By Jan Anton van Zanten, Patrick Bawlf, and Mariia Kuznetcova
Algoma Steel is one of Canada’s major integrated steel producers, operating a large steelmaking complex in Sault Ste. Marie, Ontario. It is also a significant carbon emitter in our high-yield model portfolio — with scope 1 and 2 emissions approximately five times those of the second-highest holding. And yet, our analysis identifies it as a compelling transition story.
To understand why, it helps to be clear about what our Transition Investment Framework does not do. It does not merely use raw greenhouse gas emissions as a basis for an investment decision. Absolute figures are backward-looking by definition: they tell you where a company has been, not where it is going. A firm can sit at the top of a carbon league table even though it is transitioning towards a more sustainable business model — committing capital, disrupting its own operations, and accepting near-term costs in pursuit of structural change. Divesting at that moment would mean systematically withdrawing from the companies doing the hard work of decarbonisation. That is the opposite of what our Transition Investment Framework aims to accomplish.
The case of Algoma Steel demonstrates the evaluation process applied in our Transition Investment Framework, which consists of three steps.
Step One: Current Impact
The first step of our framework evaluates the impact that companies currently have on societies and the natural environment. For steel producers, one of the primary metrics that we evaluate is CO₂ intensity — tonnes of CO₂ emitted per tonne of steel produced. This normalisation strips out scale and focuses on operational efficiency.
According to Algoma’s own reporting, its 2024 intensity was 2.05 tCO₂/tonne. This is high by industry standards — above the global average of approximately 2 tCO₂/tonne and well above best-in-class electric arc furnace producers at under 0.5 tCO₂/tonne.
Our framework scores it accordingly: low-negative current impact on the energy-decarbonisation transition (related to SDGs 7 and 13), thus placing climate objectives further out of reach.
Step Two: Future Impact
The second step evaluates a company’s expected future impact. This step recognises that companies may have negative impact today, but are shifting their business models to become more sustainable in the future. For steel producers like Algoma, this is particularly relevant. Although this is a hard sector to decarbonise, it is not impossible. Electric arc furnace (EAF) technology is available, offering a credible pathway to achieve lower emissions.
Algoma has committed to EAF at scale, as revealed in our framework by the firm’s capital expenditure. Based on our research, Algoma has deployed approximately C$1.64 billion in capital expenditures over the past five years, with around two-thirds directed toward its green transition to significantly reduce carbon emissions. The centrepiece is a near-complete conversion to electric arc furnace steelmaking — a technology that melts recycled scrap using electricity rather than coal-fired blast furnaces. The company has committed C$1 billion to this conversion alone. The projected outcome is a 70% cut in annual emissions. This is one of the most significant industrial decarbonisation projects in Canadian history[1] – with additional benefits relating to eliminating harmful air pollutants like benzene and sulphur dioxide that conventional blast furnace production generates as a matter of course.
These substantial capital expenditures – and their projected contributions to lowering emissions – lead Algoma to receive a high positive score in our framework’s future impact assessment.
Step Three: Financial Health
In the third step, our credit research explores how the sustainability transition affects a firm’s financial health. Although Algoma recently faced financial pressure – driven primarily by US steel tariffs, weak market conditions, and the continued operation of its higher-cost blast furnaces – our analysis suggests that the sustainability transition itself can be supportive of the firm’s financial health.
The capital-intensive phase of Algoma’s transition is now largely complete. Moreover, our research indicates that the shift to EAF steelmaking fundamentally reshapes Algoma’s cost structure. Scrap steel replaces iron ore and coking coal as the primary input — and unlike those commodities, scrap prices move with steel demand rather than against it, eliminating the precise input-cost exposure that drove Algoma into restructuring in 2015. Carbon tax costs are projected to fall as a result of the lower expected greenhouse gas emissions once the EAF is operational. Furthermore, where blast furnaces must run continuously at full capacity regardless of market conditions, EAF production scales with demand — converting a fixed-cost operation into a more responsive one.
What emerges is a materially different risk profile: we expect Algoma Steel to transform from a high fixed-cost, commodity-exposed producer to a more flexible, lower-emission operator better positioned to generate returns across the steel cycle. In short, the transition is seen as supportive of financial health.
Transition Investing in Practice
The Algoma Steel case illustrates our Transition Investment Framework. An exclusion screen based on current emissions would probably exclude Algoma. Our framework identifies it as a company that is making a substantial decarbonisation transition, supporting both global sustainability objectives and the firm’s long-term financial health.
[1] Algoma Steel Inc. (2026). Transition to EAF. Retrieved 11 May 2026 online from: https://www.algoma.com/sustainability/transition-to-eaf/
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