Rio Tinto, one of the world’s largest metals and mining corporations and a leading iron ore producer, has made new commitments to enhance disclosure on plans and progress to reduce scope 3 emissions from iron ore processing for steel production. This represents a step forward with potential sector wide implications.
Rio has acknowledged the role of investor engagement via Climate Action 100+ in influencing this outcome.
Scope 3 emissions from the use and processing of their products typically form the majority of a diversified mining company’s greenhouse gas emissions, and Rio is no exception. Rio’s scope 3 emissions from processing of iron ore stand at 400 MtCO2, 65% of the company’s total footprint. These emissions occur during steelmaking, which is carbon intensive because it primarily relies on the use of metallurgical coal in blast furnaces. As the global economy decarbonises, these scope 3 emissions represent a significant business risk, and investors expect miners to demonstrate that they are taking steps to supply iron ore in line with low carbon steelmaking pathways.
Although projects and customer collaborations to reduce these emissions are often highlighted in disclosures, more specific details of plans, progress and anticipated outcomes can be limited. An absence of clear action and targets to reduce scope 3 emissions within the transition plans of iron ore producers has been consistently highlighted by investors and proxy advisors.
Rio has committed to enhance disclosures prior to the 2025 AGM and thereafter by providing:
- Actual expenditure on steel decarbonisation, and forecast spend, as a range, over a 3-year period
- Capital expenditure on Rio Tinto-led steel decarbonisation projects and financial contributions to steel decarbonisation partnerships (subject to commercial agreements)
- Known milestones and timelines, anticipated expenditure and potential abatement opportunities of announced projects and partnerships (subject to joint venture partner approvals)
- Potential abatement opportunities of announced projects and partnerships aligned to industry abatement curves and net zero decarbonisation scenarios.
The decision comes after sustained engagement by CA100+ investors, including Australian Rio Tinto engagement group leads Fidelity International and the Australian Council of Superannuation Investors. In addition to investors, Rio have also credited engagement by ‘civil society organisations’ and the Australian Centre for Corporate Responsibility (ACCR).
Reducing Rio’s scope 3 emissions from iron ore processing relies on Rio’s customers shifting to green steel manufacturing technology. In this instance, progress was achieved through investors acknowledging this and shifting to a pragmatic approach that focused on enhanced disclosure on scope 3 abatement plans and expenditure rather than solely advocating for targets.
Key milestones in the engagement with Rio were:
- Q3 2023:
- Australian and European Climate Action 100+ investor signatories leading engagement with Rio agree to shift focus from scope 3 reduction targets to enhanced disclosure on steel decarbonisation plans and expenditure.
- Via a letter and meetings with Rio’s Climate team, these investors then advocated for disclosures that closely align with Rio’s subsequent commitments on steel decarbonisation.
- Q1 2024:
- Feedback was provided by CA100+ investors to inform Rio’s 2024 climate change report, with a focus on scope 3 disclosure and steel decarbonisation.
- ACCR inform Rio of its intention to file a shareholder proposal requesting additional disclosures on plans to reduce scope 3 emissions from processing of iron ore.
- Rio announces commitments to enhance company disclosures on plans to reduce scope 3 emissions from processing iron for steel production.
More granular ongoing insight into plans and abatement outcomes from efforts to address Rio’s main scope 3 emissions source enables investors to better ascertain progress in line with anticipated sector decarbonisation trajectories. It is hoped this significant step forwards ultimately provides a foundation for Rio to define a scope 3 reduction target.
Alf Barrios, Chief Commercial Officer at Rio Tinto:
“CA100+ provides a useful focal point for our engagement with investors on climate change and we have aligned our Climate Action Plan with the CA100+ Net Zero Company Benchmark. Our commitment on Scope 3 is to partner with our customers and suppliers to help them achieve their emissions targets a decade earlier.
Constructive dialogue with CA100+, ACCR and others on the practical approaches we are taking to address Scope 3 is helpful in shaping our strategy and our reporting in this area.
We established our first steel decarbonisation partnership with Baowu in 2019 and now have over 40 partners working on 50 projects in this area. We spent $28 million on steel decarbonisation initiatives in 2023 and estimate this could rise to $100 million in 2024. We are also continuously improving our transparency and disclosure on these initiatives.
We look forward to maintaining our engagement with CA100+ at the Board and working level as we continue to enhance our approach on climate change and update our Climate Action Plan.”
Daniela Jaramillo, Head of Sustainable Investing – Australia, Fidelity International:
“The company’s acknowledgement that stakeholders have played a key role in this commitment is testament that investor engagement can be fruitful and effective.
On reflection, the key elements that we believe were key to this success are:
First, as investors, recognising the need to pivot our approach, be pragmatic and sometimes adjust our engagement objective to the second-best outcome;
Second, alignment between stakeholders like the CA100+ leads in Australia and Europe as well as ACCR.
Third, using multiple stewardship tools including engagement at board and management levels, having disclosure asks and also incentive/remuneration related asks.
Finally we must recognise the role of ACCR’s threat of escalation with a shareholder proposal, which catalysed the commitment from the company. These learnings can contribute to future successful corporate engagement outcomes.”
Naomi Hogan, Company Strategy Lead, Australian Centre for Corporate Responsibility (ACCR):
“The multi-pronged approach of strong investor engagement, backed by a credible shareholder escalation, underpinned by steel decarbonisation research has catalysed action and this important result. In particular, it highlights the importance of escalation as a necessary and logical component of effective stewardship. Rio’s announcement sets a new standard for iron ore producers globally and puts the company on the path to unlocking large emissions reductions and better ensuring long term value through the energy transition.”
Harry Ashman, Engagement Specialist, Robeco:
“Tackling emissions from the steel value chain is a significant challenge as we aim to achieve net zero.
Unlike fossil fuels, which generate high scope 3 emissions for their producers yet have a limited long term role to play in a decarbonised society, iron ore enables much of the infrastructure needed for the energy transition and will see enduring demand.
Acknowledging and balancing the necessity of mitigating the risks associated with high scope 3 emissions, the ongoing need for iron ore and Rio Tinto’s lack of direct control over its clients’ steelmaking processes, has been important in our engagement.
We welcome Rio Tinto’s commitment and look forward to seeing how these disclosures provide us with a clearer picture of how their customer engagement and investments in green steel will lead to reduced emissions.”