Miners face up to climate challenge

Miners face up to climate challenge

The world’s biggest exporter of thermal coal makes for an unlikely eco-champion. Yet that is how Glencore is seeking to position itself.

The London-listed company stole a march on its rivals in December with new targets that will make it the first miner to be fully aligned with the goals of the Paris agreement on climate change.

By 2050 Glencore is aiming to be carbon neutral — including the carbon dioxide generated when customers burn or process its raw materials. 

These “Scope 3” emissions are emerging as a huge challenge for the industry, particularly miners that produce commodities for hard-to-abate sectors such as steelmaking, which accounts alone for about 7 per cent of global greenhouse gas emissions.

Accounting for 95 per cent of the mining sector’s overall emissions, according to Barclays, a clear strategy to tackle them will be crucial for the sector wants to attract investment from fund managers who are themselves facing pressure from regulators and clients to make sure the assets they hold are aligned with the Paris deal.

Without a credible path to carbon neutrality, big miners will struggle in their efforts to present themselves as vital in the shift to a green economy through their production of energy transition metals — copper, cobalt, nickel and zinc.

Lollipop chart showing global miners emissions reduction targets for selected companies

“Scope 3 emissions often account for the largest portion of a company’s overall greenhouse gas footprint. They simply cannot be ignored or written off as too difficult,” said Stephanie Pfeifer, chief executive of the Institutional Investors Group on Climate Change and a steering committee member of Climate Action 100+, an influential investor group that has more than $52tn of assets under management.

“Those companies that continue to sidestep the issue can expect to face increasing scrutiny from investors.”

All of the big miners have set targets for carbon neutrality. Anglo American intends to reach net zero emissions by 2040, while BHP and Rio Tinto are aiming at 2050.

But those targets do not include Scope 3 emissions. Rio and Anglo have not even disclosed their end-use emissions for 2019, while BHP publishes a range to reflect the potential double-counting of coking coal and iron ore, the two ingredients needed to make steel in blast furnaces.

Miners' exposure to transition commodities

Only Glencore and to a lesser extent Vale, the world’s biggest iron ore producer, have set Scope 3 goals.

Vale is targeting a 15 per cent reduction in Scope 3 emissions by 2035 through the use of carbon offsets, eco-friendly shipping and partnering with its customers on low-carbon steelmaking technology.

“If you really want to lead . . . on climate change you really have to set bold goals on Scope 3,” said Vale chief executive Eduardo Bartolomeo.

Glencore is aiming to cut its total emissions by 40 per cent over the next 15 years with the ambition of reaching carbon neutrality by 2050. Glencore does not count the third-party commodities bought and sold by its powerful trading arm in its target.

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It plans to do this primarily by running down its Colombian and South African coal assets so that by 2050 most of its reserves will be depleted with only some of its Australian mines — utilising carbon capture and storage technology — still in operation. The cash harvested from these operations will be reinvested in energy transitions metals.

The company, which faces a number of other environmental, social and governance (ESG) challenges, is hoping its targets will it more investable for funds with absolute coal exclusion thresholds, although if the pressure gets too much its outgoing chief executive Ivan Glasenberg says it would be prepared to spin off the business.

As for Anglo American, BHP and Rio, analysts say their reluctance to commit to Scope 3 targets is understandable if increasingly difficult to justify to the investment community.

Unlike Glencore they are all big producers of iron ore, the key ingredient needed to make steel. As such, most of their Scope 3 emissions are generated by customers such as Chinese state-owned steel mills, over which they have little control.

Scope 3 emissions are the mining industry’s biggest challenge

Analysts at Jefferies put Rio Tinto’s Scope 3 emissions at 491m tonnes of CO2 equivalent and BHP’s at 448m. This compares with their operational emissions of 26.8m and 15.8m tonnes respectively.

Rio and BHP are seeking to address Scope 3 emissions by working with big steelmakers on the development of new low-emission technologies that are not yet viable at scale, mainly because of the costs involved.

BHP has set aside $400m for climate projects and is seeking to help develop technologies and approaches to make steelmaking 30 per cent less carbon intensive and shipping 40 per cent less carbon intensive by 2030.

Rio recently announced plans to invest $10m with China Baowu, the world’s largest steel producer, over the next two years on low-carbon steelmaking projects and research. Critics point out $10m is tiny fraction of the more than $10bn Rio generated in underlying earnings last year.

Anglo American, which has a big footprint in South Africa and South America, says it needs to do more work before it can set Scope 3 targets. That is because many of its customers and host governments “can’t give answers yet” on their net-zero pathways, according to its chief executive Mark Cutifani.

“I am not being critical of Vale or Glencore . . . I applaud them for taking a view,” he said. “But from our point of view there is more work to be done. For us to come out with targets that are credible, it has to involve both our stakeholders and customers.”

But while investors are sympathetic to that argument, the moment is fast approaching when big miners will have to acknowledge Scope 3 emissions and put in place targets that are sufficiently ambitious, according to Adam Matthews, director of ethics and engagement at the Church of England Pensions Board and co-chair of the Transition Pathway Initiative.

“We absolutely recognise that Scope 3 emissions are challenging and miners are not in control of their customers,” said Mr Matthews. “But they must still devise strategies to mitigate and reduce those emissions. I think companies that do that will carry the confidence of investors.”

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