Disclaimer: What you're about to read is of a general nature and doesn't take into account your personal financial situation, needs or objectives. We recommend you seek financial advice before making any decisions about your super and consider the relevant UniSuper PDS and TMD.

Lyndon: Hello, and welcome to Super Informed Radio, the official UniSuper podcast. I'm Lyndon.

Tania: And I'm Tania. And we are so excited to welcome you to the first episode in our special decarbonisation series. We're going to be talking to some of the companies that we invest in, to find out what decarbonisation means for them. Lyndon, do you want to do a quick spiel on why we're doing this?

Lyndon: Sure. Well, to state the obvious, Tania, funds like UniSuper invest people's life savings. So, you know, it's not some mythical bank that just happens to earn a bit more interest than a term deposit—we actually invest in things like property, so office towers and shopping centres, infrastructure like toll roads, companies like Australian banks, Woolworths, Apple, Tesla. You get the gist. So, I guess when we're talking about committing to being a net-zero emissions fund by 2050, and how we often say that we prefer to engage with the companies that we invest in rather than divest from them, the next bit to drill down to is what are those companies doing to reduce their emissions? Because that's the biggest impact that we can have as a fund, I guess—getting those companies to share the same targets that we do. So, you know, what targets have they set themselves to decarbonise, what progress are they making on those targets, and how are they going to get there?

To sum it up, we want to help our members, and you, our listeners, be confident that UniSuper is a leader in this space, and that we've got some great minds, both here and in the companies that we invest in, working really hard on all these things, to make real-world impacts, and a difference. So, there you go, Tania. That's, I guess, it, in a nutshell.

Tania: Brilliant. Thanks, Lyndon. Today, we thought we'd start off with one of our big investments, BHP. Now, you might be thinking, ‘why would we start with a mining company—it might not be the best place to start for a podcast series on decarbonisation’. But, you know, we thought let's go there. These are exactly the types of conversations we want to be having and sharing with you. We’ll get to the interview with BHP shortly, but first, we'd love to introduce you to Paul Phillips from our investments team. He is an equities investment manager, and he is going to give us the lowdown on BHP. Hi, Paul. Welcome.

Paul: Hey, Tania. Hey, Lyndon.

Tania: Paul, can you give us the lowdown on BHP? What do we need to know?

Paul: Sure, Tania. BHP is one of UniSuper's biggest investments, at over $1.8 billion at the time we're recording this podcast. It's one of the world's largest mining companies, with employees in over 90 locations. And it's a top-five global producer of iron ore, copper, and nickel—all key commodities for the energy transition and ensuring that the world can decarbonise.

As a long-term investment, we like BHP because it's well-managed. It owns top-quality assets that generate a lot of cash through the cycle, and this allows it to consistently pay dividends to shareholders.

Tania: Just quickly, Paul—a company like BHP would surely have a few challenges when it comes to decarbonisation.

Paul: I think that's probably understating it, Tania. They're definitely some of the more difficult problems the world faces, you know. They typically fall into the hard-to-abate areas of the economy, whether that's decarbonising heavy haul trucks, long distance logistics, or decarbonising the processing heat that's used to produce the metal the world needs, like steel or copper.

Despite the challenges, we believe BHP is in a unique position with regard to decarbonisation. Its cash generation and the people it employs allows BHP to play a critical role in helping to solve many of those problems as we look forward.

Tania: Great. Well, with that in mind, let's have a chat with BHP.

Lyndon: On the line, we have BHP's vice president of sustainability and climate change, Fiona Wild. Fiona has got around 25 years of wide-ranging experience in multinational resources companies. She is widely regarded as a leading voice on how resources companies can manage climate-related risks and support a low-carbon transition, in line with the goals of the Paris Agreement.

In her current role, Fiona leads the design and implementation of BHP's climate change strategy, so she's active in areas like portfolio evaluation, reporting and disclosure, and operational and value chain decarbonisation. She advises BHP's board and senior management on emerging climate change trends, and represents the company in engagements with stakeholders such as international NGOs, academics, peers, industry associations, governments, and investors. Last but not least, in 2015, Fiona was appointed to the Task Force on Climate-Related Financial Disclosures, which we often refer to as the TCFD, which reports to the G20. And, did I mention, she also has a PhD in chemistry. Fiona Wild, thank you so much for being here, and welcome to our podcast.

Fiona: Thank you very much. It's an absolute pleasure.

Lyndon: Paul, I might throw to you, actually, to kick off our discussion with Fiona, given that you engage so extensively with BHP in your role. Where would you like to start?

