According to CEO and Managing Director T. V. Narendran, Tata Steel has been actively pursuing environmental, social, and governance (ESG) ideals since its establishment in 1907. For instance, founder J. N. Tata did not want the company to replicate the problems English laborers experienced during the industrial development of the 1800s, so he built workers’ accommodations close to steel factories. In the 1920s, Tata Steel instituted an eight-hour workday, introduced free medical facilities for employees, and offered maternity leave. As Narendran says, “ESG is a part of our DNA.”
More recently, the company has been recognized as a sustainability leader by the World Steel Association—for the eighth year in a row. In early April, McKinsey Senior Partner Rajat Gupta sat down with Narendran to discuss his effort to decarbonize Tata Steel, which accounted for $27.7 billion of the Tata group’s $165 billion in 2024 revenues and a major part of the group’s greenhouse gas emissions. What follows is an edited version of their conversation.
Rajat Gupta: How would you describe Tata Steel’s journey in the past couple of decades? What are the priorities going forward, and where do sustainability and decarbonization fit in?
T. V. Narendran: The last couple of decades have been transformative. Tata Steel has grown almost ten times, from four million metric tons [of annual crude steel capacity] to 35 million metric tons. We have scaled our most profitable businesses disproportionately. India, which was only a sixth of our business in 2008, now comprises over two-thirds of our volume. We have restructured and divested less profitable businesses, including reducing our scale in the UK from ten million metric tons to three million. We have acquired unprofitable steel businesses in India and turned them around, and we have made greenfield investments. We have organically built share in profitable segments—for instance, our share of the high-end Indian auto steel supply is over 50 percent. We have built one of India’s largest consumer brands in the form of our Tiscon construction reinforcement bar, and others have followed us on this journey. Also, we have aggressively adopted digital; three of our sites have been recognized as World Economic Forum digital Lighthouse factories for their widespread use of advanced technologies in operations.
Our priorities going forward are clear: Make Tata Steel structurally, culturally, and financially strong for the next generation. We will continue to scale our India operations, focus our European business on making low-carbon steel, accelerate our sustainability journey in India, and prepare for an era of higher raw materials costs by investing downstream. Sustainability is central to our vision for the next decade.
Rajat Gupta: Let’s start by focusing on sustainability. What are the challenges as you try to decarbonize?
T. V. Narendran: Steel is part of the problem, but it is also part of the solution. The industry is responsible for about 8 percent of the world’s carbon footprint. But you cannot transition to a fossil-free environment or a renewable-energy-driven environment without steel. You cannot build without steel; to take just one example, without steel, there is no mobility. Steel must be a part of any solution to decarbonize the world.
People underestimate the costs and complexity of this transition. Steel is a capital-intensive industry, reliant on global supply chains. The historic method of blast furnaces using coal has become increasingly competitive over a hundred years: Any other way of making steel costs $100 to $300 more per ton. That’s more than the EBITDA margin of most steel companies. And then there’s the fact that, for now, customers must be willing to pay more for green steel.
Given all that, there’s no business case for the transformation unless governments offer some support through policies that make the transition viable. But that support varies around the world.
Look at the geographies we serve. In the UK, where we have support from the government, we are on track to transition to greener steelmaking by 2027. That transition is well underway, as evidenced by the fact that we have closed our blast furnaces and are setting up a scrap-based steel plant. In the Netherlands, we are in active discussions with the government about our transition. With positive support from governments, combined with policies like the Emissions Trading Scheme that create an incentive to reduce carbon emissions, we expect our European footprint to be green by 2035.
India, on the other hand, is a few years behind on its policy road map, which is only emerging now, and the country lacks a customer base willing to pay more for sustainability. Nevertheless, Tata Steel India has already started this journey. We are already one of the benchmarks for CO2 emissions from our blast furnace–based facilities. We are also building a million-ton scrap-based steelmaking facility, despite it being less profitable than our coal-based plants. In some ways, we are ahead of the law and current policies in India.
Steel must be a part of any solution to decarbonize the world.
Rajat Gupta: How would you describe the role of technology?
T. V. Narendran: There is no technological silver bullet, but there are plenty of emerging technologies that will be part of the solution. Each has a cost, of course, and each must be considered in the local context.
The UK is an exporter of scrap metal, so using scrap to make steel there makes a lot of sense, instead of relying on imported iron ore and coal. The Netherlands, on the other hand, doesn’t have much scrap, so there we are looking at gas-based and, eventually, hydrogen-based steelmaking. Gas-based steelmaking can halve the CO2 footprint, while hydrogen-based steelmaking could bring it close to zero. But we are a long way from hydrogen-based steelmaking being competitive with either gas- or coal-based steelmaking.
