BHP Group Limited (BHP) Earnings Call Transcript & Summary

Hello, everyone, and thank you for joining our social value in action briefing. My name is Dinesh Bishop, and I am the Vice President of Investor Relations at BHP. I would like to introduce you to Caroline Cox, our Chief Legal, Governance and External Affairs Officer. Since 2020, Caroline has been our group executive responsible for functions covering sustainability and nonfinancial risk, including governance, climate change, community and human rights, ethics and indigenous relations. Caroline will lead the 45-minute briefing today, and we will also allow some time afterwards for you to ask questions. I will help moderate this session. Caroline, would you like to begin?

Thank you, Dinesh, and hello, everyone. I start by acknowledging the traditional custodians of the land I'm on today, the Wurundjeri people of the Kulin Nation, and acknowledge that across the world, our operations are on or near the custodial lands of First Nations people. I pay my respects to their elders, past and present and extend that respect to all First Nations people joining us today. Three years ago, we introduced to the market the initial details of our commitment to social value. Today, I want to update you on how we have progressed in embedding that commitment into our thinking, our planning and our performance. I also want to share with you important new initiatives that will further sharpen our focus and provide transparency on our goals and our outcomes. There are 3 key developments that I will cover. The first is our new social value framework, which identifies 6 social value priorities based on where we can have the most impact and also what will deliver business value and shareholder value. Secondly, I will take you through our new and our first social value scorecard. This includes 2030 goals, milestones and metrics, and we will report on this annually. Finally, I will update you on how we are integrating social value into everything we do at BHP. I strongly believe in the criticality of this work. I grew up in small town Alberta, Canada. And I saw firsthand the very real impact that corporates can have on the landscape and people's lives. I saw this again recently when I returned to Canada to visit our Jansen site in Saskatchewan. And I spent time with our employees, also with suppliers, government and community members. And this experience and engagements really brought home to me again, how we can work together and make a real positive outcome for people, the planet and our business. While I was there, the Premier of Saskatchewan Scott Moe, also reflected on the Jansen project. And I want to share with you a couple of things that he said. He said BHP's presence means opportunity. Opportunity that will ripple through the province for generations to come. And all of this is driven by a spirit of genuine partnership, not transactional interactions. And this really lies at the heart of what we want to talk about today. It's about running our business in a way that delivers long-term sustainable value and opportunities for BHP, our shareholders and the broader community. Social value starts with our purpose to bring people and resources together to build a better world. The commodities we produce at BHP are essential to everyday life. From infrastructure that connects us globally to the raw materials that are necessary for decarbonization and renewable energy and now with potash to food security. Beyond supporting these critical global needs, we provide significant economic contribution to the communities and countries where we operate. In FY '21, we provided USD 40 billion in wages, taxes, royalties, dividends and payments to suppliers. The benefits derived from BHP's commodities and importantly, how we produce them are the cornerstone of our purpose and social value. Social value is BHP's positive contribution to society. Our people, partners, the economy, the environment, local communities and shareholders. And all of this is anchored in enduring mutually beneficial and trusting relationships. And this commitment is being built into our strategy and the thousands and thousands of decisions we make across the business every day. We do recognize that the decisions we make can have a positive or negative impact, and we need to take that into account in how they impact both the environment and communities. Our aim with social value is to be deliberate and proactive in taking into account both social and financial impact in those decisions that we make. Doing this well is essential to business outcomes and long-term shareholder value. Some of you may recall this slide from the last time we did a briefing on social value in 2019. On the right, you will see the outcomes, the competitive advantages that come from embedding social value. In short, it comes down to access. And I'll give you a couple of recent examples. First, in terms of access to resources. We recently received a license approval from the Western Australian water and environmental regulator to increase our iron ore operations up to 330 million tonnes per annum. The application took into account considerations around the community, water, environment and the workforce. Having gained this license, it gives us flexibility to execute options of growth in response to positive market conditions. Another very recent example is from a couple of weeks ago where the Canadian federal government committed CAD 100 million to the Jansen Project. And it was very clear when this was announced by the Canadian Prime Minister and one of his ministers that this was linked to our position on greenhouse gas emissions, diversity and indigenous partnerships. Second, access to partners and markets. Producing some of the lowest carbon intensity nickel has given us access to supply agreements with Tesla and Toyota. Third, access to talent. People are the core of our business. Diversity, we have seen unlocks better safety outcomes, productivity and innovation. And we know that our commitment to sustainability is improving engagement