Investor Insight Investor Bulletin: BHP’s 2024 Climate Transition Action Plan (CTAP)

While BHP's 2024 CTAP provides improved disclosures on scope 3, it falls short on ambition and does not have a capital allocation strategy to match the scale of the challenge.

26th September 2024

ACCR recently welcomed greater transparency from BHP on its forward steel decarbonisation investment and priorities. However, after detailed analysis of the 2024 Climate Transition Action Plan (CTAP), including the new disclosures, ACCR will be voting against the CTAP at BHP’s upcoming Annual General Meeting (AGM).

BHP’s scope 3 emissions, dominated by the processing of its iron ore and metallurgical coal into steel, are 97% of its total emissions footprint. Addressing the scope 3 emissions from the processing of its iron ore offers BHP the most significant opportunity to reduce its climate impact and associated transition risks.

The CTAP reveals BHP will directly spend only US$75 million over the forward five years on steel decarbonisation. This limited relative investment is difficult to reconcile with the huge scale of the emissions and green transition risk challenge BHP faces, as the global shift to green steel is underway.

Key Findings

Disclosed direct capital allocation towards steel decarbonisation is low: just US$75m between FY25 - FY29. Given the volume of associated scope 3 emissions and the risks it poses to BHP’s iron ore business, shareholders would likely expect a more ambitious commitment.
BHP’s steel decarbonisation strategy shows a heavy reliance on blast furnace (BF-BOF) combined with CCUS, overstating the decarbonisation potential of this technology and underplaying the risks and high-costs. This introduces long-term risk to BHP’s ability to meet its scope 3 targets. EAF and electric smelting technologies, which are more technologically mature and offer greater decarbonisation potential, are given a lesser priority.
The CTAP provides scant detail about how BHP’s metallurgical coal projects, particularly the expansions in Queensland, align with its decarbonisation strategy and scope 3 goals. ACCR analysis suggests BHP’s forecast metallurgical coal production is significantly misaligned with the Paris Agreement.
BHP’s planning range forecasts 2°C of warming by 2100 - a failure of the Paris Agreement - yet the CTAP doesn’t meaningfully address the material physical and financial risks of this temperature outcome, or the risks to shareholder value.
BHP uses its own “1.5°C scenario” to assess the resilience of its assets under 1.5°C warming. ACCR analysis of this scenario finds it significantly overestimates the role of CCUS and BOF with CCUS technologies compared to more credible, industry-standard scenarios. This approach downplays the transition risks and does not provide investors a robust assessment of portfolio resilience.
Climate lobbying is not sufficiently strategically integrated into the CTAP - despite increasing recognition that policy engagement is a critical component of transition plans, and investor expectations that transition plans disclose interdependencies between net zero targets and the wider policy environment.
Climate lobbying is not sufficiently strategically integrated into the CTAP - despite increasing recognition that policy engagement is a critical component of transition plans, and investor expectations that transition plans disclose interdependencies between net zero targets and the wider policy environment.

Key stewardship considerations for investors

The following questions should be incorporated into future engagement strategies/meetings to better understand the risks associated with the Company's refreshed strategy.

How does the US$75 million over the next 5 years lead BHP to achieve its decarbonisation targets?
Why does BHP's Scope 3 decarbonisation strategy rely so heavily on unproven CCUS technology?
What assumptions are being made about the scalability of CCUS and its effectiveness, and how does this impact the credibility of its 1.5°C pathway?
Can BHP provide a more detailed strategy for meeting its scope 3 net zero targets?

Download Analysis: BHP’s 2024 Climate Transition Action Plan (CTAP) | 26/09/24

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