India is a different story. Here, reasonable supplies of gas and hydrogen are years away, so we are asking ourselves, “What technologies could help reduce coal consumption in blast furnaces by 30 percent, maybe even 60 percent?” One example is a technology called EASyMelt, which we are working on with a German company, SMS Group. EASyMelt can help significantly reduce the CO2 footprint of a blast furnace. It allows you to operate with 45 to 65 percent less coke input into the furnace but get the same energy output, in part by using electricity to heat and reinjecting the reformed blast furnace off-gases. It allows you to reduce CO2 emissions by 30 to 50 percent. This is a great example of a viable technology designed to reduce the use and impact of coal in blast furnaces.
One way we helped with EASyMelt is that when SMS was looking for a blast furnace to try out this technology, we offered one of ours. We were happy to offer a facility because the challenge is to scale up these technologies so they can become economically viable. We also do this with interesting start-ups. We don’t invest in them, but we do offer our plants for their experiments, which helps them and allows us the opportunity to understand the technology.
Carbon capture, utilization, and storage [CCUS] must be a part of the eventual solution for the steel industry, but it must be scaled up. The World Steel Association has forecast that in 2050, there will still be 700 million tons of blast furnace production, which means almost 1.2 billion tons of CO2, even after instituting other decarbonization actions. We need to find ways to capture that CO2 and either store it or convert it into something useful. The goals of helping blast furnace–based steel plants emit much less CO2 and of capturing emissions as best as possible are especially important in a high-growth market like India.
Rajat Gupta: You’ve talked about technology in the plant. How can you decarbonize the supply chain?
T. V. Narendran: One key is shifting from a linear value chain to a circular one. An important part of this is to consider repair and reuse as you design products and steel plants. A good example is our plant in Kalinganagar, which we have expanded from three million metric tons of steel per year to eight million. When we built the three-million-ton plant, we used welded structures, but when we built the five-million-ton expansion, we used only bolted structures. Bolted structures are much more sustainable than welded structures because they are much easier to reuse.
We also blend and beneficiate our raw materials to remove impurities, improve quality, and manage costs. Stamp charge technology for coke making allows us to use lower-quality domestic coking coals, which leads to lower emissions since one doesn’t have to transport higher-quality coal from another continent. Beneficiation also lets us use lower grades of iron ore and minimize the energy used to smelt the ore. The result? What you dig from the ground is used more efficiently than in the past.
Looking at the whole value chain raises interesting questions. Consider transportation. How can Tata Steel transport coal in a greener way? How should we use electric vehicles to move our people? How can we build recycling-based steel plants in India that are closer to customers so we don’t have to transport steel 2,000 kilometers? For the new scrap-based steel plant that we’re building in Ludhiana, in northern India, we will source our scrap and sell all our steel within a 300- to 400-kilometer radius. This reduces the carbon footprint of the steel from end to end and also brings down the cost.
The steel industry has always been optimized around cost. Optimizing around CO2 demands a new mindset. To drive this different thinking, Tata Steel has adopted internal carbon pricing. We have set a notional price of $40 per ton of CO2 to ensure that investment decisions are taken with emissions in mind.
The steel industry has always been optimized around cost. Optimizing around CO2 demands a new mindset.
Rajat Gupta: It’s interesting that an internal carbon price helps people become more aware. Are there other interventions you are using to steer the company in a more sustainable direction?
T. V. Narendran: We started this sustainability journey about eight years back, when the understanding was not as deep. Back then, we would send a couple of senior people to the Cambridge Institute for Sustainability Leadership every year. That was too little and too slow, so we got the Cambridge folks to come to India.
The first session we did in India was with our 30 top leaders and our board members. We then rolled it out to the rest of the organization. We started with the top 300 leaders, including our top 20 union leaders. We needed them to understand the subject and to be able to explain it to the people on the floor. Otherwise, it could be seen as an elitist, esoteric subject, which most people wouldn’t understand. But now we have the buy-in of the union leaders as well.
You have to walk the talk. Seven or eight years ago, we set up a steel scrap recycling facility in India. Then we decided to set up a scrap-based steel plant, which would make steel that costs more than steel from blast furnaces. These actions send a message to employees about how serious we are.
Rajat Gupta: What has slowed you down on this journey?
T. V. Narendran: Market conditions can slow one down if policies are not supportive. In Europe, if we don’t produce sustainably, we pay a penalty in the form of a price for our emissions. In India, there is no penalty.
The question in a difficult market is whether we can afford a $20 to $40 hit to EBITDA per ton of steel because we have chosen to decarbonize by using more scrap or injecting some hydrogen. Most of these actions cost money. As I said, the lowest-cost way to make steel is by using coal in blast furnaces. When your profitability and margins are fantastic, the costs matter less. But when you’re at the tough end of the business, those calls become more difficult. Internal carbon pricing is great, but the minute it starts hurting the bottom line, one starts asking, “Should I pause?” Sometimes you do have to pause for a quarter or two.
Still, we are constantly moving in the right direction, even if the pace may change. The Tata group has committed to being net zero by 2045. And Tata Steel must be a very important part of the solution because we are an important part of the problem.