Paul: Thanks, Lyndon. Fiona, there's so much we could about with you today. But as you know, this podcast series is all about decarbonisation. We'll be asking some common questions to each of the companies that we’re going to profile as part of this, and as you'd expect, the questions mightn’t all be easy—so let's get into it. The mining industry is often criticised by outsiders for a lack of action when it comes to climate change. Can you, just in 50 words or less, give us your description on what does decarbonisation mean for BHP?

Fiona: Well, I guess that where I would start is, a lot of the analysis that is undertaken that looks at how companies are performing, and the sorts of reductions that have been delivered, often show that, actually, it's the fossil-fuel-intensive or emissions-intensive industries that have actually been doing this work for a long time, and tend to perform pretty well in benchmarks. So, I would sort of challenge the underlying assumption that we're late to the party or not performing in comparison with others. Because, really, if you have a large emissions footprint, you have a lot to gain from reducing emissions, and a lot of risks associated with not taking action.

So, when I think about what decarbonisation means for BHP, it's about making sure that our operations have the lowest emissions intensity they can today, and making sure that there's a market for our products in the future. But it's also really clearly aligned with our purpose, which is to bring people and resources together to build a better world. And a better world is one which reduces emissions in line with the Paris Agreement.

Paul: Yeah. Thanks for that, Fiona. I agree, there is this perception, but I think sometimes perception doesn't quite meet reality. You talked about the fossil-fuels-intensive industries as having a lot to gain from decarbonisation. Can you maybe just expand on that a little bit?

Fiona: Well, there's certainly opportunities to manage risk associated with decarbonisation. So, when we look at opportunities to reduce emissions, often, you can find that projects to reduce emissions can also reduce cost, they can certainly reduce potential exposure to carbon pricing, for example, and provide opportunities to improve efficiency and productivity. So, I think there's often a misconception that action on climate change comes at a cost, or is somehow counter to delivering shareholder value for organisations. In practice, that often isn't the case. And, particularly, as the costs of technologies come down, and the call for action on climate change increases, it's really a win-win for many companies. Because actually, decarbonisation, action to address climate change, directly delivers shareholder value to the bottom line. And that's certainly the case with what we've seen for BHP.

Paul: You've also touched on, the mining industry uses a lot of energy, predominantly electricity and diesel, in the trucks that move all the dirt around. These are known as your operational emissions—the electricity you purchase and the diesel you combust, they're also known as scope 1 and 2 emissions. What's BHP doing to reduce its operational, or scope 1 and 2 emissions?

Fiona: Sure. So maybe I'll sort of start at the beginning. You're right, when we talk about emissions in general, we put them into different categories. And these categories have been around for a long time. So, scope 1 emissions are those ones that are associated with direct combustion of fuel, generally, so things like diesel being burned in trucks. Scope 2 emissions are normally those associated with the use of purchased electricity. So, you might have a contract in place with a power provider, and the emissions associated with the generation of that electricity that you use, that's an indirect, or a scope 2 emission. Scope 3 is basically everything else. So, they're indirect emissions, not things that are directly related to products that you might combust yourself. But it can be anything from the emissions associated with your purchasing of goods and services, or the emissions associated with the processing and use of your products. So, everything upstream and everything downstream of your operations. So, broadly speaking, that's how we think about emissions scope 1, scope 2, and scope 3.

When companies start talking about operational emissions, they're really talking about those first two categories, scope 1 and scope 2. So, for us, when we're looking at our operational emissions, they predominantly come from the use of diesel in our haul trucks, and then they come from our use of electricity. And broadly speaking, those two parts make up about 80% of our operational emissions footprint. The rest comes from a range of other sources, things like fugitive emissions associated with coal mining. So, those are methane emissions, and a little bit associated with process heat. But broadly speaking, decarbonising BHP's operations is about replacing coal-fired or gas-fired power with renewables, and finding alternative ways to power the trucks that move the material around at our operations.

Lyndon: Can I just jump in there for a second, Fiona? What are some of the alternative fuel sources and so on that you're looking at? Say for example, you might replace diesel in trucks with a different type of fuel... electricity, swap that out for renewable, for something else. Are you able to tell us a bit more about that, because that seems like it'd be pretty complex for a company like yours?

Fiona: It is pretty complex, actually. When you look at opportunities to decarbonise, generally, it's easier to decarbonise your electricity supply than it is to look for different ways of powering your truck fleet. So, a lot of companies will focus on shifting to renewables first. But we also need to do the work, hopefully, together, across the industry, with original equipment manufacturers, and some of the big truck providers, to make sure that we have lower emissions fleet available.

