CDP Investor Research Digging deep. Exploring how miners are facing up to the low-carbon challenge?

Transcription

1 CDP Investor Research Digging deep Exploring how miners are facing up to the low-carbon challenge?

2 CDP is the only global environmental disclosure system ~6,000 Companies in 87 countries reporting over half the world s market cap over 800 Institutional investors requesting information a third of the world s investable capital > 100 USD trillion AUM ~570 Cities sharing best practices ~100 Global corporate supply chains US$3 trillion in annual procurement Page 2

3 Using investor authority to drive corporate action Investors Authority Information Information Corporations Authority Disclosure is a powerful way to drive investment in research and development, and to motivate finance and creative approaches. Ali Zaidi, Associate Director, White House Office of Management and Budget Page 3

4 CDP s Reimagining Disclosure Initiative Sectors Energy Transport Materials Agriculture Task Force on Climate-related Financial Disclosures Adopt recommendations Evolution Forward looking Align across climate, water & forests Page 4

5 CDP Investor Research Series { Focus on high-emitting industries: autos, electric utilities, diversified chemicals, diversified mining, cement, steel, and oil & gas. { Flags material climate issues (carbon and water) and the potential impact on financial performance. { Combines climate metrics to create a League Table and company level summary pages. { Research series voted most innovative research product & no. 1 climate change research house in both 2015 and 2016 by the Extel Independent Research in Responsible Investment Survey. Page 5

6 CDP Research Aligns with TCFD Framework Source: Task Force on Climate-related Financial Disclosure Page 6

7 Risks and opportunities for Mining Companies { Miners have reduced costs, emissions and energy intensity of operations since Commodity demand scenario (indexed 1995) { 45% of CAPEX spent on low-carbon commodities that will drive the low-carbon economy; however, 25% spent on fossil fuels. { Companies carbon exposure in value chains significant Scope 3 emissions are up to 30x higher than operational (Scope 1+2) emissions. { China s incoming ETS may lead to structural changes in seaborne commodity consumption. { A quarter of mining production will be in regions suffering from high water stress or arid conditions by Page 7

8 Summary of metrics within the League Table Key area in League Table Metrics Key area weighting i) Emissions intensity of operations Transition risks ii) Energy intensity of operations iii) Value chain (Scope 3) emissions exposure iv) Production costs v) Earnings (EBITDA) split by commodity 30% i) Asset exposure to water stress risk Physical risks ii) Water withdrawal intensity of operations iii) Water recycling and fresh surface water use iv) Water governance and policy 30% Transition opportunities Climate governance and strategy i) CAPEX split by commodity ii) CAPEX intensity of operations iii) Capital (balance sheet) flexibility iv) R&D spend and technology innovation v) Renewable energy use i) Carbon regulation supportiveness ii) Emissions reduction targets iii) Carbon emissions data verification iv) Climate-related remuneration v) Use of an internal carbon price vi) CDP score 20% 20% { Detailed methodology in full report. { 20 individual metrics used across several strands of climate themes. { Data sources: CDP responses, company reports, World Resource Institute and GlobalData. Page 8

9 League Table summary US$294bn in market capitalization 2017 League Table rank 2015 League Table rank Company League Table score Managing transition risks Managing physical risks Transition opportunities Climate governance & strategy 1 1 Vale 4.90 A A C D 2 n/a Boliden 4.96 A B B C 3 2 BHP 5.28 B A C B 4 4 Rio Tinto 5.82 B C A C 5 11 Glencore 5.88 C B B C 6 n/a South D B D A 7 6 Antofagasta 6.29 C C B C 8 5 Teck 6.60 D B E B 9 7 Anglo American 7.07 E B D D 10 8 Freeport-McMoRan 7.17 C D D D First Quantum Minerals 7.79 B E C E 12 9 Vedanta Resources 8.02 E E D C Page 9

10 Comparing miners using copper equivalent production { Industry terminology that combines production from several commodities into single output figure. { Uses relative commodities prices to scale production into equivalent units of copper. { Allows for normalising indicators across group of diversified miners. Average annual price US$ / t ( ) Copper equivalent price Production (kt) Copper equivalent production (kt) Copper 7, Coking coal , Aluminium 1, Total 523 Page 10

