Investor briefing: Shareholder Resolutions to BHP Group on cultural heritage and lobbying

ACCR’s Engagement with BHP

ACCR has engaged regularly with BHP Group (BHP) on issues relating to decarbonisation and lobbying related to climate and energy policy for several years.

In contrast, BHP has been reluctant to engage with ACCR on cultural heritage matters. We do, however, understand that the filing of this resolution has prompted ongoing engagement between BHP and the First Nations Heritage Protection Alliance (the Alliance), a coalition of more than 25 Aboriginal and Torres Strait Islander organisations and leaders from across Australia^[1], with whom the cultural heritage resolution was drafted. This is, of course, welcome, but we are unable to pre-empt any outcomes of those discussions. This briefing is prepared with information publicly available as at 16 September 2020.

Ordinary Resolution on Cultural Heritage Protection

Update: This resolution was withdrawn prior to BHP's 2020 AGMs after a significant new agreement was negotiated between BHP and the First Nations Heritage Protection Alliance.

Background to Resolution

This resolution was drafted with and enjoys the support of the Alliance.

Reports emanating from the Pilbara over recent months demonstrate that the legal framework under which agreements between our company and Native Title holders have been negotiated is one of unconscionable power imbalance.

The iron ore mining sector, particularly in Western Australia, operates in an environment best characterised as permissive of heritage destruction to facilitate mining activity. In recent months, this permissiveness has been exposed as being well out of step with investor and community expectations, and coming at incalculable cultural cost. The state of Western Australia has acknowledged the deficiencies of its existing cultural heritage protection legislation.

BHP’s peer company, Rio Tinto, detonated a 46,000 year old site known as the Juukan Gorge rock shelters in May, to facilitate the expansion of the company's Brockman 4 iron ore mine in the Western Pilbara region of Western Australia and access high grade iron ore valued at $135 million.

News of the blast was met with immediate, near-universal condemnation, and an intense period of public, media and investor scrutiny has followed. Consequences for Rio Tinto have included: company executives facing a public Parliamentary Inquiry; Reconciliation Australia suspending Rio Tinto from their Reconciliation Action Plan program; the Corporate Human Rights Benchmark (CHRB) and the World Benchmarking Alliance (WBA) condemning Rio Tinto's actions; many institutional investors expressing their disappointment publicly, culminating in the exit of Rio’s CEO and two other senior executives.

This kind of attention would be extremely unwelcome for BHP.

The co-filing BHP shareholders are concerned to protect BHP, and shareholder value, from the risk of similarly severe reputational damage. This resolution is intended to guide BHP in navigating the risks associated with its operations in the permissive legal environment that facilitates cultural heritage destruction.

BHP’s commitments

BHP has committed to the UN Guiding Principles on Business and Human Rights (UNGPs) and the ICMM’s Indigenous Peoples and Mining Position Statement. However, it is unclear how these standards are operationalised. Australian laws are plainly insufficient, generally, in upholding the cultural heritage-related standards contained in the relevant global benchmark, the UN Declaration on the Rights of Indigenous Peoples (UNDRIP), and are out of line with community expectations.

Risk management

In the circumstances outlined above, it cannot and should not be assumed that Free, Prior and Informed Consent (FPIC) is present under any agreement negotiated in accordance with the current legal regime.

It is important to emphasise that ‘consultation,’ no matter how extensive, cannot be used as a substitute for consent.

Prevention of cultural heritage destruction without the presence of FPIC is the central, severe, risk that clause a. of this resolution seeks to manage. To date, BHP’s response does not sufficiently guard against this risk, though some steps have been taken in partial mitigation.

While BHP has agreed at a high level “not [to] act on existing section 18 approvals from the WA Government without further extensive consultation with the Traditional Owners”^[2], it is important to emphasise that ‘consultation,’ no matter how extensive, cannot be used as a substitute for consent. This remains the weakness in the legal regime and BHP’s response to date.

While BHP has said that it engages in “periodic reviews of the terms of the agreements and their operation,” we do not know more about those reviews. We assume that these reviews are internal and operational in nature and do not look closely at FPIC. As above, FPIC cannot and should not be assumed to be present in any of BHP’s agreements with Native Title Holders in the Pilbara.

