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BHP’s action on climate change

Paul Rickard
Thursday, July 25, 2019

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Call me a cynic, but it is hard not to think that BHP’s investment to “address climate change”  isn’t much more than a carefully orchestrated public relations (PR) exercise. My antennae were immediately raised when the first thing I saw on BHP’s website was a slick, beautifully filmed 45 second video. They were raised further when I read the 400 word press release.

On Tuesday in London, BHP CEO Andrew Mackenzie announced a US$400m ‘Climate Investment Program’. To be spent over 5 years, the program will “scale up low carbon technologies critical to the decarbonisation of our operations. It will drive investment in nature based solutions and encourage further collective action on scope three emissions”. Scope three emissions are indirect and are generated by BHP’s customers as they transport, transform and use BHP’s coal, iron ore, copper and petroleum, and are 40 times higher than emissions from BHP’s own operations.

While US$400m sounds like a lot, over 5 years, it averages out at US$80m a year. In FY19, BHP spent around US$8,000m in capital expenditure on new mining projects and expansion of existing projects – so this investment in “climate” is about 1% of capex.

Mackenzie pointed to the work BHP is doing to drive action on the capture of carbon from industrial processes. They have been working with Peking University on carbon capture and storage technologies within the steel industry, joined Responsible Steel, a group of steelmakers aiming to reduce emissions from the sourcing and production of steel, and  invested in direct air capture through a US$6m equity investment in Carbon Engineering Limited. Yes, the Big Australian is playing in the big league!

To be fair to BHP, I have no doubt that Mackenzie (and I am sure many of his staff, management team and Board) are very, very concerned about the threat of global warming caused by an increase in CO2. As a producer of fossil fuels, BHP is indirectly responsible for the emission of millions of tonnes of CO2. They see the problem as a global challenge, requiring global action across several dimensions and involving multiple solutions. They want to help and play their part

And while this is a positive commitment and a step in the right direction, it really isn’t much that much more. Short on detail, lacking any specifics, and interestingly, not considered to be “material” by BHP itself. It chose to release the announcement as a press release, rather than to the ASX as a market announcement. Under its ASX continuing disclosure obligations, BHP is required to tell the market first of anything that could be considered to have a “material” impact on its share price.

If BHP was serious about taking action on climate change, the first action it would take would be to close or sell its energy coal businesses. While the BHP PR machine likes to pretend that it is just involved in the production of metallurgical coal (that is the coal used in  the production of iron and steel), BHP produces around 27.5m tonnes of energy or thermal coal (that’s the coal used by “big polluting” power stations) at its Mt Arthur open-cut coal mine in the Hunter Valley and at Cerrejón in Columbia.

One interesting aspect of the announcement was about strengthening the link between  emissions performance with executive remuneration. From 2021, BHP says that this link will be “clarified” to reinforce the strategic importance and responsibility of reducing emissions as a business. If done meaningfully, such that progress on emissions reduction impacts executive pay, this could play out well in the investor world where an increasing number of institutional fund managers are placing ESG (environmental, social and governance) issues at the top of their investment filter. For example, the world’s largest sovereign wealth fund, Norway’s Government Pension Fund Global, recently announced it will divest from a slew of coal companies and oil explorers and producers .

BHP’s announcement to address climate change received widespread coverage in the media, including the “climate change friendly” ABC, Fairfax and The Guardian. It will play well in the cities and will be a positive BHP’s brand and standing in the investor community. But unless there are some hard actions that follow, and meaningful investment dollars behind these actions, it will go the way of most PR announcements.

Published: Thursday, July 25, 2019

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