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.
“WE
WON’T STOP AT THE MINE GATE. WE WILL ALSO INCREASE OUR FOCUS ON SCOPE 3
EMISSIONS”
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.
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
Source: Reuters |