This blog gives you the latest topical news plus some informal comments on them from ShareSoc’s directors and other contributors. These are the personal comments of the authors and not necessarily the considered views of ShareSoc. The writers may hold shares in the companies mentioned. You can add your own comments on the blog posts, but note that ShareSoc reserves the right to remove or edit comments where they are inappropriate or defamatory.

Rio Tinto and Climate Change: Not just an NGO issue

For the AGM of Rio Tinto Ltd in Australia in May, a shareholder resolution has been tabled to:

request that the company, in subsequent annual reporting, disclose short, medium and long-term targets for its scope 3 greenhouse gas emissions (Targets) and performance against the Targets, consistent with the guidance of the Task Force on Climate-related Financial Disclosures. Targets should reflect decarbonisation pathways for the company’s products in line with the climate goals of the Paris Agreement.

Scope 3 emissions are principally the emissions generated by the use of the company’s products by its customers.

At first glance, this may look like just another potentially unreasonable NGO initiative to change corporate behaviour but individual investors should note the reference to the Task Force on Climate-related Financial Disclosures (known as TCFD). This clearly demonstrates that measuring and managing the impact of climate change and the shift to a low carbon global economy and influencing associated changes to business models and practices to manage the impact on shareholder value is now a mainstream focus for institutional investors and others in global finance.

TCFD was created by the Financial Stability Board (FSB), which in turn was formed by the G20 in response to the financial crisis. The FSB monitors and makes recommendations about the global financial system and is funded by the Bank for International Settlements which is owned by sixty of the world’s central banks. In 2016, the FSB said that, among other priorities, it would:

  • address new and emerging vulnerabilities in the financial system, including those associated with conduct, correspondent banking and climate change

  • monitor the potentially systemic implications of financial technology innovations, and the systemic risks arising from operational disruptions

TCFD took forward the climate change element of this systemic risk agenda. It is chaired by Michael Bloomberg and involves experts from both financial institutions and companies including BHP, Unilever, Dow, BlackRock, Moody’s, Standard & Poor’s and major accountancy firms. It has developed “voluntary, consistent climate-related financial risk disclosures for use by companies in providing information to investors, lenders, insurers and other stakeholders” and aims to “help companies understand what financial markets want from disclosure in order to measure and respond to climate change risks, and encourage firms to align their disclosures with investors’ needs.”

Returning to Rio Tinto, should individual investors support this resolution if a similar one is filed for the UK AGM of Rio Tinto Plc? It is worth noting that the resolution is about targets not about whether mining companies should report the emissions of their customers. Rio Tinto published its first climate change report in 2019 which included some information on its Scope 3 emissions. It estimated these as about twenty times the total of its Scope 1 emissions (from its own operations) plus its Scope 2 emissions (from its energy use). It also entered into a partnership last Sept with its largest Chinese iron ore customer to develop ways to reduce carbon emissions from steel making so it clearly recognises a responsibility for and need to engage with Scope 3 emissions. And it has stated its support for the Paris Agreement. However, it lags behind BHP which has already published detailed Scope 3 emissions data and committed to set targets this year. Some investors may conclude that Rio Tinto is advancing as fast as it can while others will feel that more pressure is needed. If you are a Rio Tinto shareholder, it is worth reviewing the press coverage before deciding how cast any vote on this resolution.

I do not own shares in Rio Tinto or BHP.

Penny Shepherd, Director, ShareSoc

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