BHP should commit to a review that is (1) independent; (2) Aboriginal-led; (3) transparent; and (4) empowered to take a retrospective look into the presence or not of FPIC in BHP’s agreements as they relate to cultural heritage destruction. Until such time, or until laws are sufficiently strengthened to ensure FPIC, a moratorium on cultural heritage destruction is appropriate, proportionate to risk mitigation.

We note BHP’s objection to the resolution on the basis that it may have “the unintended consequence of disempowering traditional owner groups to manage their cultural heritage consistent with the principle of self-determination.” This resolution is not intended to, and would not have the effect of, impeding the agency of any group who has given FPIC to any activity. The resolution, even if passed, is advisory only and it would be open to BHP and Native Title Holders who are properly informed of plans and activities to confirm, publicly, their consent to them. No reasonable shareholder would stand in the way of such activities, and importantly, no shareholder would have any legal basis to do so, even if the advisory resolution is passed.

From a practical perspective, it is also open to BHP to commit to a partial moratorium, with a carve-out, for example, to accommodate situations where FPIC is present and independently verifiable. This may be the outcome of the ongoing dialogue between BHP and the Banjima people under the new Heritage Advisory Council model^[3], however it is not assured, should not be preempted, and will take time. Shareholders who want comfort that no further destructive activity will take place in the meantime should support the resolution.

This resolution is an opportunity for investors to express a clear, advisory view that destruction should not go ahead unless FPIC is established transparently and beyond doubt.

Further, shareholders do not know how many culturally significant sites exist on land BHP intends to mine. We note that BHP does not as a matter of process disclose to the public information about cultural heritage sites it plans to disturb. A disclosure to this effect has not been offered, but would be welcome.

We are pleased that BHP has agreed to the request in clause b. of the resolution relating to the non-enforcement of any confidentiality clauses which would restrict the speech rights of Native Title Holders in relation to cultural heritage concerns. We note however that the power imbalance between mining companies and Native Title Holders remains, especially in the context of long term agreements. Ensuring and independently verifying FPIC remains the only remedy to this imbalance.

Industry associations are extremely active and influential in regulatory reform processes in Australia. We are pleased that BHP has partially committed to clause c. of the resolution, which is intended to ensure that BHP’s expectations of its industry associations in the present context are clear and transparent to stakeholders. We would appreciate greater clarity from BHP about its expectations of how industry associations will advocate on specific policy and law reform points relating to cultural heritage, beyond BHP’s existing policy statements, and as law reform processes progress. This includes proposals to legislate best practice national standards for the management and protection of cultural heritage at the federal level.

Ordinary Resolution on Lobbying Relating to COVID-19 Recovery

Lobbying Impact

BHP’s latest commitments to reduce operational emissions by 30% by 2030 (2020 baseline) and to support technologies to reduce emissions in steelmaking and shipping are welcome^[4]. However, in the words of BHP’s former CEO Andrew Mackenzie, the global response to climate change “does not yet match the severity of the problem”^[5].

In many countries, including Australia and the United States, public policy to reduce emissions has stalled or regressed. Our company’s lobbying on climate and energy policy continues to have a far greater impact on national emissions trajectories than any reduction in emissions our company can achieve on its own.

Despite promising shareholders for three years that it should remain a member of problematic groups and affect change from within, many of BHP’s industry associations continue to promote fossil fuel expansion and obstruct effective climate policy. Many of BHP’s industry associations remain the most influential and negative on climate progress.

Following its 2019 review of industry associations, InfluenceMap found that BHP had not “fulfilled [its] commitments to address misalignments between [its] stated positions and the lobbying of [its] industry associations on climate”, nor acted with the urgency demanded by its shareholders^[6].

Put simply, BHP’s retrospective process of industry association reviews has failed to address the most problematic advocacy, and where it has identified misalignments, it was recognised after the damage was done. The clearest example of this was the support for Kyoto carryover credits by the Business Council of Australia and Minerals Council of Australia during the Australian federal election in early 2019^[7]. Not only did that advocacy affect the election outcome, but the Australian government then used its position on Kyoto carryover credits to obstruct the COP25 climate talks in Madrid in December 2019^[8].

The COVID-19 pandemic has had an unprecedented impact on the global economy. BHP’s management of the crisis, particularly its impact on employees, should be commended. In contrast, the advocacy by many of BHP’s industry associations in response to COVID-19 can only be described as predatory, as they have sought to weaken regulation and further entrench fossil fuels in economic recovery agendas.