Rajat Gupta: Besides its decarbonization effort, what else has Tata Steel done to address sustainability?
T. V. Narendran: People sometimes don’t realize that we are one of the largest mining companies in India. We mine over 45 million tons a year of mostly iron ore and some coal. We will be up to 65 or 70 million tons of mining in the next few years.
We have always done a lot of work converting mines back into forests after they are done. Today, with biodiversity being so important, there is a structured way to go about it. We bring in a third party to do a full assessment. They look at the impact of our activities and what we need to do after the mine is fully extracted. This has helped us develop biodiversity road maps. Of our 47 sites, 20 have developed a road map, and the rest will in due course.
Rajat Gupta: Tata Steel operates in some of the poorest spots in India. What diversity and inclusion actions have you taken as a result?
T. V. Narendran: One thing we do is to make sure that our employee profile reflects the diversity in the community. For instance, we have had fewer women than we should, so we have done a lot of work on that. Our Indian workforce used to be 7 to 8 percent diverse. Now we are above 20 percent, and we want to get to 25 percent.
Some of this requires advocacy because there were rules in India governing how many shifts women could work on the shop floor. But we have recently gotten a change of law that we were seeking, and now we have women-only shifts in our mines in Jharkhand. Also, we have more than 100 transgender people working in our mines and other locations in Tata Steel.
Rajat Gupta: You’ve talked about the challenges in India. How do you see its decarbonization efforts evolving?
T. V. Narendran: India has set some ambitious goals and has signed up for the Paris Agreement. The country has made a lot of progress in the last few years, including coming further with renewables than could have been anticipated. The challenge for India is that this transition is going to cost money, and jobs will be at risk in many parts of the country.
India needs to fully appreciate the complexity of this transition. If we shift from coal to other sources of energy, we need to think about the social consequences for people who depend on coal for their livelihoods. We have to make sure that people who have just gained access to electricity are not impacted by higher prices for that energy. As renewables become a greater share of the energy mix, is our grid ready to deal with the resulting variability? We have a lot to think through.
We have to make sure that people who have just gained access to electricity are not impacted by higher prices for that energy.
Rajat Gupta: China is a leader in green technologies. Where do you see India 20 years from now?
T. V. Narendran: The progress China has made in the last seven to eight years is incredible. They have committed to it, spent a lot of resources on it, and incentivized the industry to make this transition. So while they have continued to build coal-based power plants and continue to grow in fossil fuels, they have grown very significantly in renewables. They are also working on nuclear power, and they have always been strong in hydropower. There is a lot for India to learn from China’s progress.
India has one advantage. China has to do a lot of work to fix the problems created by its growth over the last 20 years. India can avoid such problems by using cleaner solutions as we grow so we have less of a cleanup to do in ten or 20 years.
Rajat Gupta: I am going to shift gears now to talk about your personal leadership journey. You have led Tata Steel through COVID-19 and recent geopolitical tensions. How do you approach these big challenges?
T. V. Narendran: Challenges are par for the course. Soon after I took over, our iron ore mines were closed for almost a year, which had never happened in the history of Tata Steel. Suddenly, we were sourcing iron ore from across the world to feed our blast furnaces in India. This was a huge challenge—even moving iron ore from the port to the steel plant was a challenge because India was never an importer of iron ore.
In situations where there is a lot of uncertainty and insecurity, decisions need to be taken quickly, and it is very important to be close to the ground. During COVID, we had hour-long leadership calls every morning. Things were changing on the fly, so we could not abide by the regular cadence of meetings. The shift also increased the morale of the team, brought cohesion, aided communication, and helped us move much faster.
Rajat Gupta: How have you changed as a leader over the past decade of being at the helm of Tata Steel?
T. V. Narendran: One thing I have learned is that one must lead differently at different times. When I became CEO, I was the youngest CEO of Tata Steel, and everyone reporting to me was older. Now I am probably the oldest person at Tata Steel.
Leading a team of more experienced people is different from leading a team of younger people. The dynamic is not the same. Some younger leaders expect you to be more direct than you were with the older lot, but others want more space. One needs to be aware of the context in which one is leading—and adapt. There’s no one-size-fits-all leadership style.
Rajat Gupta: As you look out at the next five years of your tenure, how do you imagine you will evolve as CEO?
T. V. Narendran: For me personally, it’s about leaving Tata Steel much stronger than when I got this job. It’s like running a relay race. Somebody gave me the baton, and I need to make sure I hand it over well.
Second, this is an old and multigenerational organization. Our greatest strength is the people and their emotional connection to the company. How do I make sure we preserve the right parts of the culture?
It’s not about sticking by everything that worked in the past. Some things that worked in the past won’t work in the future. How do we bring in new elements of culture so that younger people feel interested enough to invest their future in the company? If I can deliver a Tata Steel that’s more sustainable, and stronger financially, structurally, and culturally, that will have been a good contribution.
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