Clean Energy
Transition: Machines
and Manufacturing
Has the sector flown under
the sustainability radar?
When looking at the sources of greenhouse gas emissions
into in our atmosphere, the machines sector does notcome anywhere near the top of the list. In fact, a detailed
breakdown by Climate Watch in 2020 found thatenergy-related emissions from the production ofmachinery amounts to about 0.5% of total globalemissions. This contrasts markedly with iron and steel
manufacturing, for instance, which alone contributes
to about 7% of global emissions, or the transport industry(road, aviation, rail, shipping) which together amounts
to about 16%. Even the production of paper and pulp
produces more (0.6% of global greenhouse gas emissions).
Does the machines sector need to think about clean energy transition?
Considering the machines sector comes so far down the list of global greenhousegas producers, should we even demonstrate the current status of the clean
energy transition for the sector? Should the world be only focusing on theindustries contributing the most to climate change?

What do Atradius underwriters see as the primary issues
for the sector?
We asked our sector specialists for their insights. Our
underwriters in The Netherlands acknowledged that thesector’s impact extends beyond the direct manufactureof machines.
They said: “Almost every stage in the machine manufacturing
process affects the environment. For making the larger
industrial machines, this impact tends to be greater becauseof the higher energy-intensive production processes. Manymachine companies are now committed to sustainability, butmore ambition and especially more sustainable investments
are needed to ultimately achieve the climate goals.”

Indeed, when analysing climate change factors, the machines
sector is often overlooked, even by the sector itself. Recent
research by PwC suggests many machinery and equipment
manufacturers are yet to adopt sustainability as a strategic
priority.
However, the sector’s contribution to global warming
extends beyond the manufacturing of machines.
The sector produces significant Scope 2 and Scope 3emissions. The vast majority of the world’s machines are
made from metals, including iron and steel (a significant
contributor to global warming) and most machinesrequire energy to operate. Indeed, many conventional
manufacturing processes use energy-intensivemachinery, creating substantial carbon emissions.
There are things the industry could do to lower its carbon
footprint along its whole value chain. Attention could be
paid to the industry’s circular economy, in particular thecradle-to-cradle model where machines are designed to berepaired, reused and repurposed. Recycling the materials
from end-of-life machinery could help lower the need to minefor new metal ores. This helps reducing the greenhousegas emissions created through the mining and transportationof raw materials, and the manufacture of metals.

Many of our underwriters pointed to the opportunities that asustainability agenda could present to the sector. In China, ourspecialists expressed how the sector can benefit in the growth ofmachinery supporting clean energy. They said: “The demand forrenewable energy equipment is expected to grow substantially.
The machine sector can capitalise on this by expanding into themanufacturing of components for solar panels, wind turbines,
and other renewable energy systems.” This view was echoed byour specialists in Hong Kong and Taiwan.
Early adopters and producers of clean energy technologies
in the sector may gain a competitive advantage. Our
underwriters in Switzerland and Austria said: “Austrian andSwiss manufacturers are often leaders in technology (hiddenchampions) in their specific industry sectors as they spend
a lot on R&D. In the long run this should be a competitiveadvantage.” In Belgium our specialists said: “Higher precision,
smart and energy sufficient machines,” present an opportunity
to the sector.
Opportunities can come at a price and the cost of transition
to clean energy, sustainable processes and new technologies
can be expensive. In Taiwan, our underwriters noted:“Profitability may be affected by expensive energy transition
costs.” The costs associated with clean energy transition
were also listed as challenge for the sector by our specialists
in South Korea, Japan, the Czech Republic, China, Poland andBelgium.

Challenges: What are the most urgent challenges
for the machines sector over the next three years?

Opportunities: What are the greatest opportunities
for the machines sector over the next three years?

1. Energy supply
The reliability of renewables (wind and solar) andthe ability of national grids to cope with increased demandfor electricity are concerns shared by much of the sector.

1. Growth opportunities
Businesses that transition to clean energy may benefit
from new markets (geography and sector), and enhanced
reputations which may support new investment andthe acquisition of new customers.

2. Labour shortages
Skilled labour is in short supply in many areas throughout
the world. Training and education will be essential to ensurethat the machines sector has the necessary expertiseto support the transition to clean energy.
3. Costs
Clean energy transition can be expensive and could affectprofitability. High upfront costs are currently particularly
difficult for businesses amid elevated interest rates.

Where next?
The future looks bright with opportunities for themachines sector. Its role as a key supplier for a range
of industries gives it some strength and an element offuture-proofing. As our specialists in China explained:“As more countries and regions adopt clean energy
policies, the machine sector can expand into newmarkets, providing equipment and services to a growing
global demand.” In fact the majority of our underwriters

2. Government incentives
Some markets are able to benefit from government
incentives with initiatives such as grants, subsidies
and tax breaks for businesses investing in clean energy.
3. Partnerships and collaborations
The machines sector can form strategic partnerships
and collaborations with clean energy companies,
research institutions, and governments to jointly
develop and implement innovative solutions.

acknowledged that some larger machine companies
are considering making a switch to becoming ‘energy’companies that supply a diverse range of energy
services. In addition to expanding into other productmarket combinations, this could provide a way forbusinesses to manage transition risks. Many are also
increasingly turning to digital tools, platforms and smart
logistics to help mitigate financial and geopolitical risks.

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