The sorts of things you can look at to reduce emissions associated with what you call mass-material movement, so, this is moving the mined products around, rather than using trucks, you could look at things like conveyors. You can look at trolley assist, which is effectively almost like a combination between a truck and a tram, to start sort of pulling up the trucks on the inclines, and then generating energy on the way down. And you can also look at the way the truck fleet is powered. So, rather than using diesel, you could use biodiesel. Rather than using any sort of fuel like that, you could look at electric vehicles instead, or you can look at the role of hydrogen. So there's a whole range of different opportunities, whether it's about a different fuel, or whether you're looking at different type of movement through something like conveying or trolley assist. So, those are the sorts of options that we look like.

Lyndon: I'm just thinking, Fiona, that must have impacts for how you even design your mines. We're not just talking about replacing fuels. This must impact, pretty much, the entire way BHP operates, is that right?

Fiona: Yeah, it does. So, it's actually really important to think about the type of mine that you're accessing. So, things like the steepness of the roads that you need to be able to access will determine the types of technologies that you can use. You need to think about a whole range of different issues when you're working out what the best way is of moving material around. A much steeper incline in a pit may require you to use a different type of technology, so it does have impacts on things like mine planning, and especially, of course, when you're thinking about fleet turnover. We don't change over our truck fleet particularly frequently, so we need to make sure we're doing planning today, so that when we do turn over that truck fleet, the sort of fleet that we want available is actually there for us to be able to buy. And that's why you're seeing a lot of mining companies working together now, particularly with those big equipment manufacturers like Komatsu, and Caterpillar, and others, to make sure that this truck fleet that we need, or any other types of material movement that we need, are actually available when those sorts of transitions happen.

Paul: In terms of what BHP has actually done now, do you have any examples of how BHP has managed to reduce electricity consumption or green the electricity consumption of the mines?

Fiona: Absolutely. As I mentioned earlier on, there's really two big areas that we look at. We look at electricity and we look at what we call diesel displacement, or getting diesel out of our big trucks. So, we're focusing, predominantly, in the short term on electricity, because that tends to be the easy win. In the last few years, there's been a really significant shift away from fossil-fuel-fired power to renewables. For example, we've managed to secure agreements for our really, really large mines in Chile—so, Escondida and Spence are moving over to 100% renewables, which is absolutely fantastic because the grid in Chile, particularly in the areas where we're located, has a very strong component of coal-fired power, so we're shifting to 100% renewables there. We've managed to secure 50% renewable power at our Queensland coal operations. And we're also looking at opportunities in Olympic Dam and Nickel West. So, there's a really significant shift happening in terms of what you might call ‘renewable penetration’ at the assets across BHP sites. Not just in Australia, but globally.

Paul: You also alluded to the fact that about 80% of your scope 1 and 2 emissions come from electricity, plus fuel consumed. Yet, BHP has a target for a 30% reduction in emissions by 2030. Some people would say that that falls short of the Paris Agreement. Can you maybe just talk to why you think that would be Paris-aligned?

Fiona: Yeah, sure. When we were designing the target, and we started this work in about 2019, we wanted to make sure that we could set a target that would be science-based—so, aligned with the goals of the Paris Agreement—and also based on our understanding of what we can deliver. We want to make sure, when we set a target at BHP, that if we say we're going to do it, we're going to do it. We need to provide people with the confidence that there is a costed plan for delivery. So, when we were looking at the opportunities to reduce operational emissions, we wanted to look at, effectively, the contribution that BHP would need to make as a proportion of global emissions, aligned with the goals of the Paris Agreement. And as you know, the Paris Agreement says that we should be limiting the average increase in global temperatures to well below 2 degrees, and pursuing efforts to 1.5 degrees.

So what we said was, "Well, let's look at some scenarios that fit those criteria, well below 2 degrees and pursuing efforts to 1.5 degrees, and let's see what that would mean in terms of a global emissions reduction pathway. So, what sort of rates of reduction would you need to see globally to achieve that outcome, in line with the Paris Agreement?" And we got a range of different outcomes between well below 2 degrees down to 1.5 degrees, and we said, "All right. Well, in order for BHP to make a contribution in line with what the globe needs to achieve, we're going to set a target that sits in that range." This is called the absolute contraction method, and it's a methodology which is recognised by a range of different groups, including the Science Based Targets initiative (SBTi), for example. And it's basically encouraging companies to decarbonise at a similar rate to the rate that the world needs to undertake to reach that goal of the Paris Agreement.

