LONDON (Reuters Breakingviews) - Rio Tinto has joined the 2050 net-zero party. The $86 billion Anglo-Australian miner said on Wednesday it would aim for carbon-free operations by the mid-point of the century, after delivering its best underlying earnings since 2011. That’s good, but other big polluters are traveling faster.
Greenhouse gases produced from Rio’s own operations – so-called Scope 1 and 2 emissions – were 28.2 million tonnes, according to a 2018 sustainability report. To compare, Scope 3 emissions – those produced by customers using its metals like Chinese steelmakers – were well over 500 million tonnes. Unfortunately, the new targets don’t encompass the latter.
Rio boss Jean-Sébastien Jacques is aware of the problem, hence the joint venture announced last September with Tsinghua University and China Baowu Steel, and a new $1 billion of climate-related spend over the next five years – double that of rival BHP. The catch is that other global groups, like BP, are raising the bar when it comes to Scope 3. The UK oil major said earlier this month it wanted to cut 360 million tonnes of emissions from its customers as well as 55 million tonnes from its operations by 2050.
Unlike peers Rio doesn’t mine coal or oil, and 76% of the electricity used in its managed operations comes from renewable energy. But with China representing 51% of sales and iron ore contributing three-quarters of group underlying EBITDA, it is beholden to Beijing’s fortunes. Last year’s surge in Chinese demand sent iron ore prices up and helped Rio’s underlying 2019 earnings to rise 18%.
Rio should be cheering on a widely-anticipated Beijing stimulus to offset the economic fallout from the coronavirus. Local governments have already issued $105 billion worth of bonds in January versus $20 billion a year earlier, according to analysts at Morgan Stanley. That should help fund steel-consuming infrastructure. The catch is that this could keep Rio’s Scope 3 emissions motoring. Even if that isn’t an immediate problem, sustainability-focused investors may make it so.
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