Not long ago the notion of hard-nosed institutional investors giving two hoots about the size of a company’s carbon footprint would have been laughable.
Miners were measured on how much iron ore they dug out, how much profit they made, and the size of their dividend. The carbon dioxide emitted as part of the process would not have come into the equation. But times have changed.
Major shareholders are almost as likely to ask what a company is doing to curb its emissions, as ask about its bottom line – and bluechip firms around the world are falling over themselves to burnish their environmental credentials.
Rio Tinto generates more than 31m tons of carbon emissions a year
As Boris Johnson prepares to host the Cop26 climate change conference in Glasgow from Sunday, the race among big corporates to achieve ‘net zero’ carbon emissions is already well under way.
Last week Rio Tinto announced plans to cut carbon emissions by half by 2030 and reach net zero by 2050, at a cost of well over £5bn. In doing so it trumped rival BHP which earlier revealed plans to cut emissions by at least 30pc by 2030, before hitting net zero by the middle of the century. Some of the world’s biggest carbon emitters, from FTSE 100 miners Anglo American and Glencore, to oil and gas majors BP and Shell, have already announced their own net zero ambitions.
Here in Australia, which is a massive exporter of fossil fuels, governments have long dragged their heels on climate change. Only yesterday prime minister Scott Morrison pledged to achieve net zero by 2050 – just in the nick of time. He is due to fly to Glasgow tomorrow. However, he said the plan would not include ending Australia’s fossil fuel industry or more ambitious targets for 2030, a key objective of the Cop summit.
Little wonder, perhaps, given the debate in Australia has been framed by many as a battle between the metropolitan elites of Sydney and Melbourne and blue-collar oil and gas workers in the bush who face losing their jobs. But for all his previous resistance to net zero, Morrison is renowned as a pragmatist who does not want Australia to be left behind as other countries shift to net zero economies.
Last week Rio Tinto announced plans to cut carbon emissions by half by 2030 and reach net zero by 2050, at a cost of well over £5bn
Public support has rallied behind doing more to tackle climate change, following the terrible Black Summer bush fires of two years ago. And, just like the bosses of Rio and BHP, he is fully aware that money talks, and that the big money has already spoken. More than 600 investors managing over £43trillion in assets have signed up to Climate Action 100+, a pressure group set up in 2017 to persuade the biggest greenhouse gas emitters to tackle climate change.
The list of signatories reads like a who’s who of the fund management industry – from BlackRock, the world’s largest fund manager, to Wall Street giants Goldman Sachs and JP Morgan, as well as Invesco and Legal & General. They all believe the smart money is on companies which cut emissions and embrace new, greener technologies, whether it be solar energy or hydrogen power. Those which fail to do so will be left behind. Of course, setting a target to achieve net zero is one thing.
Doing it is another. Net zero carbon emissions means removing as much greenhouse gas from the atmosphere as is emitted – by a combination of greener technologies and storing carbon in the ground. Getting to net zero, particularly for miners responsible for between 4pc and 7pc of global greenhouse gas emissions, will not be easy. Rio generates more than 31m tons of carbon emissions a year.
Its chief executive Jakob Stausholm, who will be among those schmoozing at the Glasgow conference, laid out his net zero strategy last week. Billions will be spent on wind energy and particularly solar power, which is not in short supply in the iron ore heartlands of North Western Australia. The goal is to fully electrify the giant mine, rail and port system in the region.
But it faces an even bigger challenge in its global aluminium division which generates 70pc of its emissions. In Queensland and New South Wales its smelters will be largely powered by coal until towards the end of the decade. Rio would require five gigawatts of wind and solar energy to power them. ‘It is a big task, but a do-able challenge,’ Stausholm insists. But big investors will be holding Rio to its promise.