BHP/Glass Lewis: investors demand more from ESG commitments

Investors should call time on deficient climate pledges. So says proxy adviser Glass Lewis, which recommends shareholders vote down miner BHP’s Climate Transition Action Plan, dismissing its scope as limited and pointing out that its targets do not align with goals set in the Paris agreement.

This is a blow for the world’s biggest miner. It is a signal that investors, fresh from a spate of victories on shareholder propositions, will not blithely wave through board-sponsored proposals on decarbonisation any more than they would on remuneration.

Nor should they. For many companies, from oil and gas majors through to shampoo makers, meeting targets on carbon emissions amounts to big strategic change in what they sell and how they source. So-called Say on Climate resolutions, which seek investor approval on plans for climate change action, are increasing. There have been 22 this year, according to Insightia. They included Glencore, Royal Dutch Shell and Rio Tinto. As these are often on three-year cycles, getting them right from the start matters.

Detail is key. Take divestitures, a popular way to shed carbon-emitting fossil fuels. BHP shunted its oil and gas portfolio into an independent venture with Woodside Petroleum, leaving BHP shareholders with 48 per cent of the expanded Woodside.

Glass Lewis, which has previously recommended shareholders vote against two other board-sponsored climate proposals, has drawn on assessments by science-based bodies in making its case.

It argues that BHP’s Climate Transition Action Plan lacks discussion of emissions intensity, which can be used by third parties to assess current and future carbon performance.

Scope 3 greenhouse gases emitted in its supply chain and by its customers are broadly set to hit zero in 2050, BHP says. But there is a caveat for steelmakers, three-quarters of these emissions, because the technology does not yet exist.

BHP, and its iron ore buyers, have to contend with a manufacturing process heavily reliant on coal. Switching to greener furnaces — using, say, hydrogen — is a big ask, particularly in China given its relatively young existing mills.

BHP aims to improve the quality of iron ore mined and work with industry on greener processes to target a 30 per cent emissions intensity reduction by 2030. It says it will “support” industry to develop ways “capable” of making the reduction. That is the sort of wriggle room investors will no longer allow.

The Lex team is interested in hearing more from readers. Please tell us what you think of BHP’s climate action plans in the comments section below