American Petroleum Institute (API)

In March, the API wrote to the US President, Donald Trump to request a suspension of “non-essential compliance obligations”^[9]; and, wrote to the United States Environmental Protection Agency (EPA) to request relief from a range of regulations, including the suspension of reporting requirements for greenhouse gas emissions and of the fugitive methane leak detection and repair program^[10].

On 26 March, the EPA suspended enforcement of environmental laws for all industrial polluters^[11].

In August, following sustained lobbying by the API, the EPA rolled back a suite of regulations relating to methane, including removing consideration of climate impacts^[12]; and opened up public lands for oil and gas drilling in the Arctic national wildlife refuge^[13].

Between January to August 2020, the API significantly increased its advertising spending on both traditional media and social media, spending 51% more than it did during the same period in 2019^[14]. The API’s ‘Energy for Progress’ campaign is designed to convince the public that gas is a clean source of energy^[15].

In September, the API was named in two separate lawsuits, along with numerous oil majors, filed by the city of Hoboken, New Jersey, and the state of Delaware for promoting “uncertainty” about climate science^[16],^[17].

Membership of the API poses significant reputational risks to BHP, and given that it contributes a relatively small proportion of the API’s total revenue, BHP is unlikely to be able to positively affect its advocacy on climate and energy policy.

Gas-led Recovery

The Australian government is actively pursuing a “gas-led recovery” from the economic impact of the COVID-19 pandemic, including subsidies for new gas infrastructure, fast-tracking of project approvals, potential underwriting of new developments and aggressive deregulation^[18]. On 15 September, Australian Prime Minister, Scott Morrison announced that his government would fund plans to develop a minimum of five new gas basins^[19].

The advocacy by some of BHP’s industry associations throughout the COVID-19 pandemic has actively sought policy which is fundamentally inconsistent with the goals of the Paris Agreement: demands for government subsidies and tax relief, fast-tracked approvals for new coal and gas developments, and aggressive deregulation.

Many of BHP’s industry associations have used the 10-yearly review of Australia’s Environment Protection and Biodiversity Conservation Act 1999 (EPBC Act) to argue that weaker environmental laws were necessary for recovery. Six of BHP’s industry associations made a joint submission that argued the EPBC Act should not consider greenhouse gas (GHG) emissions in new project assessments^[20].

Australian Petroleum Production and Exploration Association (APPEA)

Throughout 2020, APPEA has repeatedly called for further oil and gas exploration^[21], welcomed government subsidies^[22], and lobbied for weaker environmental regulation^[23].

On 8 May, APPEA published a report calling for government support to develop “uneconomic or stranded” gas resources in order to extend the economic life of existing gas infrastructure^[24].

Throughout August 2020, APPEA advertised heavily through the Northern Territory election, in which fracking development was a key issue. While it is unclear how much money APPEA spent, the campaign included full-page newspaper advertisements (see examples below), and radio and TV commercials.

On 27 August 2020, the Australian government introduced legislation to parliament to amend the Clean Energy Finance Corporation’s (CEFC) definition of low-emissions technology to include “certain types of gas-fired electricity generation”^[25]. The CEFC was originally created to co-invest in profit-making renewable energy projects with the private sector. This amendment to the CEFC’s mandate was a specific demand from APPEA in a submission to the Finkel review of the electricity market in March 2017^[26].

On 14 September 2020, APPEA published a report called “Powering Australia’s Recovery”, that outlined six asks of government to promote economic recovery^[27]:

1. Cut corporate and petroleum taxes
2. Reduce environmental regulation
3. Promote oil and gas exploration
4. Fast-track approvals for new projects
5. No changes to domestic gas reservation
6. Promote the export of Australian gas

On 15 September 2020, APPEA welcomed the federal government’s announcement of a support package for the gas industry, including plans to construct new gas-fired generation^[28].

Minerals Council of Australia (MCA)

Throughout 2019 and 2020, the MCA has led the broader mining industry’s campaign to weaken environmental assessments of mining projects through the 10-yearly review of the Environmental Protection and Biodiversity Conservation (EPBC) Act^[29].