levels. Finally, on access to capital. We know that all of these elements I've spoken about are important to investors and will increase our access to the equity and debt markets. Essentially, the commodities we produce and how we produce them are our resume. They will open the door to future opportunities, partnerships, capital and talent. Our commitment to sustainability is not new. It is one of our charter values, and this slide reflects the steps we have taken over a number of years. Take climate. In 1998, we were one of the first large companies to publish our operational greenhouse gas emissions. And a year ago, we were the first company in Australia to put forward a Say On Climate vote on our Climate Transition Action Plan or CTAP, which received close to 85% shareholder support. On diversity, we were the first resources company to set an aspirational goal of gender balance by 2025. When we set that ambition in 2016, we had about 17% women. Today, we're sitting at 32%. As you will see on this slide, over that same period, we've continued to deliver strong shareholder returns. And we've also, in this period, delivered tangible outcomes. On safety, we've been fatality-free for 3 years. On environment, our freshwater withdrawals have reduced by nearly 30% since FY '17, that's approximately double our target. On decarbonization, our operational greenhouse gas emissions have decreased by 20% since FY '20. And we expect to spend around USD 4 billion up to 2030 to achieve our goals. We also continue to work across the value chain to reduce Scope 3 emissions. This includes partnering with 4 steel producers in Asia, representing approximately 12% of reported global steel production. And finally, over and above our other contributions, we continue to contribute at least 1% of profits to local communities on community and environmental projects and also to support the BHP Foundation. A highlight of the BHP Foundation's work is reflected on the slide is the 10 Deserts project, which is the largest network of indigenous-led conservation areas in the world, covering about 30% of the Australian geography. With this strong foundation, it was clear to me when I came into my role, how the concept of social value really resonated with employees and also with broader stakeholders. But I could also see that there was the opportunity to take it to the next level. We can have more impact and move faster if we apply greater discipline and consolidate our efforts, focusing first on where we can have the most impact and then also taking into account business drivers, such as what is going to give us access to customers or resource, as we just talked about. Taking all of that into account and feedback that we received from investors and stakeholders, we've identified the 6 pillars that are outlined on this slide. And this framework has been approved by our Board. And the 6 pillars, as you can see, are decarbonization; healthy environment; indigenous partnerships; safe, inclusive and future-ready workforce; thriving, empowered communities; and responsible supply chains. This new framework provides direction, direction to all of us at BHP on where to focus our efforts and investments in order to deliver positive social value and also business value. This is a real step forward for us and adds rigor and discipline to our efforts. Building on this framework, I'm very pleased to now take you through our very first social value scorecard. This provides clarity to our teams on the ambitions that we're setting for ourselves and importantly, allows us to measure progress and transparently report and hold ourselves to account. At its core, this scorecard is about partnership, listening and codesign. And this really reflects that it's not for us alone as a company to decide what is going to deliver value to communities or to the environment and also recognizes that for us to play a role in addressing complex issues like climate change, we need to work in collaboration with third parties. Now this is a lot of detail on this slide, so I'm going to take you through it in turn. There are really 3 components. On the top line are our new 2030 goals. Each contributes to relevant UN Sustainable Development Goals. On your left, decarbonization will be familiar to you from our Climate Transition Action Plan, which we released last year. And that encompasses our existing targets and goals as set out in the CTAP. The rest, however, is new, and it includes our new 2030 goal to create nature-positive outcomes and also our goals to co-create plans with communities and indigenous partners. The second row are a set of key metrics. These metrics are not targets but rather indicators to show how we're tracking against the goals. And there are a couple of things that I want to point out in relation to these metrics. The first is that this is an initial iteration. These metrics will evolve over time. Second, as mentioned, we are capturing through these metrics, third-party views on BHP's performance. So for example, if you look under community and also responsible supply chains, we do include the voices and feedback from those third parties rather than just self-assessing our performance. Thirdly, I note that some of these metrics are future metrics. So for example, under the healthy environment pillar, we've outlined that we will establish natural capital accounts to measure our performance. We don't have those yet, but we wanted to provide insight as to where we're headed. Finally, in the third row are the initial milestones for FY '23 and '24. These will also continue to evolve, but they give you a sense of the key milestones towards achieving the goal. We will disclose our performance against all of this in our annual report. Now as I said, this is a lot to take in. So what we're going to do is really give you more detail on a couple of these pillars, starting first with a healthy environment. And I'm really pleased to now hand over to Anne Dekker, our Vice President of Environment, who has over 30 years of experience in environment management. Anne?

