Environmental, social and governance

We did not advance our abatement projects as fast as we would like in 2022. We have faced some challenges including late delivery of equipment, resourcing constraints impacting study progress, construction and commissioning delays, and project readiness.

In response, we have established six abatement programmes, with dedicated people, to focus on the decarbonisation challenges that cut across our product groups: repowering our Pacific Aluminium Operations, renewables, ELYSIS^TM, alumina process heat, minerals processing and diesel transition. We are building capability and gaining a deeper understanding of our decarbonisation challenge – both constraints and opportunities. As a result, we are better placed to deliver the complex and large-scale structural changes to our energy system needed to achieve our 2030 target.

Our experience with our abatement projects and progress tracking suggests there will be delays, and that we will require greater use of offsets to achieve our 2025 target. So we established one additional programme to increase our investments in nature-based solutions projects. If done well, these projects can play a substantial role in addressing carbon emissions and biodiversity loss, while also providing benefits to local communities.

The Boyne smelter and Gladstone power station in Queensland and the Tomago smelter in New South Wales all operate in coal-based power grids. These facilities account for 28% of our Scope 1 and 2 emissions and more than half of our emissions from electricity use.

Green repowering solutions are essential to the long-term sustainability of these operations. The scale of the smelters’ electricity use means that their transition must take into account the impacts on the broader grid and overall system requirements. This requires complex technical, commercial and political negotiations balancing the needs of multiple stakeholders.

In June 2022 we issued a formal market request for proposals to support the development of large-scale wind and solar power to supply power to the Boyne smelter through the Queensland grid by 2030. This smelter requires 960MW capacity of reliable power to operate, which equates to at least 4GW of quality wind and solar power capacity with firming. We continue to work with the Queensland Government and energy providers to design a renewable energy solution as we approach the end of our supply contract for electricity generation to the smelter.

On the process heat side, at the Queensland Alumina refinery we are working on converting its three high-temperature digestion units to a double digestion configuration. By investing around $250 million, we expect to reduce our CO₂ emissions by 350 thousand tonnes a year on a 100% basis while also saving around $80 million in annual operating costs. In 2022, we also continued to progress our studies and are working towards approval for an industrial demonstration of the use of hydrogen in the calcination process.

Decarbonising our assets de-risks our business and growing in materials essential for the world to decarbonise will underpin our financial performance for decades to come. It also creates commercial opportunities as we expand our role in providing low-carbon materials to help our customers decarbonise.

But we also need to be disciplined about our capital investment. We use a decision-making framework that helps us to evaluate opportunities, and prioritise those that present attractive economics now, and set us up for the long term. The framework uses five key elements: value, materiality of abatement, maturity of emission reduction, competitiveness versus internal and external benchmarks, and alignment with the net zero 2050 target.

In addition to reducing carbon emissions, some projects also deliver cost benefits or minimise our exposure to gas prices and coal prices. For example, converting the high-temperature digestion units to a double digestion configuration at the Queensland Alumina refinery is expected to save around $80 million in annual operating costs. And at our Gudai-Darri iron ore mine in the Pilbara, we expect the phase 1 renewables project will reduce annual gas costs by $55 million at current prices.

It is the right thing to do, and it makes good business sense.

Many of the materials used in products today may not be the preferred choices in the future unless they can establish their ESG credentials or develop strong circular solutions. Consumers want products that are sustainably sourced, and companies want products that help them meet their emissions and sustainability targets. Governments are also ramping up mandatory requirements and incentives to motivate companies to accelerate their ESG progress and meet their emissions commitments. In our Aluminium business, for example, we’ve noticed customers are starting to differentiate products based on carbon content, and so we’re starting to segment our products accordingly.

Being more outward and in-tune with societies will strengthen our social licence. This is of huge importance for our future. Without a social licence, we simply cannot operate. We have been working hard to implement meaningful change in the way we partner with communities, by focusing on developing lasting relationships with people, learning about and supporting their goals and aspirations, and avoiding or mitigating adverse impacts as much as possible.

We continue to work hard to transform our culture, strengthen processes and increase transparency. One of the key learnings from the past few years is that how we achieve our strategy is just as important as what we achieve. As our strategy has evolved, so has the need for an appropriate incentive framework to better support it. In 2022, we undertook a review of our incentives and, from 2023, our Group short-term incentive plan, which applies to around 24,000 employees, will have a greater focus on how outcomes are achieved.

Our primary focus for 2022 has been on recommendations around leadership training, ensuring our sites are safe and inclusive, and improving our response to reports of unacceptable behaviour. While we are making progress, we have more to do to eliminate harmful behaviours from our workplace and are deeply committed to doing so. This work remains a priority in 2023.

In 2022, we accelerated some immediate actions:

• Building capable leaders – We trained 91% of more than 7,000 leaders in creating psychological safety and moving from bystander to upstander, exceeding our target of 80% by the end of 2022.
• Creating safe and inclusive facilities – All sites have completed a self-assessment of their facilities, and unsafe areas such as locks, lighting, and access to amenities have been updated. This work in ongoing and done in collaboration with our employees to make our facilities safe and more inclusive.
• Providing a more people-centric response – We expanded the scope of work for our Business Conduct Office (BCO) and developed a discrete unit that will be responsible for delivering safe, confidential and caring support.

We know we have a lot more to do. Achieving culture change will take time, but we are heading in the right direction.

When people feel respected and valued, they feel empowered to be their best selves and bring their best ideas. That’s the idea behind our Safe Production System (SPS) – unlocking the potential of our employees, their skills and expertise, and creating stable, predictable operations.

We now have 30 deployments at 16 sites and 86 Kaizens (rapid problem-solving activities) completed or in progress. Where we have been deploying the SPS, we have sites that are safer, more engaged employees, and assets that are more productive. For example, in 2022 we achieved a number of operational records, including a record second half performance across the Pilbara iron ore mine and rail system.

We will continue to deploy the SPS to more sites in 2023.

Since February 2022, we have signed new agreements with the Yindjibarndi, Yinhawangka and Puutu Kunti Kurrama and Pinikura peoples in Australia, and the Pekuakamiulnuatsh and Naskapi peoples in Canada.

In November 2022, we agreed with the Puutu Kunti Kurrama and Pinikura Aboriginal Corporation to create the Juukan Gorge Legacy Foundation as part of a remedy agreement relating to the destruction of the rock shelters at Juukan Gorge in the Pilbara region of Western Australia in May 2020. Financial support will be provided to the Traditional Owner-led foundation to progress major cultural and social projects, including a new keeping place for storing important cultural materials.

We are changing the way we work with Traditional Owners to better protect heritage. We acknowledge that we have a long way to go.

We are moving to a model of co-management to ensure Indigenous voices are heard as part of our decision making. Co-design leads to better heritage and environmental outcomes, and greater certainty for mine development. We have set a target that all sites co-manage cultural heritage with communities and knowledge holders by 2026.