practices. Whoa. That’s a lot from just ONE press release.

**When the plant opens 1,000 new jobs will be created and $65 million per year will be pumped into the local economy all because consumers and investors have demonstrated their desire to buy goods and services that have less negative impact on the environment and are more sustainable. Welcome to the Impact Economy. **

Cycle of the Impact Economy

It turns out that the Novelis case is very interesting, yet it’s not unique. This same scenario is being played out around the world. Some companies are seizing a massive opportunity to create value and build defenses that will serve them long into the future. Meanwhile, other companies are ignoring this opportunity and finding themselves backed into a corner as they will lose market share and pay more for the capital they need to remain competitive. When you hear people talk about ESG and sustainability as “woke” tell them the Novelis story and remind them of the 1000 people buying cars and groceries and mortgages with their “woke” salaries.

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