Thanks, Caroline. It's great to be here. BHP has an aspiration to become a nature-positive company. And there are a number of actions that we would take that underpins that. Today, I'm really excited to announce one of the most significant actions on our journey, and that's our 2030 healthy environment goal. We will focus on the creation of nature-positive outcomes by having at least 30% of the area of land and water that we steward under nature-positive management practices. So why are we focusing on nature-positive? The World Economic Forum has identified biodiversity loss as one of the greatest global risks. And scientists tell us that to halt and reverse species loss and to protect the vital ecosystems that are the foundations of economic stability, that we need to put nature on the path to recovery by the end of this decade. That includes to protect 30% of the earth's land and oceans by 2030. And I'm really encouraged that almost a 100 countries around the world have already committed to this 30 by 30 challenge. In the past, BHP has had commitments of no net loss of biodiversity and 0 significant environmental events within our operational disturbance area. We've also made voluntary conservation investments in areas outside of our footprint. And some of these include the Martu Living Deserts Program in Western Australia, the Valdivian Coastal Reserve in Chile and the Five Rivers Reserve in Tasmania. Now with our new goal, we're going to be focusing on within our footprint. And that's -- noting that our operational disturbance area is only 2% of the 6 million hectares of land that we own, lease and manage. Of those 6 million hectares, most of that is retained for exploration tenements or its lease to third parties for agricultural use. To achieve our 2030 goal, we're going to focus on the areas of highest ecosystem value, including intersects of those with our operational footprint. And working alongside indigenous partners and communities to create nature-positive management actions on that land, including conservation, improved land management and restoration. We see that effectively managing that land and understanding what the impact of the actions we take, can only be possible through the development of natural capital accounts. And you'll see that on our metrics and our milestones. So natural capital accounts are a way to measure the amount and the quality and the value of environmental assets in a certain area. They also describe changes in ecosystems and how that has impacts on well-being and on economies. Through these natural capital accounts, BHP will be able to tell what the changes and the improvements in our natural assets are as a result of the nature-positive actions that we take. We're currently piloting natural capital accounting, which we think is going to be a first for the Australian or for the mining industry globally with partners, including the Commonwealth Scientific and Industrial Research Organization of Australia. Thanks, Caroline. I'll hand back to you.

Thanks a lot Anne, and just to give you some perspective on the goal that Anne has just taken us through, 30% of the land and water that we steward is around 2 million hectares, which is around half the size of Switzerland and we're aiming to create nature-positive outcomes on an area of that size by 2030. We will pursue this, as Anne said, in partnership with indigenous communities and other community stakeholders through conservation, improved land management and restoration. I now want to talk more about the indigenous partnership pillar. As I said at the outset, we operate on or near the custodial lands of First Nations people across our operations. We recognize and welcome that this brings with it a special responsibility. Our aim is to be a partner of choice for indigenous peoples, respecting rights, listening and creating relationships based on trust and mutual benefit. This will take time. We have made mistakes in the past, and we are determined to do better. The more we listen and learn, the more we understand how we could have acted differently. This knowledge informs our plans for the future. One of the first things I did when I came into my role was to set up the first truly global indigenous team within BHP. That team is now over 60% indigenous and 100% indigenous-led. This new indigenous partnership goal that we're announcing today is another important step forward in our relationship with indigenous peoples. To measure our performance, we will disclose relationship health as assessed by indigenous partners, not by a self-assessment from BHP. And we will also report on our progress on co-created plans. In terms of the milestones, in FY '23, we will release a new indigenous peoples strategy and we will also increase indigenous voices in formal decision-making. And in FY '24, we will complete the first tranche of co-created plans. I now want to share with you a video that we've put together with the Tjiwarl community, which really shows the evolution in our approach in line with our new 2030 goal. [Presentation]

We've spent some time today talking about our new framework and also the social value scorecard. And these, as I've said, are really designed to focus our efforts on the things that are going to drive the most social value and business value. But we also know that frameworks are only going to take us so far. And the things that are going to drive the most value are, if we can really embed this in our strategy, our plans and processes and our culture. Now we're approaching this both top down and bottom up. Top down, it starts with our Board and our leadership team, incorporating social value into our strategy and things like KPIs, which then filter down into the organization, and also impact on remuneration. At an operational level, our teams are building social value into their asset plans, which then feed into decisions on capital allocation. And all of this is underpinned bottom up by our culture. And I'm going to talk about each of these in turn. So starting first with strategy. An example of social value consideration in our strategic decision-making is our recent decision in relation to New South Wales Energy Coal. In both setting up the bid process and then evaluating bids, we took into account financial drivers as well as sustainability and rehabilitation credentials of bidders. And we also took into account the interest of employees and communities. We're now at the stage of working with relevant stakeholders and partners to co-create a sustainable and responsible pathway to closure. The plan will balance economic, community, environment, workforce and rehabilitation factors and will also be taking into account the principles that are set out in this slide. Turning then to operational planning. We'll hear a short video now from the General Manager of Integrated Operations at Spence in Chile, who will talk about how social value is being built into asset plans. [Presentation]

That takes us to the important topic of capital allocation, and I'm going to hand over to Graham Oborn to discuss this, who leads our capital decision and evaluation process.

