(Bloomberg Opinion) -- Miners have been falling behind in the climate revolution. Now BHP Group has set clear near-term targets for greenhouse gas emissions, and is explicitly tying more of its leaders’ bonuses to that vision. That’s a welcome effort to align headline-grabbing promises and executive action. It isn’t enough to guarantee the right long-term outcome.
Thursday’s much-anticipated climate announcement won’t have satisfied anyone looking for the bold agenda set out by BP Plc Chief Executive Officer Bernard Looney in February, or the oil major's subsequent plan to cut oil and gas output by 40% over the coming decade. By comparison, the plans laid out by the “Big Australian” lack green zeal. It’s true there was plenty to like, in part because of the low bar set by the rest of the industry. BHP, one of the world’s biggest carbon emitters, will reduce emissions from its own operations at least 30% by 2030 from this year’s levels. That’s a far steeper cut than Rio Tinto Group’s 15% cut from 2018 levels, also on the way to zero operational emissions by 2050.
But BHP stopped short of adequately tackling the elephant in the climate room: emissions produced indirectly when its oil, iron ore or coal is burned or processed by customers. That’s a problem. These so-called Scope 3 emissions account for as much as 97% of BHP’s total, and are larger than Australia’s. For the mining industry as a whole, such emissions count for more like a quarter, at most, of the total contribution to global greenhouse gases. BHP’s plan sets no overall reduction here, leaning heavily on carbon intensity ambitions instead, which while positive don’t guarantee the absolute reduction the planet needs.
Admittedly, these indirect emissions are harder to get to grips with. Compared to getting a client to revamp its steel mill, it’s clearly easier to promise solar panels at your mine site. It might even be cheaper than diesel, too. So while BHP is right to pick the areas where it can be a catalyst for change — working with the shipping industry and steelmakers — sidestepping targets is an uncomfortable solution. It’s also behind the zeitgeist: At Rio’s Australian shareholder meeting in May, more than a third backed a proposal demanding targets even for Scope 3. Trying isn’t enough when outcomes matter.
One clear positive is the follow-up to last year’s remuneration shakeup, adjusting the boss’s pay to match green promises. Far too few resources companies take this obvious step and even fewer do it in a meaningful way, sticking instead to traditional metrics. A Carbon Tracker report found that over 90% of major oil companies in 2017 paid executives based on volume growth, reserve and resource additions, or both. The picture is little better when considering a wider range of sectors. Research led by Xavier Baeten at Vlerick Business School calculated that in a universe of more than 700 European companies, almost 70% now include corporate social responsibility measures in compensation. Yet that mostly means employee issues, like staff engagement, and only translates into climate and environment targets for a tiny minority — less than 20% even for companies in the base materials sector.
For CEO Mike Henry and his leadership team at BHP, by contrast, 10% of the cash-and-deferred-plan or bonus portion will depend on meeting its climate goals. That comes on top of other welcome changes last year, including shifting the main financial metric, which still makes up half the total, to return on capital, and obliging the top executive to hold shares for longer — at least two years after retirement.
There are plenty of reasons to make remuneration a little more viridescent. For one, it’s in sync with a post-Covid environment where there is little tolerance for excess pay. More importantly, it displays a consistency between purpose and action that shareholders value, as Rio Tinto has found out after blowing up a 46,000-year-old sacred Aboriginal shelter and unleashing investor wrath that could topple the chief executive.
We also know from academic research that including sustainability targets works, in terms of everything from actually reducing emissions to encouraging longer-term thinking and engagement in green innovation.
The trouble is that this isn’t easy to do well. Climate goals are shifting. BHP has provided a model for the sector with a quantifiable target, consistent with its message and transparent. And even if 10% of the short-term incentive plan isn’t too impressive, holding shares for longer will help.
What the shakeup hasn’t done at BHP, yet, is encourage ambition. That’s harder to build into pay. A little more wouldn’t go amiss.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Clara Ferreira Marques is a Bloomberg Opinion columnist covering commodities and environmental, social and governance issues. Previously, she was an associate editor for Reuters Breakingviews, and editor and correspondent for Reuters in Singapore, India, the U.K., Italy and Russia.
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