11 Transition risks summary Company Managing transition risks rank Managing transition risks grade Vale 1 A Boliden 2 A Rio Tinto 3 B BHP 4 B First Quantum Minerals 5 B Freeport-McMoRan 6 C Glencore 7 C Antofagasta 8 C South32 9 D Teck 10 D Vedanta Resources 11 E Anglo American 12 E Metrics: { Emissions intensity { Energy intensity { Value chain (Scope 3) emissions exposure { Production costs { Earnings (EBITDA) split by commodity Page 11

12 A quarter of mining emissions covered by carbon pricing { Current implemented carbon pricing schemes cover approx. 13% of global GHG emissions. { Over 25% of company operational emissions exposed to carbon pricing schemes for company sample (see page 14 of report). { New and incoming carbon pricing schemes: China, Canada, S. Africa & Chile. Page 12

13 Commodity sensitivity to carbon pricing { Using carbon price of US$25/t CO₂: Miner emissions (t CO₂ / t product) % commodity lifecycle CO₂ emissions Carbon cost of miner emissions (US$ per t product) Value chain emissions (t CO₂ /t product) % commodity lifecycle CO₂ emissions Carbon cost of value chain emissions (US$ / t product) Average commodity price (USD/t product) Lifecycle carbon cost as % of selling price Miner's CO₂ cost as % of commodity price Consumer's CO₂ cost as % of commodity price Carbon price needed for 10% commodity price increase (US$/t CO₂) Iron ore % % % 0.8% 38.4% 6 Thermal coal % % % 3.0% 70.0% 3 Copper 4 96% % ,000 2% 1.5% 0.1% 157 { Incoming and recent carbon pricing policies: Country Policy + date Price level Major commodities Canada Country wide emissions tax, 2018 CAD10 (US$7.5)/t, rising to CAD50 (US$38)/t in Copper, coal, zinc Chile Electricity generation emissions tax, 2017 US$5/t Copper, gold, nickel, lithium South Africa Country wide emissions tax, 2018 ZAR120/t (US$9.5/t) Coal, iron ore, gold, PGMs China Country ETS, 2017 Unclear Coal, iron ore, copper { See more on page 14 in the full report Page 13

14 Most miners have cut operational emissions intensity { Nine of 12 companies have reduced emissions intensity and eight have cut energy intensity of operations since { Measures consistent with industry cost cutting drive since { Vedanta and South32 have significantly higher emissions intensity levels relative to peers. Page 14

15 Scope 3 emissions and Chinese ETS highlight value chain risk { Estimated Scope 3 emissions for all 12 companies in 2016 is 2,365mt CO ₂, equal to India s annual carbon emissions. { Coal, oil & gas and iron ore producers have highest Scope 3 intensities. { BHP and Rio have Scope 3 footprints of 600mt CO ₂. { Prospect of more carbon pricing in commodity consuming countries poses a significant risk. Page 15

16 Miners have moved down the cost curve since 2013 { Majority of companies sit relatively low on the industry copper equivalent cost curve. { All companies have cut operational costs since Average reduction of 10% p.a. Page 16

17 Less of miners earnings coming from fossil fuels { On average company earnings from commodities needed in low-carbon transition exceed EBITDA from fossil fuels. { Nine companies produce oil, gas, met coal or thermal coal. Page 17

18 Water stress already an issue for the mining sector Global water stress for mining Company production split by geography Page 18

19 And already costing money to rectify Antofagasta: The use of surface water will generally no longer be feasible for new greenfield projects in Chile. Drought severity risk Company Antofagasta - Los Pelambres BHP / Rio Tinto - Escondida Southern Copper - Tia Maria Status US$470m investment US$3.3bn investment Mine development halted Anglo American - Los Bronces 30kt lost copper production in 2014 Page 19

20 Water resilience summary Company Water resilience rank Water resilience grade Metrics: Vale 1 A BHP 2 A Boliden 3 B Anglo American 4 B Teck 5 B Glencore 6 B South32 7 B Antofagasta 8 C Rio Tinto 9 C Freeport-McMoRan 10 D First Quantum Minerals 11 E Vedanta Resources 12 E { Asset exposure to water stress { Water withdrawal intensity { Water recycled & fresh surface water use { Water governance & policy Page 20

21 Baseline water stress set to be high by 2030 { By 2030, 27% of production and up to US$50bn of revenues is likely to be exposed to high levels of water stress risk. { Most exposed regions are Chile, South Africa, U.S. and Australia. Page 21

22 Water recycling becoming more important for miners { Eight of the 12 companies have water recycling rates > 50%. { BHP and Antofagasta have lowest fresh surface water use. { Desalination and recycling infrastructure becoming increasingly important to mitigate against water stress exposure. Page 22