Thank you, Caroline. Social value is a core part of our capital allocation processes to ensure we are positioned to capture business value. Our capital decisions prioritize investments in social value where we determine the greatest benefit will be generated. Importantly, these investments are not granted a free pass. Our capital allocation framework considers social value as part of the capital spend required to ensure continued, safe and sustainable operations. As such, our ability to meet our company-wide social value goals and targets are considered alongside the traditional financial metrics like return on capital employed, free cash flow and commodity balance. This ensures that social value is increasingly hardwired into our decision-making at all levels of the organization. This slide outlines examples of social value pillars embedded and evaluated in our capital decisions. Social value initiatives are generally not stand-alone, such as the decarbonization project. More often, our projects generate mutual value across multiple social value pillars. The examples on this slide are just a small selection of recently executed and current projects that demonstrate the diversity of those opportunities. Examples of social value benefits generated for our stakeholders include establishing foundational infrastructure to reduce greenhouse emissions and improved safety from our operated assets through projects like Trolley Assist at Escondida, which is currently in the selection phase, and Autonomous Haulage and Autonomous Shipping, which are in execution at BMA and WAIO. We continue to integrate how we evaluate social value in every capital allocation decision. We currently have under pilot, a suite of tools to build our practices and capability in this space. These tools provide a holistic approach to evaluating financial and nonfinancial considerations to deliver optimal outcomes. On the slide, we have a worked example of a water project, which in this particular case, highlights the material importance of water source and cultural significance to Traditional Owners alongside operational risk and cost considerations. The first tool on the left helps project teams systematically identify what social value considerations are important. A key aspect is adopting a stakeholder perspective of value and connecting the project to our social value strategies, policies and targets. The second tool in the middle helps teams more consistently analyze financial and nonfinancial criteria to determine the optimized investment alternative. The third element of the framework on the right, ensures decision-makers are fully informed based on the project's most material contributions to BHP's strategic objectives, including the scorecard metrics Caroline outlined earlier. Importantly, the investment returns will have factored in: emissions intensity and carbon price; biodiversity impacts and water usage; Traditional Owner support; and local community impacts, such as local procurement and the nature of the workforce, such as FIFO. Of course, these are just tools and are complemented by the experience and judgment of our management to ensure that the weighting and allocation is in line with our overarching strategy and purpose. I'll now hand back to Caroline.

Thank you, Graham. So we've talked about our social value goals and how we're embedding them into our strategy, our operational plans and capital allocation. I now want to talk about how we're embedding it bottom up. Just like our experience with safety, we know that policies, procedures and processes have an important role to play but they won't carry the entire way. It is culture that influences the thousands and thousands of decisions that are made across the organization every day. Our site-based general managers and their teams regularly make decisions that have a social value dimension. How can we improve the way we use water or recycle waste? What local or indigenous suppliers can we use? How can we make our workforce more inclusive through our equipment and ready for a diverse workforce? These decisions depend upon leaders and their teams having the capability and authority to make considered choices the same way they do on safety. Social value is the responsibility of every person at BHP. To achieve this, we're embedding social value into our leadership capability requirements and training. We're also leveraging existing processes and training that we use for things like safety and operational excellence, including our BHP Operating System and Field Leadership. We're also continuing to include social value in our company-wide scorecards, and that then feeds into executive remuneration and company-wide remuneration. I want to give an example of this cultural bottom-up approach in action. A couple of our employees in Yandi identified an opportunity to not only enhance the way we go about closure but also to enhance very important relationships with indigenous Traditional Owners. [Presentation]

As I hope I've given you some insight into today, it's by getting the big and the little things right in a disciplined, consistent and deeply embedded way that we continue to build BHP's social value advantage as a core component of our continued delivery of value creation. Today, we've outlined the competitive advantage created by social value, our new social value framework that focuses our efforts on areas of greatest impact, our new social value scorecard, which stretches our ambitions and provides more sophisticated ways of measuring our performance. And finally, how we're embedding social value in everything we do, whether it's capital allocation, the New South Wales Energy Coal pathway to closure, nature-positive plans or identifying a good idea on the ground. Social value is part of all of these decisions. It's an all of business approach, and it's being built in deliberately and in a focused way. Continuing to put social value at the heart of our company will create opportunities for BHP, provide mutual benefit for our stakeholders and deliver long-term value for shareholders.