What we did is we looked at this range of opportunities, then we looked at what we thought the opportunities were within BHP. And we saw that we could achieve—on the basis of what we can see today and what we anticipate seeing by 2030—we saw we could set a target of at least a 30% reduction in emissions by 2030, and be within that range of well below 2 degrees and pursuing efforts to 1.5 degrees. So that's where we set our targets.

I think we have to also bear in mind, when we're setting targets, it's important to know, first of all, that we have a plan for delivery. But also, we need to give our businesses some certainty. So we said to the businesses, "This is a target for 2030. It's an at least 30% reduction by 2030. We may have opportunities to go further." And every year, as part of our life-of-asset planning process, we have the opportunity to identify more projects, update costs, update information based on technology development, which continues to feed that pipeline of projects. So there's always opportunities for us to do more.

Paul: So, if I was to summarise that, if BHP gains more confidence in being able to achieve a higher decarbonisation outcome, then that will be reflected in an increase in the annual targets that you set?

Fiona: That's right. We have to be able to review the targets, but we also have to give people the confidence that when we set a target, they have a level of trust. That they understand the cost, the timing, the implications, and that outcome will be delivered.

Paul: You also touched on terminology that gets used quite a bit in this space, the ‘science-based target’. I think you've sort of alluded to it practically. But can you just expand a little bit on what a science-based target actually is?

Fiona: Generally speaking, there isn't a uniform definition of ‘what is a science-based target’. But generally, what people would say is, "Well, we see a science-based target as one which would be aligned with the goals of the Paris Agreement," as I mentioned earlier on. The complexity in all of this, though, of course, is that the Paris Agreement applies to countries. It doesn't apply to companies or to sectors. So whenever companies are setting targets, they need to think about, "Well, what is a reasonable contribution for us to make to the overall emissions profile which would be aligned with the goals of the Paris Agreement. Even the national determined contributions that make up our progress towards the Paris Agreement don't apply to companies. So there needs to be a kind of iteration that enables companies to work out what it means for them.

So when we're thinking about a science-based target, as I mentioned, we're thinking about, "What is a contribution that BHP can make which enables us to reduce our emissions in line with the goals of the Paris Agreement, to keep the increase in average global temperatures to well below 2 degrees, and pursue those efforts to 1.5 degrees?" And that's why we're setting the target that we have, because that falls within that range, based on the global scenarios that we reviewed in 2019. But it's a bit of a minefield in terms of definitions, because it's hard to extrapolate an international agreement between countries to companies or industrial sectors. But that's what we're all trying to do, trying to work out what the appropriate contribution should be.

Tania: That's what I was just going to ask. How do you deal with the international side of setting these targets? It must be tricky coming to that middle ground and agreeing on something that's achievable. Can you think of something where you have overcome that challenge?

Fiona: It's a really interesting one. The more I think about this, it's almost... the analogy that you see for countries under the Paris Agreement... so, obviously, we have an overall goal of the Paris Agreement, which we've talked about. But each country sets its own nationally determined contributions. And depending on where their emissions are coming from, their capacity to reduce, the cost of abatement, the other strategic priorities they may have, they will set their own targets. So, targets in certain jurisdictions may be more aggressive, they may be focused on different types of things. And that approach, of enabling countries to set targets based on their ability to reduce and the other issues they need to take into consideration, is one of the strengths of the Paris Agreement bringing all those players to the table.

Similarly, not all emissions from sectors or companies are as easy to reduce as others. So, you know, we've seen that it's often easier to reduce emissions in the power sector, because we can find alternatives to provide power, through things like renewables, than it is to reduce emissions in, say, the steel sector, where it's much harder to replace a blast furnace and the chemical reaction that's required to produce steel today.

So, in a way, thinking through how companies respond is a little bit like an analogy of how countries respond. You think about this in terms of where do your emissions come from, what's your capacity to reduce, and where does it make the most sense for you to focus your efforts? With a view that not everyone needs to reduce emissions at exactly the same rate and exactly the same time.

