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

One comment
  1. rogerwlawson 10th February 2020 at 8:47 am

    Scope 3 emissions are all indirect emissions that occur in the value chain of the reporting company, including both upstream and downstream. That’s as opposed to Scope 1 emissions which are direct emissions from owned or controlled sources and Scope 2 emissions which are indirect emissions from the generation of purchased energy.

    Reporting of Scope 3 emissions would require a company to identify all the emissions made by suppliers and customers and even include such emissions as from staff travel to work. A company will in practice have no control over most of those emissions and obtaining the required information might be very difficult.

    It’s basically a pointless and expensive exercise to impose such an obligation on any organisation whether it’s a major international company such as Rio Tinto or my local council (which was attempted recently), but there are many people who would like it done.

    This is surely a demonstration of the extreme paranoia that is gripping the world at present over CO2 emissions with the concern that such emissions are contributing to global warming. Even it that is the case, and that argument is far from proven beyond doubt as there are other credible explanations, there is no financial justification for imposing such reporting obligations on companies. It will simply have no impact on CO2 emissions. It’s bad enough that companies such as Rio now have to report Scope 1 and 2 emissions, which incidentally are falling but not very rapidly.

    As a shareholder in Rio I advise other shareholders to vote against these proposed resolutions at the company.

    It seems likely though that the coronavirus outbreak in China might have a significant impact on CO2 emissions. Businesses are shutting down there and imports of oil/gas and other commodities are falling. China consumes half the world’s metals and prices have been falling as a result. It’s hardly surprising that the share price of Rio has been falling of late also.

    The coronavirus threat and other similar plagues are probably more a threat to humanity on a global scale than any slight rise in the temperature.

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