On 1 May, the MCA appeared before a parliamentary inquiry to oppose the inclusion of Scope 3 emissions in Australia’s National Greenhouse and Energy Reporting (NGER) scheme^[30].

On 25 May, the MCA explicitly called for the weakening of environmental regulation, government subsidies for exploration and the fast-tracking of coal projects to aid the economic recovery from the pandemic^[31].

On 22 June, the MCA published its latest Climate Action Plan, which failed to include any concrete commitments, and made no reference to emissions targets or discussion of transition in the coal mining industry^[32].

NSW Minerals Council (NSWMC)

On 24 June, the NSWMC welcomed the NSW government’s Coal Strategy Statement, describing its forecast of generally flat demand for thermal coal to 2050 “generally reasonable and balanced”^[33].

On 23 July, the NSWMC published a report calling for the fast-tracked approval of 21 new or expanded coal mining projects, claiming they were necessary for economic recovery^[34]. The University of NSW later found that the lifetime carbon emissions embedded in these projects is the equivalent of seven years of Australian domestic emissions^[35].

Queensland Resources Council (QRC)

On 14 May, the QRC welcomed the Queensland government’s release of 6,700 square kilometres of land for further gas exploration^[36].

On 28 May, the QRC said the resources sector was key to economic recovery, confirming that it had already “secured some interim relief for exploration companies that are the key to the new coal, metal, gas and oil discoveries”^[37].

On 23 June, the QRC welcomed government subsidies of $125 million for fossil fuel exploration^[38].

On 26 July, the QRC called for government subsidies for coal and gas exploration, and for fast-tracked approvals of coal mining projects^[39].

On 13 August, the QRC published a report that called for government support of $500 million for new gas pipeline infrastructure, incentives for further coal and gas exploration, amnesties from changes to royalties and taxes, and significant deregulation of the resources industry^[40].

On 31 August, the QRC launched an “unprecedented” four week advertising campaign ahead of the Queensland state election on 31 October 2020^[41]. The “Count On Us” campaign is designed to address “a lack of awareness about the importance of the mining and gas industry to the Queensland economy”^[42].

On 15 September, the QRC confirmed that it had influenced the Federal government’s announcement of subsidies for the gas industry, including funding plans for five new gas basins and potentially underwriting new gas pipelines^[43].

BHP’s Approach to Industry Associations

To date, BHP has not spoken out against the Australian government's plans for a “gas-led recovery”, nor has it called for economic stimulus to be focused on a “clean” or “sustainable” recovery. The Business Council of Australia (BCA), is the only one of BHP’s industry associations to support such measures^[44].

On 14 August 2020, BHP published its Global Climate Policy Standards, which are designed to “further strengthen alignment on key policy issues and provide for an increased level of transparency on association advocacy”^[45]. Other than retracting BHP’s support for Kyoto carryover credits, the standards contain no new commitments, nor do they address advocacy relating to fossil fuel expansion.

Commencing in late 2020, BHP will monitor the advocacy of its industry associations in “real-time”, and publish material departures from its standards on its website. While the monitoring of advocacy is welcome, as ACCR and InfluenceMap have previously pointed out, “BHP appears to selectively pick the data points used to make its alignment assessments, focusing on high-level climate statements from its industry groups and not identifying the sometimes substantial evidence of detailed lobbying activities that appears to contradict science-based guidance from the IPCC on delivering Paris Agreement goals”^[46].

In future, BHP will only conduct a formal review of its industry associations on a three-year cycle^[47].

In its Notice of Meeting 2020, BHP claims that much of the advocacy highlighted by this resolution predates its new reforms. While this may be true, BHP has not addressed or corrected any of the advocacy on climate and energy policy by its industry associations through the COVID-19 pandemic. The advocacy by APPEA and the QRC in September, after BHP published its new Global Climate Policy Standards, proves the standards will be routinely ignored by its industry associations.

BHP claims its industry associations developed the National COVID-19 Protocols in March, to help member companies navigate the movement of FIFO workers across state borders. However, the industry’s embrace of tougher COVID-19 protocols was so slow and haphazard, that in April, Queensland Senator Matt Canavan wrote to the Minerals Council of Australia to urge the mining sector to “take steps to commensurately reduce the risk of transmission”^[48].