What that means for a company like BHP is that although we have a global target for our operations to reduce by at least 30% by 2030, we don't expect every single asset to reduce at exactly the same rate. There will be opportunities for certain assets or operations to reduce faster. So, those which have an opportunity to switch to renewables will reduce faster than those that don't. And that's OK, as long as you have an idea about what each individual asset is doing, and how that aggregates up to the whole. And so that's one of the important things for companies like BHP to be able to do, to drive lowest-cost reductions, to ensure you have a line of sight to achievement at the target, but not to push abatement opportunities that may be more costly, or may not make sense for other reasons, if there are other opportunities that make more sense. So it's a little bit like the way that countries might think about it. Some countries will go faster than others. Some countries will use different technologies than others. And that sort of mix-and-match approach, if you like, can be applied as well to sectors, and also to companies.

Paul: Fiona, companies like BHP have supply chains and customers that also emit greenhouse gases, and there's an increasing expectation that you also try to address these. Obviously, they're a lot more difficult, because you don't have a direct line of sight to those, or direct influence over them. But can you just outline what actions BHP is taking to help decarbonise your supply chains and customers, to future-proof your business?

Fiona: Yeah, sure. It's a really complicated issue, scope 3, but I'll try and kind of boil it down to its sort of simple points. So, I mentioned earlier on about there's three different categories of emissions. And scope 3, or value chain emissions, are those emissions—they're ‘indirect’, it's called, which means that you're not actually physically responsible for the activity that's taking place that's giving rise to those emissions, so it's not like burning diesel in a truck. But they're the emissions that are associated with everything else in your value chain. So, you know, everything from your suppliers providing you with goods and services, all the way through to your customers utilising the goods and services that you provide into the market.

For a long time, companies have been calculating their scope 3 emissions, so it's not new in that sense. Companies have an idea of what their value chain emissions are, particularly in the fossil fuel and mining sectors. But what has been changing over time is our understanding of what we can do to influence those emissions. So, it's clear that we don't control the levers that can directly reduce those emissions. So, for example, in BHP's case, about two thirds of our reported scope 3 emissions come from blast furnaces utilising iron ore and metallurgical coal that we produce, to make steel.

Now, we don't control the operation of those blast furnaces, but there are things that we can do to provide blast furnaces, those are our customers, with the raw materials that enable their blast furnaces to operate more efficiently. There's also things that we can do to work with our customers to enable them to invest in new technologies that might enable them to reduce emissions associated with the use of their plants. And that's, I think, where you've seen this real shift in companies like ours and others, understanding what their role can be in influencing, partnering, collaborating, and effectively catalysing decarbonisation in sectors other than their own. And it's really driving this partnership model up and down value chains. And it's fascinating to see, because it acts as a really significant accelerant for decarbonisation.

Now, it doesn't change the fact that BHP's reported scope 3 emissions are somebody else's scope 1 and 2. And we always have to focus on reducing our operational emissions first. Whether that's BHP's emissions from electricity and diesel, or whether that's, you know, ArcelorMittal's scope 1 and 2 emissions from production of steel. But together, there is actually opportunity to influence beyond our own operations and beyond our sectors, and that's a really interesting space to be in.

So when we think about, "Well, what are we doing at BHP?" First of all, we have to acknowledge the problem. So we need to acknowledge that there are emissions in this value chain, and they're big, really big. The second thing we have to do is work out, "Where can we have the most influence? Where are we a really, really big player in the market? Where do we have the opportunity to really catalyse change?" And for BHP, a lot of that comes in the steel sector. So, those steel emissions are about, as I say, about thirds of our footprint for scope 3. So the first thing we wanted to do was try and develop opportunities to work with our steel-making customers, to enable them to reduce their emissions.

And, just last year, we established three partnerships with some really big steel makers, representing about, I think about 10% of global steel production, where we'll invest in opportunities for them to reduce their emissions, their scope 1 and 2 emissions. And by sharing that information, and duplicating those sorts of efforts across the sector, you can actually start to decarbonise a sector other than your own. And that's where I think you'll see a lot more opportunities come to fruition.

Paul: One of the big pressures that we get from our members, and the investment community gets, is the divestment of fossil fuels. And obviously, BHP has made the decision to divest their oil and gas business, which counts a lot to your scope 3 emissions at the moment. Can you just compare the different approach BHP has taken with respect to divestment of the oil and gas business, to, say, the engagement that you've just outlined around iron ore and met coal?

Fiona: I think when you look at the decision around oil and gas, that was really a decision based on an understanding of value and risk. I think there was a great opportunity for us to work with Woodside to build a good scale business around oil and gas, with the amalgamation of those assets, and to provide those assets with the best opportunity to really respond to the energy transition. So I think those oil and gas assets are really well-placed with Woodside, to enable that company to be able to drive down emissions when they're all together in one oil and gas entity. Whereas, I think within our portfolio, we could see there was a shift for us towards what we call future-facing commodities—copper, nickel, potash—and that really strong focus on iron ore or met coal. And those oil and gas assets were capital-intensive, and often didn't get as much focus as the other future-facing commodities. So, I think that decision was really one of value and risk for BHP.

