Rio Tinto’s emissions targets come under fire

Rio Tinto’s (NYSE: RIO; LSE: RIO) new carbon emissions reduction targets have triggered heated criticism from some investors and environmental groups, with a group led by a Friends of the Earth’s subsidiary tabling a shareholder motion to improve what it calls “weak” climate goals.

The world’s second-largest miner last week vowed to spend US$1 billion over the next five years to reduce its carbon footprint and have “net zero” greenhouse gas emissions by 2050.

Rio Tinto also said its total Scope 1 and Scope 2 emissions (indirect emissions from the generation of purchased energy consumed by a company, such as electricity) would be 15% lower by 2030 than 2018 levels.

The no emissions goal would be easier to achieve for Rio Tinto than other global miners, such as rival BHP, because it does not mine coal or oil.

The company, however, did not set a target to reduce so-called “Scope 3” emissions — those produced when customers burn or process a company’s raw materials.

Market Force, a subsidiary of activist investor Friends of the Earth, said the company’s announcement is a “simply a reflection of business-as-usual” energy cost savings and efficiency measures. “Rio Tinto is essentially telling its shareholders it is aware of a massive financial liability sitting on its books, but isn’t planning to manage that risk down,” executive director Julien Vincent told FT.com.

He noted that Rio Tinto’s absolute emissions would have to decline 30% in the next decade to hit the “well below” 2°C global pre-industrial levels outlined in the 2015 Paris Agreement on climate change.

UBS analyst Glyn Lawcock said the group could almost instantly achieve the 2030 target if it sold or closed its coal-fired alumina refineries and aluminum smelters in Australia.

“We couldn’t help but notice that the closure of Pacific Aluminium alone would reduce emissions by (about) 25%,”’ he said in a note.

“Maybe this is the elegant solution to Rio’s desire to reduce carbon dioxide as well as lifting margins within the aluminium business unit,” Lawcock said.

For Julian Kettle, Wood Mackenzie’s vice chairman of metals and mining, Rio Tinto’s plans to decarbonize its globe-spanning operations are a “small but significant” step in the right direction.

“Setting Rio Tinto’s US$1 billion in context, this represents just 16% of the dividend it distributed in 2019, or just under 5% of its reported EBITDA of US$21.2 billion for the same year,” Kettle said.

“Put another way, on a 100% basis, Rio Tinto reported iron ore production of 327 million tonnes in 2019. A US$1 billion dollar green investment, while laudable, could be funded by a 30¢/tonne rise in the iron ore price. The industry needs to do much more,” he noted.

Rio Tinto’s bulk of earnings come iron ore, its main commodity and a key ingredient for steelmaking. The highly polluting industry process involves adding coking coal to make carbon steel and is responsible for up to 9% of global greenhouse emissions.

— This article first appeared in our sister publication, MINING.com.