Where BHP goes on climate change, will others follow?
BHP Group may just have set the template for how resource companies are going to deal with the challenge of climate change, even if some of its competitors would prefer a course of more talk and less action.
The world’s biggest miner announced on July 23 that it will invest $400 million over five years to reduce emissions.
While this move is both laudable from the perspective of combating climate change and sensible from the point of making BHP a more attractive purchase for ethical investors, the real game-changer is BHP’s move to include emissions beyond what it directly produces.
The Anglo-Australian miner is the world’s largest exporter of coking coal used in steel-making, the third-biggest iron ore miner, and is also a significant producer of copper, crude oil and liquefied natural gas (LNG).
BHP Chief Executive Andrew Mackenzie said the company would be looking to address Scope 1, 2 and 3 emissions.
“We won’t stop at the mine gate. We will also increase our focus on Scope 3 emissions,” he said in a speech in London last week.
Scope 1 and 2 cover an organisation’s direct and indirect emissions generated by its own activities and the power it buys to run its operations.
Scope 3 is the real issue for many resource companies, as it covers the emissions created by the use of the products.
Thus, an iron ore miner like BHP and rival Rio Tinto would account for the emissions created by the burning of coal when the iron is turned into steel in the blast furnace.
Scope 3 would also include items like the fuel used by ships and trains in the destination country.
Scope 3 concerns
Up until now this has been an area that most miners and oil and gas companies would prefer to ignore, or even if they can’t ignore it, they’d rather talk around the issues rather than tackle them.
Scope 3 accounting is also a potential issue for governments, as a country like Australia would see its share of global emissions skyrocket if it had to account for the emissions created by the use of its exports of raw materials.
Australia has just overtaken Qatar as the world’s largest shipper or LNG, it vies with Indonesia for the title of world’s biggest coal exporter and it is the top exporter or iron ore.
But if having to account for Scope 3 emissions becomes more commonplace, it may also force resource companies to put pressure on customers to become more efficient and less carbon-intensive in their operations.
It may become the case where companies such as BHP will choose to preference energy efficient customers over those with more polluting operations.
Assuming that the product being supplied is in demand and not in surplus, this may force companies, such as some steel mills in China, to become more efficient in order to secure the necessary iron ore supplies.
The other major point that Mackenzie made in his speech is that combating climate change means adopting what he termed an “all of the above” approach, in which a multi-pronged programme is followed.
This means governments, companies, environmental groups, scientists and individuals will have to become invested in mitigating the impact of climate change.
This will be a major challenge, given some important governments, such as the administration of U.S. President Donald Trump, are effectively climate change deniers, and they are joined by numerous resource company chief executives.
Activists on the left side of politics have also tended towards what may be termed single-issue campaigns, such as efforts to stop new coal mines or natural gas fracking.
While these campaigns raise awareness and may even halt some new fossil fuel developments, they do little to assist with a global response to a global problem.
BHP’s Mackenzie is moving his company in an interesting direction.
By accepting climate change is real, and then committing to actions well beyond BHP’s current legal obligations, he may well drag others along, even if they are reluctant.
Much will depend on whether investors reward Mackenzie’s innovation, or whether they decide that dealing with climate change isn’t yet good business sense.
(By Clyde Russell; Editing by Richard Pullin)