We have to look at, well, what does the future portfolio of BHP look like? And as you say, it does focus on a BHP without oil and gas, and also without thermal coal. So it's really focusing on those future-facing commodities, but also iron ore and met coal. And they're really interesting. I think, sometimes, people assume that a transition to a low-carbon world is going to be something that happens really quickly. Our estimates—and estimates from many others—is this process is going to take time. And it's called a transition for a reason. So, there are commodities that will facilitate this transition, and there are commodities that will thrive in this transition. And if you see commodities like copper and nickel, you can see there's an extraordinary capacity for these to really thrive, through things like increased electrification, through more battery use, for example.

Iron ore and met coal are absolutely essential for steel production, and so much of the infrastructure that we need to support decarbonisation comes from steel. You can't build a wind turbine, currently, without steel. So, we need to sort of understand the role that these commodities are going to play, not just at the end of this transition, but during the transition. And that's why iron ore and met coal are so important in BHP's portfolio. Now, the kicker for all of that is that the production of steel, for example, from iron ore or met coal, produces a lot of CO2, using the current processes. CO2 is, if you like, an output of that chemical reaction.

So, while we think demand for steel is going to stick, and while we think a blast furnace is going to be around as the major technology to produce steel for the next few decades, we've got to do something to make that process run as efficiently as it can, and to reduce emissions as much as possible. And that's why we've established these partnerships with some of those really big steel producers, to get the best quality input to those blast furnaces, make them run as efficiently as possible, and to capture the CO2 when it comes out the other side. So, there's a range of opportunities there from CCS, beneficiation, green hydrogen. These are the sorts of technologies we need to be looking at to enable that transition to happen, so we can have the steel that we want, without the emissions.

Paul: There's obviously a lot of challenges that BHP faces, in terms of decarbonising its own business, and as well as the supply chains and the processes that your products get used in. What's the biggest challenge or unknown for BHP in its plan to decarbonise?

Fiona: I think, probably, if you think about the operational emissions, I think it is the scale-up of opportunities to reduce emissions from diesel. We need a bit more work done there to be able to understand how we're going to be able to drive diesel out of our operations over time, so there's a bit more technology work to be done there. I think the biggest issue for us, probably, is around understanding the decarbonisation pathway for steel.

We've done a lot of work to try and understand how the steel sector can decarbonise, and by when. So, you hear a lot of talk about net zero by 2050, for example, which basically means that the sources of emissions globally—or at a company level, or a sectoral level, or a country level—will be offset by emissions removal. So things like negative-emissions technologies, or offset generation, or direct air capture, those sorts of things.

So, companies are aiming for net zero. When we look at the steel sector, currently, we can't see a pathway for the global steel sector to get to net zero by 2050. And so that means there's more work to be done to be able to find a way of decarbonising steel more quickly. And some of the impediments to that… there's things like, you know, a lot of steel is made in blast furnaces. About 70% of steel is made in blast furnaces, and they directly produce CO2 as part of that chemical process. A lot of those blast furnaces are quite young, particularly in Asia. So in order to get rid of that fleet, you're potentially going to have to close down blast furnaces that are only recently built in the last 10 years.

And then, there's the technology opportunities around hydrogen. Hydrogen has a fantastic opportunity to produce steel without CO2, but it's expensive. And you've got this incumbent stock that can't utilise hydrogen at scale. So there's a few impediments to the way that we can decarbonise steel. And while BHP is in that steel value chain, because of the fact that we produce iron ore and metallurgical coal, the biggest challenge for us, I think, is how we can find this pathway to net zero steel globally, and the role that we can play in accelerating that. And as I say, that's why we've developed these partnerships with some really big steel makers, to see what we can do to find that pathway more clearly and more quickly.

Paul: Lastly, you've talked about how investor expectations have influenced companies to change their behaviours. How has investor engagement challenged BHP in its approach to decarbonisation?