Furthermore, as evidenced by Rio Tinto’s destruction of the Juukan Gorge caves in May^[49], and repeated safety incidents in Queensland coal mines^[50], BHP’s industry associations are repeatedly failing to manage industry-wide risks.

Conclusion

BHP has been telling shareholders for three years that by remaining a member, it will improve the advocacy of its industry associations on climate and energy policy. This approach has proven to be an utter failure for both BHP and its shareholders.

The COVID-19 pandemic has presented a once in a generation opportunity to accelerate decarbonisation through wide-ranging economic policy that will address economic growth and the climate challenge. If BHP is unwilling or unable to ensure that its industry associations support that transition, then it should not expend shareholders’ funds on membership of such groups.

Re-election of Malcolm Broomhead

ACCR recommends voting against the re-election of Malcolm Broomhead.

The Board is undergoing transition, with four new independent directors appointed since February 2020. Despite Broomhead serving more than 10 years on the Board- he was appointed in March 2010 - the Board supports extending his tenure, “to provide continued access to his corporate memory”^[51].

ACCR believes this is unnecessary and his re-election should be opposed for the following reasons:

1. Independence

While the length of tenure does not necessarily mean a director’s independence is compromised, the ASX Corporate Governance Principles recommend that Boards should “should regularly assess whether that might be the case for any director who has served in that position for more than 10 years”^[52]. BHP has not disclosed such an assessment in respect to Malcolm Broomhead.

2. Diversity

Following the AGM, the BHP Board will consist of 12 directors, 11 of whom are nominally independent plus the CEO, Mike Henry. The Board will comprise eight men and four women, meaning a third of directors will be female. To many institutional investors, 30% female representation is considered the minimum, not the goal.

After the AGM, the BHP Board will comprise just two members with non Anglo-European heritage - Mike Henry and Xioaqun Clever. For a global mining company like BHP, this represents an insufficient level of racial diversity.

There is currently no board member that identifies as Indigenous. Given the mining industry’s recent issues with Indigenous cultural heritage, BHP should consider Indigenous representation on the Board.

Being a male of Anglo-European background, Malcolm Broomhead does not contribute to Board diversity.

3. Climate Change

Malcolm Broomhead is the longest serving member of the Board’s Sustainability Committee.

In 2007, following his tenure as the CEO of Orica between 2001 and 2005, Malcolm Broomhead was identified as a member of Australia’s “greenhouse mafia”^[53] - a loose collection of corporate executives, media commentators and politicians, that successfully blocked action on climate change in the late 1990s and early 2000s.

Malcolm Broomhead is also the Chair of Orica Ltd. At the 2019 AGM of Orica, Broomhead railed against social media and what he called “a frenzy of self-righteousness” about “identity politics [and] the climate change debate” that seeks to “shout down anyone who disagrees”^[54]. These views are outdated and call into question Broomhead’s understanding of the concept of social license.

In March 2020, it was reported that at one of former CEO, Andrew Mackenzie’s final Board meetings, Malcolm Broomhead described BHP’s commitment to reduce its Scope 3 emissions as “virtue signalling”^[55]. This phrase has long been used by climate change skeptics in conservative media outlets to describe any action on climate change.

As outlined above, BHP’s unwillingness or inability to address the worst advocacy by its industry associations on climate and energy policy, suggests that the Board is not taking the issue as seriously as it should. Responsibility for this issue rests with the Sustainability Committee, of which Malcolm Broomhead is the longest-serving member.

BHP announced a suite of new climate commitments on 10 September 2020. While its commitment to reduce operational emissions by 30% by 2030 (from a FY20 baseline) is welcome, BHP admits this target as at the “lower end” of the range of emissions reductions required to limit global warming to well below 2°C^[56].

While BHP has accepted responsibility for reducing emissions in its value chain, it has only set the goal of supporting technologies capable of reducing emissions intensity in steel production by 30%, and emissions intensity in shipping by 40%, by 2030.

There should be no delay in refreshing the Board, especially those Board members who are opposed to more ambitious climate targets.

BHP Group Board

After the 2020 AGM, the BHP Board will comprise 12 directors: 11 independent directors and one executive director (CEO). Shriti Vadera will retire immediately after the AGM. Xioaqun Clever and Christine O’Reilly will join the Board on 1 and 12 October 2020, respectively.