Decarbonizing the Australian Mining Industry: Decoding Fortescue and BHP's recent investor engagement

How Australia's Leading Miners are Moving Beyond Offsets to Achieve True Emission Reductions by 2030

Concise Overview

• Fortescue Metals Group (FMG) and BHP, two of Australia's largest mining companies, are taking bold steps towards decarbonization, aiming for real zero emissions by 2030. Both companies are focusing on reducing their carbon footprints without over-relying on carbon offsets, distinguishing their strategies from other global peers.

• Fortescue is committed to achieving 'real zero' by eliminating emissions across its Scope 1 and 2 activities by 2030, using green hydrogen and ammonia, coupled with clean energy initiatives. The company has made significant progress, but challenges remain, particularly in operational emissions cuts.

• BHP, while also pursuing ambitious emission reduction targets, aims to avoid carbon credits to meet medium-term goals. Instead, BHP is investing in structural GHG emission reductions and exploring the production of green iron from higher-grade ores.

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Detailed Read

1. Fortescue Metals Group (FMG): Real Zero by 2030

1.1 Strategic Commitment and Progress

• Fortescue Metals Group (FMG), a key player in Australia's iron ore industry, has set an ambitious target to reach 'real zero' emissions by 2030. This goal is distinguished by FMG's pledge to eliminate Scope 1 and 2 emissions without relying on carbon offsets.

• The company's green energy subsidiary reported a significant financial loss of nearly $660 million in the last financial year. Despite this, FMG plans to invest $1.2 billion in the upcoming year to advance its clean energy initiatives, underlining its commitment to a carbon-neutral future.

1.2 Technological and Operational Shifts

• FMG's strategy involves a substantial shift towards clean energy, with particular emphasis on developing green hydrogen and ammonia production capabilities. These efforts align with global decarbonization trends and aim to compete with major oil producers like Saudi Aramco.

• The company has initiated several clean energy projects, focusing on long-term growth in renewable energy. However, FMG faces the challenge of managing its diesel-heavy operations in Western Australia's Pilbara region, which currently consumes 2.4 billion liters of diesel annually.

1.3 Financial and Operational Adjustments

• Despite financial challenges, including a recent restructuring that led to significant job cuts, FMG remains committed to its real zero target. The restructuring also aimed to re-merge its energy and mining divisions, signaling a streamlined approach to achieving its decarbonization goals.

• FMG has abandoned some earlier, more ambitious projects, opting instead to focus on smaller-scale initiatives that provide the necessary runway for future, larger projects in Brazil, Norway, Oman, and Morocco.

1.4 Policy and Regulatory Environment

• Fortescue's strategy benefits from strong governmental support, particularly through Australia's Safeguard Mechanism. This regulatory framework provides a pathway for FMG to stay in line with its real zero ambitions, although the company is exploring the role of Australian Carbon Credit Units (ACCUs) and Safeguard Mechanism Credits (SMCs) in its broader strategy.

• The company's approach emphasizes eliminating any transferable mechanisms that could dilute its real zero commitment, reinforcing its stance against the use of offsets.

1.5 Future Outlook

• FMG's future projects, such as the Green Metal Project and the conversion of iron ore into green iron, are central to its long-term vision. The company is particularly focused on moving away from traditional 'dig and ship' models, aiming instead to produce higher-grade, value-added green iron products, which are critical to decarbonizing steelmaking—a sector responsible for 8% of global emissions.

2. BHP: Structural Emission Reductions Over Offsets

2.1 Strategic Approach

• BHP, the world's largest miner, has also set ambitious targets to reduce its carbon emissions, focusing on structural GHG emission cuts rather than relying on carbon credits. This approach underscores BHP's commitment to achieving long-term sustainability without the crutch of offset mechanisms.

• BHP's Climate Action Transition Plan (CATP), introduced in 2021, outlines a roadmap to reduce Scope 1 emissions by at least 30% below 2020 levels by 2030. This plan is part of a broader strategy to meet medium-term emission reduction targets through direct operational changes.

2.2 Technological Innovations