Fiona: It's been fantastic, to be honest. I have enjoyed engaging with investors immensely, as I'm sure many of your listeners will know. The thing I find really fascinating is, I always want us to be challenged. I always want people to come and tell us when they've got a great idea, when they've got concerns about what we're doing, because that's how we learn. So, from my perspective, hearing from investors, and seeing the level of interest grow exponentially, has been incredibly satisfying for me, because the reason I do what I do is because I really, really want to reduce emissions at scale. And when I find other people who are motivated by the same thing, it's phenomenal. About five years ago, I used to go out and do investor road shows and sometimes it was hard to get people to come and talk, so there wasn't always a huge amount of interest. We'd get some ESG advisors, definitely, but some of the mainstream investors weren't necessarily particularly keen to talk about climate-related issues. Now, it's the first thing investors want to talk about. And that's fantastic because every time someone gets on board with this topic, we increase the chances of success.

So, from my perspective, having investors involved in this conversation has significantly increased the chances that we get to where we want to get to, which is to limit the increase in average global temperatures to well below 2 degrees and pursue efforts to 1.5 degrees. So, I think it's a fantastic change that's happened with investors getting more involved, because it has significantly accelerated the pace of change, and it's given us energy, it's given us opportunity, and scale, and I just think that's fantastic.

Paul: Fiona, in the introduction, we alluded to the fact that you're on the TCFD board. Obviously, that's a very important board in terms of setting the rules around disclosures and those sorts of things. Can you maybe just reflect on how investor engagement and the changing expectations has influenced the TCFD thought processes?

Fiona: Yeah, sure. It's interesting looking back on that. I think when I was asked to join the TCFD, I had absolutely no idea what I was getting myself into, in the sense that I had no idea how influential it was going to be. Like, I'm astonished by the way the TCFD recommendations have been taken up, endorsed, and become the standard globally. It's absolutely phenomenal. And it's been a really interesting process. We all know each other very well now. We've been together for, you know, five, six years, and we've been through a lot of stuff together and a lot of, you know, learning.

And it's been interesting for me as one of the only representatives of heavy industry in that group, learning from investor perspectives, and also enabling investors to learn from us. And I think bringing those different players together is one of the real strengths of the TCFD. You know, the TCFD recommendations are written by those who both need to report against them, and also want to read the reports. And so, we're looking at disclosures that we all need to make.

It's interesting going through the process, people would say, "Well, you know, we want companies like yours to disclose X, Y, and Z." And I would say, "Are you prepared to do that?" And they'd say, "Oh, no. Probably not." I'd say, "Maybe we should find some sort of common ground somewhere." And I think that the finding of common ground in the TCFD has been one of the most fantastic things. So, I'm immensely proud of the work that we've done, and I think it's far exceeded my expectations.

I think the purpose of the TCFD as well, it's not about pushing people who are already doing a really good job to do an even better job. It's about providing support for companies who may not have thought about this to enable them to take the first step on the journey. Because in order to address climate risk, you need an economy-wide shift. So you need to get all companies, regardless of sector, to start thinking about climate risk, to start assessing it, managing it, and then disclosing it to the market, because that's how you can actually avoid a really significant shock to the system. And that's really the purpose of the TCFD.

Lyndon: Can you just give us a brief summary of the work that the TCFD does, and what the acronym stands for?

Fiona: Yeah, sure. So, it's the Taskforce on Climate-Related Financial Disclosures, which I often think—you can tell if someone is a member of the TCFD by how fast they can say that, because it's not a particularly easy thing to get out. So, it's the Taskforce on Climate-Related Financial Disclosures, or TCFD. And we were really established just ahead of the Paris COP, in 2015. So, the Paris Conference of the Parties, as part of the International Climate Negotiations.

And the purpose of the TCFD was for us to be able to define relevant and decision-useful disclosures that companies could make to the market, to effectively enable climate risks to be better priced in the market. So it was really about a way of encouraging better disclosure, to make sure that climate-related risks, and opportunities, were being adequately priced. And it comes off a lot of the work that was done on the back of the GFC, and risks around banking, for example.

And so, what we needed to do is bring together a range of players, from both the financial and non-financial sectors, to try and understand where the common ground was. What information can we disclose, what information is useful? How do you encourage people that aren't doing very much to take the first step, while also giving people who are doing a lot of work, the opportunity to progress?

And so, really, what the TCFD does, rather than mandating particular types of information, it asks a series of questions. So, there are four main areas, around governance, strategy, risk management, and metrics and targets. And within those four areas, there are two or three questions that companies should ask themselves. You know, what's your board's role in the governance of climate-related risk? How do you think about managing climate-related risk? What sort of metrics and targets have you set?

