‘No’ vote urged on BHP climate transition plan

Proxy adviser CGI Glass Lewis recommends shareholders reject BHP’s climate transition plan, saying it’s unclear if the targets are science-based.

BHP CEO Mike Henry. Picture: Aaron Francis

Influential proxy adviser CGI Glass Lewis has recommended that BHP shareholders vote against the company’s climate transition action plan, saying it’s unclear if the targets are science-based or certified by outside organisations.

While the firm acknowledged in its report that the plan had some strengths, it said there might be “some room for improvement”.

“We are not convinced that support for this resolution is warranted at this time,” the report said.

“Accordingly, we believe that further engagement with shareholders on these topics could be beneficial and that shareholders should vote against this proposal.”

Shareholders will vote on BHP’s climate transition action plan, released earlier this month, at the resources giant’s October 14 annual meeting.

In the plan, the company set a net zero emissions target by 2050 for both its direct suppliers and shippers of its products, but did not extend the goal to its steelmaking customers.

The mining giant pledged in 2019 to cut so-called “Scope 3” emissions — those from downstream manufacturers, such as steel mills, that use the iron ore and commodities that BHP mines — under former boss Andrew Mackenzie, who said a global dependence on fossil fuels posed an “existential” risk to the planet.

His successor, Mike Henry, has followed through on the ambition, releasing plans to slash 2030 emissions by 30 per cent from 2020 levels on a path to net zero emissions by 2050.

While BHP separated the task into different categories, it ultimately backed away from setting a hard target for steelmakers that account for about three-quarters of its Scope 3 emissions.

“Recognising the particular challenge of a net zero pathway for customers’ processing of our products — which is dependent on the development and downstream deployment of solutions and supportive policy — we cannot set a target, but will continue to partner with customers and others to accelerate the transition to carbon neutral steelmaking,” BHP said in its climate transition plan.

CGI Glass Lewis said the plan had strengths and weaknesses.

Among its strengths were a “relatively clear” picture of the company’s climate-related considerations and the steps to minimise its carbon footprint.

BHP also provided a thorough discussion of the alignment of its capital expenditure with the 2015 Paris Agreement.

“It states that its 1.5C scenario is used to inform and test strategic portfolio decisions and that it intends to systematically integrate one or more Paris-aligned scenarios (including 1.5C scenarios) into its strategy and capital prioritisation processes beginning in the 2022 financial year,” CGI Glass Lewis said.

“It also appears that the company has a solid governance structure for its climate-related considerations.”

Against that, there was room for improvement in some areas.

BHP, according to the proxy adviser, discussed how its medium-term operational targets, set in August 2020, “fall within the range of emissions reductions required...to be considered aligned with the goals of the Paris Agreement.”

However, it was not clear that all parties agreed on this alignment.

The emissions reduction targets did not appear to be certified by outside organisations, and according to a December 2020 assessment by the Transition Pathway Initiative, the company’s target was not aligned with Paris.

The TPI, an asset-owner initiative which assesses a company’s preparedness for the transition to a low-carbon economy, also noted that BHP had not discussed an emissions intensity that the TPI could use to assess current or future carbon performance.

“We also believe that a more thorough discussion of the steps the company intends to take regarding minimising its Scope 3 emissions may also be warranted,” CGI Glass Lewis said.

“While the company has the laudable goal of pursuing a long-term goal of net zero Scope 3 emissions, it appears to have somewhat limited targets.”

Originally published as ‘No’ vote urged on BHP climate transition plan