The aim is to develop technologies to reduce emissions from its own operations (scope one and two emissions), as well as those generated from the use of its resources (scope three).
The company added that it would establish a new target for scope one and two emissions based on the Paris Agreement, in addition to it’s short-term goal to limit 2022 emissions at 2017 levels, and also the long-term goal of producing zero emissions by 2050.
BHP will also publish a new climate portfolio analysis report in 2020. This follows on from its 2015 two-degree scenario analysis. See this report from the IPCC for more context.
“This new report will evaluate the potential impacts of a broader range of scenarios and a transition to a ‘well below’ two degree world,” the company said in its press release on July 23.
While further details of the programme have yet to be released, there has been much speculation around the timing of the announcement and whether BHP’s bold move will inspire other mining companies to up their game when it comes to sustainability.
Investors pile on the pressure
I was initially pleased to see an industry-driven event on such an important topic. However, upon further investigation, it became clear that BHP’s CEO, Andrew Mackenzie, was the only speaker; the event was essentially a glorified press conference.
It cannot be coincidence that the announcement came so soon after the FT published an article stating that the National Trust (a well-known UK charity) and other organisations are moving to withdraw investment from resources companies because they aren’t “doing enough to address climate change”.
My suspicion was confirmed when the FT ran an opinion piece from Mackenzie later that same day.
In it, he said: “It may be uncomfortable for some, but many solutions to global warming — such as increased electrification of transport — will require more mined resources rather than less. Electric motors use 80 per cent more copper than an internal combustion engine. Electric cars may in many countries source their power from coal-fired generation for decades to come.
“That is why we must change the current assumption that there are easy, single solutions and acknowledge that there are many competing perspectives that must be taken into account in the pursuit of effective responses to climate change.
“It is also why I believe that those who simplistically call for divestment from all resource companies are fundamentally wrong.”
While we do not know if BHP has been directly affected by divestment for this reason (no specific resources companies were named the article), the fact that Mackenzie included this element in his letter signifies that it does pose a threat to the company on some level.
Performance & reward
During his speech at the event, Mackenzie also mentioned that the company’s emissions performance is linked to executive remuneration.
“For many years performance against emissions targets has been considered in BHP’s executive remuneration plans. From next financial year we will clarify and strengthen this link and further reinforce the strategic importance of action to reduce emissions,” he said.
Many have applauded this move, taking it as a sign of how important the company considers the matter and indeed, it is a grave situation. However, as Mackenzie himself pointed out, this is something BHP already does. It is not new.
And while the company has made strides in cutting its emissions and developing low-carbon technologies in recent years, investors are demanding more from mining companies across the board going forward.
It is also worth remembering that the next financial year (2020-21) is still a way off, so that ‘strengthened link’ between emissions performance and remuneration that Mackenzie spoke of – basically the carrot to tempt this horse along – will not be in place for a chunk of this five-year programme.
One area in which Mackenzie did hit the nail on the head though was his call for a diverse approach to address climate change.
“All producers businesses and retail customers must grasp our and their impacts and responsibilities and come together with governments to address this emerging crisis,” he said.
Follow the leader?
And as to whether other miners will follow BHP’s lead…
This initiative sets an excellent example for companies within the industry, and the way in which its performance is measured will raise the bar for buy in to sustainability measures at an executive level.
However, the fact of the matter is that we are talking about businesses – they exist in order to make money – and unless BHP’s programme delivers strong results and investors deem its efforts worthy, then it is unlikely that others will follow suit.
After all, if it doesn’t work for the world’s largest miner then who will it work for?
Mackenzie concluded his speech by saying: “We cannot just back the horse with the best PR campaign. Instead we require a considered and orderly transition to a lower carbon world in which resource companies, like BHP, have both critical expertise and a key role to play and hence are worthy of continued investment.”
I couldn’t have said it better myself.