So it's not about mandating particular types of disclosures, it's about encouraging conversations. And then, it's about encouraging disclosure of the outcomes of those conversations. And for me, that's the real power of it. It's not prescriptive. It's voluntary. Although, in some locations it has actually now been made a mandatory disclosure requirement. But it's really to encourage companies to think about climate-related risks and opportunities, and to share their thinking with their investors, so that there is a better understanding of what this transition means, so that that can be priced into the market more appropriately.

Lyndon: Well, Fiona, thank you so much for speaking with us today. It's been so interesting—I think I can speak for all of us on the call—just hearing what's involved from a decarbonisation perspective, for a company as big as BHP. And they obviously have the right person for the job, so thank you so much for joining us, we really appreciate your time.

Fiona: Thank you so much. It's been a pleasure.

Lyndon: Paul, before we let you go—I have to say, fantastic chat there with Fiona, thanks so much for helping us out and being part of the chat. Is there anything extra that you'd like to add following our chat with Fiona?

Paul: Yeah, thanks Lyndon. When it comes to decarbonisation at UniSuper, we believe that companies like BHP are part of the solution and not the problem, and I think that came through pretty clearly from talking to Fiona. Everyone’s pulling in the one direction. Firstly, we believe that BHP is a well-capitalised business that's able to invest in reducing its own carbon footprint. It can manage the risks and take advantage of whatever opportunities that the transition will present. Secondly, BHP is a large company with a lot of influence, especially when it comes to their purchasing decisions and customer relationships. The collaboration that they’re showing with their suppliers and customers can help change behaviours and help solve some of these really difficult problems when it comes to decarbonisation.

Finally, for the world to decarbonise in line with the Paris Agreement, the world will need a lot more resources that the mining industry produces today. More steel, copper, nickel, and so on. We shouldn’t forget that the transition to a lower-carbon world needs to be done in a way that ensures environmental sustainability, social inclusion, and poverty eradication. To support the economic growth that's needed for these objectives and build a better world for everyone, commodities will be needed. We need companies like BHP that can responsibly develop these resources in a sustainable manner.

Tania: Absolutely. Paul, you probably know more about BHP than anyone else at UniSuper. So, if members are interested in following BHP's decarbonisation journey, we can put a few links and resources in our show notes. Is there anything in particular that you'd like us to include?

Paul: Yeah. BHP does a great job of communicating their journey around climate change. I think, you know, like most companies that we analyse these days, BHP has a dedicated section of their website to climate change, where they outline their commitments and so on. There's a whole host of information in their climate reporting documents, so I'll get you the link to that, too. One thing that I think BHP does a really good job of is sharing their insights and views on these topics, through their prospects blog, so we'll include that link. You know, this blog has views on many of the big-picture industry-level conversations, such as the pathway to decarbonising steel, and so on.

Finally, you know, BHP is a really big company. It's involved in a whole heap of initiatives to pursue decarbonisation, many of which we haven't talked about here today. But if you're a researcher, and have a great idea that you think can help decarbonise the world, I'd point you towards Mark Frayman, who runs BHP's ventures team. They're constantly on the search for the next big idea to make a difference.

Tania: Fantastic. That's awesome. Thanks for that info. And Paul, thank you for being here with us today, and for your expertise and insight.

Paul: Anytime, Tania and Lyndon.

Tania: And that's all we have for this episode. It's the first in our decarbonisation series. If you'd like more information about our approach to responsible and sustainable investing, including how we manage climate risk, head to unisuper.com.au/responsible. And, you know, if this episode has got you thinking, "What are some of the companies my super is invested in?" Log in to your account at unisuper.com.au, and head to the ‘Investments’ section, where you should be able to see your major investment holdings.

Lyndon: That is right. And if you'd like to be notified about the next podcast in this special decarbonisation series, don't forget to subscribe, because we invest in a lot of companies here at UniSuper, so there are lots of stories to tell, and lots of questions to ask, and we'd love to share those with you. If you've got any questions, feel free to email us at superinformed@unisuper.com.au. And that is it. Thanks so much for joining us, and we'll see you next time.

Tania: Bye for now.

This podcast is of a general nature. It doesn’t take into account your personal financial situation, needs or objectives. Before you make decisions about your super, we recommend you seek financial advice. Also, and consider the PDS and TMD that’s relevant to you. The past performance of any investment options we discuss isn’t indicative of their future performance, and it’s worth noting that by talking about certain companies, we aren’t endorsing them for inclusion in your personal portfolios. Issued by UniSuper Limited ABN 54 006 027 121 the trustee of the fund UniSuper ABN 91 385 943 850.

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