Rio Tinto’s top investors face off over emissions cut plan

The Weipa operation, which includes the new Amrun bauxite mine in north Queensland, Australia. (Image courtesy of Rio Tinto.)

Rio Tinto’s (ASX, LON, NYSE: RIO) top investors are set to face off at the company’s upcoming annual meeting, with only some of them in favour of pushing the miner to extend the range of its targets to reduce greenhouse gas emissions.

The world’s second-largest mining company recently committed to spend $1 billion over the next five years to reduce its carbon footprint and have “net zero” emissions by 2050.

Rio Tinto also said at the time that its total Scope 1 and Scope 2 emissions (indirect emissions from the generation of purchased energy consumed by a company, such as electricity) would be 15% lower by 2030 than 2018 levels.

Some investors want Rio Tinto to set a target to reduce so-called “Scope 3” emissions — those  produced when customers burn or process a company’s raw materials

The announcement triggered heated criticism from some investors and environment advocates, with a group led by a Friends of the Earth’s subsidiary tabling a shareholder motion to improve what it calls “weak” climate goals.

With three days to Rio Tinto’s annual meeting, proxy investor Institutional Shareholder Services (ISS) is recommending shareholders support the resolution that asks the miner to also tackle Scope 3 emissions — those generated by customers through the use of its products.

Shareholders “have a long-term interest in assessing whether Rio Tinto is adequately assessing and acting on its climate risk and opportunities,” including through “targets to work with its customers to achieve reductions in its scope 3 emissions,” ISS said in an April 30 note to clients.

Glass Lewis, instead, wants shareholders to reject the plan at the meeting on Thursday, Bloomberg reports.

“Not feasible”

While Rio Tinto should continue to reduce its own emissions, it’s probably not “feasible for the company to set goals based on how its customers determine to utilize its products,” the adviser said in a note to clients last month.

Market Forces, a subsidiary of activist investor Friends of the Earth, has said that Rio’s current plans are a “simply a reflection of business-as-usual,” energy cost savings and efficiency measures.

“Rio Tinto is essentially telling its shareholders it is aware of a massive financial liability sitting on its books, but isn’t planning to manage that risk down,” executive director Julien Vincent said in March.

He noted that Rio’s absolute emissions would have to decline 30% in the next decade to hit the “well below” 2°C global pre-industrial levels outlined in the 2015 Paris Agreement on climate change.

UBS analyst Glyn Lawcock said the group could almost instantly achieve the 2030 target if it sold or closed its coal-fired alumina refineries and aluminum smelters in Australia.

“We couldn’t help but notice that the closure of Pacific Aluminium alone would reduce emissions by (about) 25%,”’ he said in a note.

“Maybe this is the elegant solution to Rio’s desire to reduce carbon dioxide as well as lifting margins within the aluminium business unit,” Lawcock said.

For Julian Kettle, Wood Mackenzie’s vice chairman of metals and mining, Rio’s plans to decarbonize its globe-spanning operations are a “small but significant” step in the right direction.

“Setting Rio Tinto’s $1bn in context, this represents just 16% of the dividend it distributed in 2019, or just under 5% of its reported EBITDA of $21.2bn for the same year,” Kettle said.

The miner’s bulk of earnings come from iron ore, its main commodity and a key ingredient for steelmaking. The highly polluting industry process involves adding coking coal to make carbon steel and is responsible for up to 9% of global greenhouse emissions.

Oyu Tolgoi troubles

Rio’s management will also have to face criticism over its giant Oyu Tolgoi copper project in Mongolia at the annual meeting.

US hedge fund Pentwater Capital is demanding a shakeup at the mine to stop what it calls “a massive devaluation” of the asset. The investor has a 9% interest in Turquoise Hill, the Rio-controlled company that operates Oyu Tolgoi.

Rio Tinto is not the only company criticized for its current plans to cut emissions. A report released Monday by a UK-based investor initiative showed that eight of the world’s top ten largest mining companies are not doing enough to help meet international climate goals,