Big proxy advisors split on BHP’s climate plan

Influential proxy advisors ISS and Glass Lewis are split on the credibility of BHP Group’s climate plan ahead of the Anglo-Australian miner’s annual meeting later this month in London.

ISS gave its “qualified support” for BHP’s recently-unveiled Climate Transition Action Plan in advice to investors published yesterday, describing BHP’s climate commitments and reporting as “reasonable, given the state of technological innovation”. It recommended that shareholders support the plan at the AGM on October 14. 

Rival Glass Lewis, in contrast, is advising shareholders to reject the plan, citing concerns over BHP’s “lack of science-based targets and its Scope 3 emissions reduction initiatives.”

BHP is one of the growing number of firms to offer shareholders an advisory ‘Say on Climate’ vote on their transition plans, after an initiative was launched in 2020 by Sir Chris Hohn and his UK hedge fund The Children’s Investment Fund (TCI). 

To date, most ‘Say on Climate’ votes have received near unanimous approval from shareholders, despite many of them being offered by some of the world’s biggest polluters. The disagreement between ISS and Glass Lewis – the two main proxy advisors globally – over BHP’s plan could result in lower levels of support. 

Speaking on the recommendation by Glass Lewis earlier this week, Director of Climate and Environment at the Australasian Centre for Corporate Responsibility, Dan Gocher, was quoted saying: “While Glencore, Shell and others were given an easy run with their ‘Say on Climate’ votes earlier in the year, this advice suggests that companies will no longer be rewarded for their direction of travel and that climate plans will now be assessed on substance.”

Included in BHP’s new Climate Transition Action Plan was a commitment to pursue the “long-term goal of Net Zero Scope 3 GHG emissions by 2050”, referring to emissions generated by its value chain, including use of its products – although the miner noted that it cannot ensure the outcome of this single-handedly.

In its advice, Glass Lewis acknowledges that BHP’s plan has “both strengths and weaknesses”, noting that it gives a “relatively clear picture” of the steps it is taking to reduce its carbon footprint. It also points to the company’s “thorough discussion of its capex spending and its alignment with the Paris Agreement”.

But, it continues, it is “unclear if the Company's current targets are science-based” as they “do not appear to be certified by outside organizations, such as SBTi [Science Based Targets Initiative]”.

Glass Lewis notes that a “more thorough” discussion of the steps BHP intends to take to minimise its Scope 3 emissions “may also be warranted”.

ISS also acknowledged that BHP’s plan is not without concerns. Included among these is also the Scope 3 emission reduction target, which it highlights is dependent on the divestment of BHP’s oil and gas business and “technology innovations”. In the summer, BHP announced plans to merge its oil & gas portfolios with Aussie giant Woodside Petroleum and then spin them off.

The lack of third-party verification of BHP’s emission reduction plans from a body like SBTi was also highlighted by ISS. 

But overall, ISS concluded that BHP’s “climate commitments and reporting are considered reasonable, given the state of technological innovation”.

The difference between the two advisors appears to touch upon a wider debate on how climate transition plans by big emitters should be assessed – against science or progress against peers.