EMBARGOED TO 12 October 2023 – (IEEFA Australia): Rio Tinto and BHP can
expect to face growing investor pressure to address their Scope 3 greenhouse
gas emissions, according to a new report from the Institute for Energy
Economics and Financial Analysis (IEEFA). Neither company has a measurable
Scope 3 emissions reduction target.
While Scope 1 and 2 emissions occur as companies
carry out their operations, a company’s Scope 3 emissions result from its
customers’ use of its products, or from suppliers making products that a
company uses. Given the emissions-intensive nature of blast furnace-based
steelmaking, the resultant Scope 3 emissions for large, diversified miners that
produce iron ore and metallurgical coal dwarf their Scope 1 and 2 emissions.
IEEFA’s report examined the emissions reduction
ambitions of five mining companies that produce steelmaking raw materials: Rio
Tinto, BHP, Fortescue, Vale and Anglo American. All five have announced goals
to reach net zero emissions by 2050 as well as nearer-term, measurable
emissions reduction targets, though not all include Scope 3 emissions in their
goals and targets.
“Rio Tinto and BHP have no measurable Scope 3
emissions reduction targets,” says Simon Nicholas, IEEFA’s Lead Analyst, Global
Steel and the report’s author. “In addition, Vale’s Scope 3 emissions reduction
target will appear inadequate to an increasing number of investors.”
Pressure is growing for companies to do more to address their Scope 3 emissions.
In July 2023, Sultan Al Jaber – president of COP28 and chief executive of the
Abu Dhabi National Oil Company (Adnoc) – stated that companies must act to
reduce all greenhouse gas emissions, including Scopes 1, 2 and 3. Going
forward, investors will increasingly expect action and will demand measurable
targets so they can judge a company’s performance in its reduction efforts.
“Investor pressure on Scope 3 emissions is
growing. Recently, companies including TotalEnergies, Woodside, Glencore,
ExxonMobil and Chevron have been pressured by investors to do more on their
Scope 3 emissions,” says Nicholas.
Diversified miners often describe the steel
industry as “hard-to-abate”, proffering this as a reason for such little action
on their iron ore and metallurgical coal Scope 3 emissions in the past.
However, it is becoming increasingly clear that the steel technology transition
away from coal is accelerating. Funding and final investment decisions are now
being made for direct reduced iron (DRI) installations, which do not use coal,
at commercial scale. Industry leaders have conceded that the technology is
moving faster than they had predicted.
“Technology
transitions tend to be non-linear, and have a habit of happening faster than
expected,” Nicholas adds. “Alternatives to coal-based steelmaking are now
clearly viable and are attracting substantial investment. There is therefore no
longer any excuse for suppliers of raw materials to the steel industry not to
have a measurable Scope 3 emissions reduction target.”
With a
target to reach net zero Scope 3 emissions by 2040, Fortescue clearly leads in
ambition. The other major iron ore producers need to increase their intent to
avoid investor pushback.
“BHP has
noted that its transition risk increased during FY2023 due to growing societal
expectations for decarbonisation by companies,” says Nicholas. “Now that BHP
has joined Rio Tinto and Fortescue in examining steelmaking technology that can
use Pilbara iron ore without metallurgical coal, the company has even less excuse
not to have a measurable Scope 3 emissions target.
“Rio Tinto
is committed to its Simandou iron ore project in Guinea, West Africa, which
will see it increase its production of high-grade ore suitable for
low-emissions steelmaking. The company’s own analysis finds that its iron
ore-related Scope 3 emissions could drop 44% by 2035. Given all of this,
investors will increasingly see that Rio Tinto is running out of reasons not to
have a measurable Scope 3 emissions reduction target.
“Vale
almost reached its 2035 target to reduce Scope 3 emissions by 15% in 2022,
highlighting how unambitious it is. As the world’s leading producer of
high-grade iron ore, Vale should be leading the iron ore majors on Scope 3
emissions. Investors will increasingly expect meaningful, as well as
measurable, Scope 3 emissions reductions targets and to see more ambition upon
Vale’s next review of its target in 2025.”