Heidelberg Materials: Engagement case study

In September 2023, we saw Heidelberg^ as having the potential to be a sustainability leader in heavy building materials, with the most ambitious emissions intensity target in the sector,[1] as well as a lead in implementing carbon capture and storage (CCS) on its cement capacity through its project in Brevik, Norway.[2]

Recognising that reducing the cement sector’s emissions plays a critical role in global decarbonisation, it has been a prominent focus for L&G’s climate engagement, as illustrated in our recent CIP publication. For Heidelberg specifically, we see its sustainability strategy as a critical driver of value, as:

-       In Europe, the Carbon Border Adjustment Mechanism (CBAM) and phase-out of free allocations of Emission Trading Scheme (ETS) permits means cost-effective investment in decarbonisation leads to a margin advantage,;[3]

-       While cement generally only represents a small share of overall construction budgets[4] it is a big component of embodied emissions. As such, we believe very low-carbon cement could fetch a price premium in the market as building users value the decarbonisation of their Scope 3 Emissions;

-       Sustainability improvements require capital investment, which can be inaccessible for smaller operators, hence this could facilitate industry concentration and may, in our view, lead to an increase in Heidelberg’s market share.[5]

We were concerned by the market’s lack of widespread understanding of these dynamics, evident in Heidelberg’s 20% discount to peers CRH and Holcim and its valuation at ~4x 2024E EV/EBITDA in late 2023, relative to 5.9x five-year average.[6] Analysts at the time were focused on asking the company to consider making a move to catalyse value in its US business,[7] either through a re-listing of the whole company or a separate listing of the US segments. We believed that a listing move could jeopardise the company’s ability to execute on its sustainability strategy due to a difference in focus among US investors, while a separation could yield diseconomies of scale between the US and other regional businesses by removing opportunities for learning on best practices to reduce energy use and emissions.

We engaged with the company, on several occasions in advance of its May 2025 Capital Markets Day to encourage the leadership to improve disclosure to investors of the value framework for sustainability, to catalyse the value from its sustainability strategy as soon as possible, and to reduce calls for a re-listing or a separation of the US business.

The Capital Markets Day met our expectations. The presentations emphasised the value of the sustainability strategy.. The financial presentation also gave specific numbers on the margin impact of the Brevik CCS project, which was very helpful to enable effective modelling of value creation potential. The idea of catalysing value through a separation of the US business was also put aside thanks to a focus on the synergies between the global businesses, through sustainability but also through the application of technology and AI.[8]

Since we initiated the position, Heidelberg’s share price has more than doubled, the stock has outperformed its peers by 20-30% over the period, and it has re-rated to over 9x EV/EBITDA.[9] This has coincided with a period where the company has meaningfully demonstrated its ability to deliver on one of the most ambitious emissions intensity reduction target in the sector, aiming for <400t CO2/t cement by 2030[10], while it is also about to start selling its zero-carbon cement product. We believe that this clearly demonstrates environmental and shareholder positive decisions are by no means mutually exclusive and in many cases self-reinforcing.  

* Past performance is not a guide to the future. Assumptions, opinions, and estimates are provided for illustrative purposes only. There is no guarantee that any forecasts made will come to pass. 

^Case study shown for illustrative purposes only. The above information does not constitute a recommendation to buy or sell any security. 

Whilst L&G has integrated Environmental, Social, and Governance (ESG) considerations into its investment decision-making and stewardship practices, this does not guarantee the achievement of responsible investing goals within funds that do not include specific ESG goals within their objectives.

 
[1] Science-Based Target Initiative target dashboard https://sciencebasedtargets.org/target-dashboard and company data on baseline emissions intensity as of August, 2025
[2] Heidelberg 2023 Annual and Sustainability report https://www.heidelbergmaterials.com/sites/default/files/2024-03/HM_ASR_2023.pdf 
[3] L&G analysis based on European Commission, 2025 https://taxation-customs.ec.europa.eu/carbon-border-adjustment-mechanism_en 
[4] L&G analysis based on Net Zero Tracker, https://zerotracker.net/ and World Economic Forum,  https://www3.weforum.org/docs/WEF_Net_Zero_Tracker_2023_CEMENT.pdf, 2025
[5] L&G analysis, as of 2025
[6] L&G analysis based on Bloomberg data, as of 2025
[7] Based on questions asked by analysts in Heidelberg Materials quarterly earnings calls throughout 2024
[8] https://www.heidelbergmaterials.com/en/investor-relations/financial-calendar/cmd-2025 
[9] L&G analysis based on Bloomberg, as of 2025
[10] L&G analysis based on Heidelberg https://www.heidelbergmaterials.com/en/investor-relations/financial-calendar/cmd-2025 and Science-Based Target Initiative dashboard https://sciencebasedtargets.org/target-dashboard, as of 2025