5 May 2022
Almost 16% of Rio Tinto’s shareholders today voted against the company’s Climate Action Plan, demonstrating the company must increase the ambition and accountability of its emission reduction efforts. Given the improvements Rio has made on its operational (scope 1 and 2) targets in the last year, the votes against its climate plan can largely be attributed to the need for Rio to better address its gargantuan scope 3 emissions.
After 99% of Rio Tinto’s investors last year voted in favour of a Market Forces-coordinated resolution calling for Paris-aligned emission reduction targets, the company significantly improved its targets to reduce scope 1 and 2 emissions in October.
However, Rio’s scope 3 emissions – mostly comprised of those generated when Rio’s iron ore is processed into steel – were over 550 Mt CO2-e in 2021, dwarfing the company’s operational emissions, and even larger than Australia’s annual national emissions!
Released earlier this year, the IPCC’s 6th assessment report gave yet more insight into the dire state of our climate and the scale and urgency of the emissions reductions required to avoid catastrophic climate change impacts. With its gargantuan emissions profile, Rio Tinto has a critical a role to play in the rapid emissions reduction effort required.
In releasing the IPCC report, UN Secretary-General António Guterres said: “Some government and business leaders are saying one thing – but doing another. Simply put, they are lying.”
Rio has improved its rhetoric on climate action and its scope 1 and 2 targets, but still has no clear, measurable targets to assess whether it is effectively playing its role in bringing down the vast majority of emissions caused by its business.
At its AGM in Melbourne today, Rio’s board of directors was asked how can shareholders and the public determine whether Rio is living up to its climate rhetoric, or lying.
Outgoing Chair Simon Thompson repeated Rio’s long-held position that it can’t set scope 3 targets because it can’t control the emissions of its customers, saying “it doesn’t seem appropriate to me to be setting targets unless you have influence and the ability to deliver against those targets”. But in the same breath Thompson said Rio is working with its customers to help design the technology, and supply the products, that will enable decarbonisation. If Rio believes it has no influence, why is the company bothering with this work at all? And if it believes this work can deliver decarbonisation results, then why can’t the company anchor the ambition and intent of that work with customers to quantifiable targets?
Investor expectations for rapid improvement
Rio’s board was asked about the extent to which investors have been pushing the company to improve its approach to reducing scope 3 emissions.
In response, Thompson suggested “the overwhelming majority” of the company’s shareholders support its climate change strategy.
However, given investors rarely vote against the board’s recommendation, the 15.7% vote against Rio’s climate plan demonstrates the company has much more work to do.
In particular, investors will be taking note of both the urgent need, and increasingly available technological opportunities to decarbonise the steelmaking and aluminium industries.
At the AGM, Rio spoke of both the challenges and opportunities associated with decarbonising the steelmaking industry. Despite the challenges, rapid action is absolutely essential, with the sector needing to at least halve its emissions by 2030 in order to align with the Paris Agreement’s climate goals.
Investors should also be taking cues from Rio’s peers. While the approaches of these peer companies all remain flawed, and fall particularly short in the level of detail provided on strategies to achieve emissions reductions, many of Rio’s peers have at least quantified the ambition and intent of their scope 3 emission reduction plans.
For example, fellow Pilbara iron ore miner Fortescue is targeting net zero scope 3 emissions by 2040, Glencore aims for a 50% reduction by 2035 and net zero by 2050, and Anglo American has an ambition to cut scope 3 emissions by 50% by 2040.
Despite the rapid pace of change occurring in low carbon steelmaking technologies, increasing investor expectations, and peer company commitments, Rio failed to commit to updating the ambition and detail of its approach to scope 3 emissions within the next year, rather than waiting until the next Say on Climate vote in three years time.
The company did say it was “continuously updating our ambitions on scope 3”, but that it only planned to put its climate strategy to a vote every three years unless there were a “very material change”. It should be clear to Rio that a very material change to its scope 3 emissions plans is exactly what is required.