Rio Tinto is one of the world’s most carbon-intensive companies, primarily due to the use of its minerals for the production of steel and aluminium. It is also, therefore, critical to achieving the world’s decarbonisation ambitions.
This embedded tension between today’s carbon-based cash flows and tomorrow’s sustainable earnings has paralysed too many companies in hard-to-abate sectors from taking determined action to pivot towards a more sustainable pathway. But such action is vital if we are to protect long-term capital and to help tackle climate change.
Against this backdrop, we have welcomed Rio Tinto’s leadership in aligning its strategy with global decarbonisation. Since 2021 Rio has been committed to align with a 2050 Net Zero pathway. In its latest Annual Report, Rio declares:
“Climate change and the low-carbon transition are at the heart of our strategy”.
In 2022 it published its detailed Climate Action Plan, outlining targets to get Scope 1 and 2 emissions down 50% by 2030. It detailed its efforts to drive decarbonisation amongst its key customers, which is where over 90% of its emissions sit. Last week it committed to further enhance its efforts to support decarbonisation by its customers[1].
Notwithstanding Rio’s leadership in decarbonising, it needs to accelerate its plans. We have concerns over its capex still being heavily geared towards areas of its iron ore portfolio and a number of carbon-intensive assets. We would like to see a more material shift in investment towards decarbonising its operations and its end-markets, notably steel production. Rio’s decision to scale back planned investment into carbon abatement in 2023 from a planned $7.5bn between 2022 to 2030, to between $5-6bn is somewhat concerning.
Rio’s financials appear to assume a 2°C+ pathway
When we delve into the numbers underpinning its financial reporting and planning, moreover, we find that the forecasts it uses are not baking in the future it aspires to. Instead, it assumes the world continues on a business-as-usual basis.
In other words, Rio says it is aligning with a 1.5°C pathway, but appears to be deploying capital in line with demand for minerals associated with a 2 to 2.5°C pathway.
How we are voting at Rio’s 2024 AGM
As we approach Rio Tinto’s 2024 AGM, we are once again setting out our rationale for our votes on key resolutions. Please follow links to see how we voted in 2022 and 2023 and why.
Our votes aim to reflect the important advances Rio has made in the past three years. We recognise and applaud Rio’s leadership and we know that many of its employees are passionate about solving the climate crisis. Nevertheless, confronted by the dangers of climate change and the risks of irreversibility, we will continue to support the board to take more determined action.
Against this backdrop, we are voting as follows at Rio’s upcoming AGM.
Chair (Dominic Barton): Abstain
This is Barton’s second year as Chair and we are again abstaining on his reappointment. While we welcome clear advances on both climate change and board diversity, we also identify the need for further action.
On climate change, Rio has embedded decarbonisation into the core of its strategy. In the last 12 months we have been pleased to see Rio address one of our engagement priorities by expanding its Scope 3 emission commitments to cover a portion of its steel and aluminium customers’ emissions. In addition, we welcome its statement in March 2024 to provide enhanced visibility of its Scope 3 reduction plans before the 2025 AGM.
Set against these positive steps, however, we note a fall in Rio’s capex commitment to decarbonising its operations, with capex in 2023 amounting to just 2.7% of its total budget. Over the longer 2022-2030 period, the proposed capex has been cut by $1-2bn. We would also like to see a more material pivot in capex towards transition minerals growth, given the risks it faces during a transition to green steel, low-carbon aluminium and rising carbon prices.
Financial Statements: Abstain
Like last year, we are abstaining on Rio’s financial statements. Rio’s leadership on climate-related financial disclosures is clear, and we have welcomed the vigilance leading to the $1.2bn impairment of two Australian alumina refineries linked to decarbonisation regulations. Despite this, we continue to have concerns:
1) The lack of disclosures for long-term commodity price assumptions.
2) The low-carbon tax assumptions used for both the reference scenario and 1.5°C scenario versus those suggested by the International Energy Agency.
3) How climate is considered in estimating closure provisions.
4) Lack of visibility on how physical impacts have been considered.
We note that the Board highlights solvency risks that might be associated with a faster roll out of green steel and the “inclusion of closure considerations throughout the lifetime of the assets”.
Audit Committee Chair (Simon Henry): Abstain
Consistent with our voting on the Financial Statements, we are abstaining on Henry’s reappointment. We also continue to have concerns that Henry is the only member of the audit committee with financial expertise.
Auditor: Abstain
KPMG’s disclosures on how climate is considered in its audit is more detailed than most. We are missing, however, commentary from them on how climate was considered under their Key Audit Matter on closure provisions; on the relatively low carbon prices assumed by management and potential risks from a 1.5°C pathway.
Remuneration: Against
While Scope 1 and 2 targets and Scope 3 goals are part of the remuneration, with an increased weight as part of the bonus, we would like to see a 1.5°C-underpin introduced to ensure no performance-related pay is awarded for non-aligned performance.
Remuneration Committee Chair: Against Sam Laidlaw
We have voted against remuneration for two years on climate grounds (see above), so in line with our policy will hold the RemCo Chair accountable for a lack of action.
[1] https://www.riotinto.com/en/news/trending-topics/accr-commitment
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