23 Transition opportunities Page 23

24 Electrification, batteries and EVs to drive commodity demand EV deployment scenarios to 2030 Lithium-ion battery components Page 24

25 Transition opportunities summary Company Transition opportunities rank Transition opportunities grade Rio Tinto 1 A Boliden 2 B Antofagasta 3 B Glencore 4 B First Quantum Minerals 5 C Vale 6 C BHP 7 C Freeport-McMoRan 8 D Anglo American 9 D Vedanta Resources 10 D South32 11 D Teck 12 E Metrics: { CAPEX split by commodity { CAPEX intensity { Capital flexibility { R&D and innovation { Renewable energy use Page 25

26 More capital spent on low-carbon metals than fossil fuels { Companies to the left have higher share of CAPEX spent on low-carbon commodities. { 45% of total CAPEX spent on low-carbon commodities; however, 25% on fossil fuels. { Miners in general shifting away from thermal coal (except for Glencore). Page 26

27 Miners still reliant on fossil fuel energy sources { The bulk of miners energy needs currently comes from fossil fuels. { Six companies source > 20% of energy from renewables, with Boliden the highest at 42%. { Energy accounts for up to 75% of miners emissions and up to 30% of operational cost base. Page 27

28 Climate governance and strategy Page 28

29 Climate governance & strategy summary Company Climate governance & strategy rank Climate governance & strategy grade Metrics: South32 1 A BHP 2 B Teck 3 B Antofagasta 4 C Vedanta Resources 5 C Glencore 6 C Boliden 7 C Rio Tinto 8 C Anglo American 9 D Freeport-McMoRan 10 D Vale 11 D { Carbon regulation supportiveness { Emissions reduction targets { Emissions verification { Climate-related remuneration { Use of internal carbon price { CDP score First Quantum Minerals 12 E Page 29

30 Carbon regulation engagement varies across companies { Poor engagement on climate-policy by whole sector and evidence that some miners remain opposed to strands of climate policy. { South African carbon tax highlights difference in South32 and Anglo American policy engagement. Page 30

31 Investor climate scenario testing still developing BHP 2015 Glencore 2016 Page 31

32 Internal carbon prices and exec remuneration Climate-related remuneration Page 32

33 Aiming for A shareholder resolutions Company Climate Publications Operational CO2 targets Portfolio resilience assessment Low carbon R&D Climate KPIs in remuneration Public policy position BHP 2015, 2016 Flat absolute emissions until Four scenarios, outcomes for commodity groups and estimated impact on company EBITDA. Refer to metric 4 of Transition Opportunities. Yes, within Health, Safety, Environment and Community. Refer to metric 1 of Climate governance & strategy section. Rio Tinto 2017 Emissions intensity reduction target out to Three scenarios Limited action, Regional Differences and Co-operative outcomes. Description of scenarios Refer to metric 4 of only in 2017 cliamte report. Transition Opportunities. No. Refer to metric 1 of this Climate governance & strategy section. Anglo American 2017 Glencore 2016, 2017 Existing 22% absolute emissions target based relative to BAU emissions by New group-wide 5% emissions intensity target by Description of expected quantitative scenarios work to be published in Three scenarios Delayed, Committed and Ambitious action. Indiciative directional impacts on commodities disclosed. Refer to metric 4 of Transition Opportunities. Refer to metric 4 of Transition Opportunities. CEO s bonus is linked to achieving emissions target early. Carbon related compensation KPIs set at asset level. Refer to metric 1 of this Climate governance & strategy section. Refer to metric 1 of this Climate governance & strategy section. { See page 32 of full report Page 33

34 Physical risks of climate change In recent years, the north-eastern region of Australia has been hit with several weather events that have caused disruption to mining operations: { In 2011, Cyclone Yasi caused torrential rain in the Bowen Basin of Queensland where BHP, Glencore, Anglo American and Rio Tinto operate. Severe flooding disrupted production for over six months, causing output from the region to fall by a third. { In 2013, Cyclone Oswald hit the region causing long-term damage to roads and rail networks. Miners were forced to look for alternative ways to export coal from the southern part of the Bowen Basin. { In March 2017, BHP and Glencore ceased production as Cyclone Debbie hit the region. BHP, along with four other companies declared force majeure, and was unable to meet its contracted export commitments. It was estimated that about 13mt of coking coal production from Australia was lost due to damage to rail links. Page 34