Home > South32’s new climate plan won’t include scope 3 targets

South32’s new climate plan won’t include scope 3 targets

29 October 2020

29 October 2020

Diversified mining company South32 told shareholders today it would have “something to say” about its huge scope 3 greenhouse gas emissions (those generated from the use of its products) when the company updates its climate policy next year. However, the company isn’t expected to include any clear targets to reduce those emissions.

As a major producer of metallurgical coal, used for steelmaking, South32’s scope 3 emissions make up over 80% of its total carbon footprint. That footprint is equivalent to about one fifth of Australia’s total annual emissions.

In her opening address, South32 Chair Karen Wood confirmed the company will announce a new 5-year target for its operational (scope 1 and 2) greenhouse gas emissions, and will also update the company’s ‘high-level approach to achieve net zero by 2050’.

When asked if South32’s emissions target will be independently verified as aligned with the 1.5°C goal of the Paris Agreement, Ms Wood said the company would analyse a 1.5°C scenario as part of its climate plan, but did not commit to aligning targets with that scenario.

South32 is a focus for the Climate Action 100+ investor group, which calls on 161 of the world’s largest carbon emitters to reduce emissions across their entire value chain in line with the Paris climate goals. The reference to
“value chain” emissions raises the expectation that companies will put in place targets and strategies to reduce scope 3 emissions.

However, Ms Wood suggested these expectations would not be met, saying the new climate plan would not include a target for scope 3 emissions, only that the company will work with customers and other stakeholders to address these emissions.

Still pursuing coal expansion

South32 has almost completed the sale of its thermal coal business (coal used in power stations), but still generates 15% of its revenue from metallurgical coal.

The International Energy Agency’s Sustainable Development Scenario, which provides just a 50% chance of limiting warming to 1.65°C, shows global metallurgical coal use must fall by 20% in the next 5 years, and a third by 2030.

Yet South32 is moving in the opposite direction, with plans to extend the lifetime of its Dendrobium coal mine out to 2036, and open up the new Eagle Downs mine. Eagle Downs is expected to produce the equivalent of 80% of South32’s current annual metallurgical coal production.

With final investment decisions on these two projects expected soon, shareholders at today’s annual general meeting wanted to know if the projects would be stress tested against a 1.5°C warming scenario before those major investment decisions are made.

Put another way, can shareholders be confident that South32 won’t waste over a billion dollars to produce coal that would not have a market in a world moving to meet the Paris climate goals?

Ms Wood told shareholders the company’s upcoming 1.5°C scenario analysis may not be completed before those investment decisions are made. While Ms Wood said the emissions impact would form part of the project assessments, she stopped short of promising the projects would not go ahead unless they were assessed as consistent with a 1.5°C warming outcome.

CEO Graham Kerr also responded to this issue, saying the Eagle Downs feasibility study would include assessment against a carbon price, but did not confirm that the carbon price would be consistent with a Paris-aligned outcome.

Mr Kerr also noted green hydrogen is expected to provide a clean alternative to coal in the steelmaking process, but stated his belief that the transition would take 20 to 30 years.

However the fact remains, if the world is to meet the climate goals of the Paris Agreement, the use of metallurgical coal must fall significantly from now on. South32’s expansion plans therefore risk not only increasing emissions, but also wasting shareholder capital.