Climate Change - ESG
Climate Change
Climate change represents a scientifically proven reality and a challenge that affects not only our productive activities, but the entire planet. Combating the impacts of climate change is a strategic priority on Vale’s agenda. The company is committed to contributing to a more sustainable future, based on its renewable energy matrix and the differentiated quality of its product.
We have been acting continuously, guided by scientific and practical references in line with our policies to deal with this issue.
In order to increase transparency Vale's resilience to climate change risks and opportunities and to detail our commitments, Vale, in accordance with the Task Force on Climate-Related Financial Disclosures guidelines, presents its Climate Change Report.
Vale characteristics that highlight its contribution to the fight against climate change include:
The quality of iron ore, specifically in Carajás.
Vale’s iron ore mines located in Brazil have ores with very high iron (Fe) content and low slag content. Consequently, Vale’s iron ore emits less carbon when processed in steel mills. For instance, S11D Eliezer Batista Complex in Carajás produces iron ore with 66.7% Fe content, besides being the biggest iron ore project in the world. producing about 150 million tons annually.
The predominance of Class I nickel in its reserves (60%), which has a high quality that allows a wide range of applications.
Vale has nickel mines that reserve around 60% of the world’s Class I nickel, a more refined product that enables greater application diversification and stability for sales volumes. With the increase of electric car production, it is expected that an increase in the demand and price of Class I nickel will enable Vale to benefit as Class II nickel begins to be sold with higher added value.
Mining activity highly dependent on logistical infrastructure sensitive to extreme climate risks.
Fixed assets such as railways and ports are especially vulnerable to extreme climate events, since they have a long term useful life and little, if any, flexibility to change location.
Find out more about Vale´s initiatives on the subject:
Goals and Deadlines
Reduce 33% absolute scope 1 and 2 emissions
Reduce 15% of its scope net emissions by 2035
Net-zerol by 2050
Paris Agreement
Follow our progress toward our goals here.
TCFD
Vale adhered to the recommendations of the Task Force on Climate-Related Financial Disclosures (TCFD) in 2017, with the aim to increase transparency about the risks and opportunities related to climate change.
Scenario analysis
Vale, aligned with the TCFD recommendations, analyzed the resilience of its strategy regarding the climate change and disclosed a report with the complete analysis and results.Risks
Regarding the risks related to climate change, Vale has developed specific analysis methodologies divided between impacts resulting from the transition to a low carbon economy and physical impacts, in line with the guidelines of the Task Force on Climate-related Financial Disclosures – TCFD and disclosed a specific report with Vale's analysis and actions for managing this issue.KPIs Report
In 2022, Vale’s activities resulted in 486.7 million tonnes of CO2 equivalent. From this amount, more than 98% was indirect Scope 3 emissions, resulting from Vale’s product utilization in other industries. The direct emissions from scope 1(fuels and industrial processes), and scope 2 (electricity purchases) added 10.2 million tons of CO2 equivalent.
Vale’s GHG emissions (in million tCO2e):
For more information about greenhouse gases emissions (GHG), access our Integrated Report.
Performance Evolution
In 2022, direct Scope 1 emissions (fuels, industrial processes and other minor sources) and indirect Scope 2 market-based emissions (electricity purchase) totaled 8.9 million tons of CO₂e in the period, a reduction of 27% when compared to the 2017 base year, which is mainly due to production volumes decrease in compared to 2017.
Total GHG Emissions of Vale
(millions of CO2e)Other Indirect GHG Emissions
(Scope 3 - millions of tCO2e)
Scope 3 emissions, indirect GHG emissions calculated along the value chain, include upstream emissions (related to goods and services purchased or acquired) and downstream emissions (related to goods and services sold). In 2021 Scope 3 emissions totaled 477.8 million tons of CO₂e, representing a decrease of approximately 3% compared to 2021, and a reduction of 14% compared to the 2018 base year emissions.
Goals and Deadlines
Carbon Goal
In 2019, the company reviewed its climate goals, including new commitments to reduce greenhouse gas (GHG) emissions, bolder goals than previously established in 2018, aiming to become a net-zero mining company.
The 33% absolute scope 1 and 2 emissions reduction target by 2030, with 2017 as a baseline, is aligned with the Paris Agreement's objective of limiting global warming to below 2ºC. This target is linked to the variable remuneration of all Vale's employees.
Vale has a target to have 100% electricity consumption from renewable sources, in Brazil by 2025, which means in terms of emissions that Vale's Scope 2 emissions, in the Brazilian operations will be zero by 2025, and globally by 2030.
Besides, we approved the target to become net-zero by 2050, and and to propel us towards decarbonization, we approved an internal carbon price of USD 50/tCO2e. This price is also aligned with the 2 ºC scenario, following the recommendations of the Carbon Pricing Leadership Coalition.
Main factors to reach 2030 goals
Adopt carbon pricing for capital projects.
Include resilience evaluation of Vale’s business in relation to climate change scenarios in Strategic Planning.
Plans to reach the 2030 goal
Achieve self-sufficiency in renewable energy (zero scope 2).
Electrify and replace diesel consumption in mining and transportation activities.
Stimulate energy efficiency gains.
In order to evolve the net zero strategy, the The Low Carbon Forum was created to set and oversee the implementation of the initiatives. The Forum is coordinated by the Sustainability Executive Board and has the participation of Vale’s CEO and the Executive Directors of Ferrous, Base Metals, Strategy and Finance and Investor Relations.
As a competitive advantages in climate's agenda, Vale has more than 1 million hectares of protected forest area and a high pecentage of renewable sources in its energy matrix. To achieve our commitments, Vale has annouced investments of US$ 4 to US$ 6 billion to reduce Scope 1 and 2 emissions by 2030.
In order to prioritize the most cost-competitive initiatives to achieve our 2030 target, we have drawn up a marginal abatement cost curve (MAC curve), which analyzes more than 40 projects and it is constantly evolving.
The projects are oriented towards solutions that expand the use of electricity from renewable sources in operations, which promote the energy management and energy efficiency practices and routines in order to create an environment that encourages the adoption of efficient behaviors and solutions and innovative rational use of energy and that stimulates the search for different technological solutions, considering the social, economic and environmental impacts and that align the business portfolio to the transition to a low carbon economy, leveraging new business opportunities.
Vale has invested efforts and resources to reduce greenhouse gases emissions and mitigate the climate change. Since 2020, our expenditures on climate change have totaled USD 810 million, of which USD 543 million in this last year.
Investments in 2020 encompasses a series of initiatives related to three main solution routes:
Investments in 2020 encompasses a series of initiatives related to three main solution routes:
The initiatives are related to:
- Open pit mine: energy efficiency including automation and artificial intelligence, electrification studies, alternative fuels, among others;
- Underground mine: use of electrical vehicles and mine equipment, including studies for infrastructure and battery recharging, in addition to assessing the use of alternative fuels;
- Processing plant: studies to optimize production stages;
- Metallurgy and Pelletizing: energy efficiency, electrification, alternative fuels, new processes;
- Railway: electrification studies, use of artificial intelligence, as well as investments in equipment/systems for continuous improvement of energy efficiency;
- Shipping: implementation of pilot tests to apply new technologies and solutions that contribute to improving the energy efficiency of ships, as well as studies on the use of new fuels;
- Renewable energy generation: prospecting and acquisition studies for new projects on electricity generation based on renewable energy sources;
- Strategy and diagnostics: investments in management tools and studies to reduce greenhouse gas emissions.
As part of the strategy, and in line with the recommendations of the Task Force on Climate Related Finnancial Disclosures (TCFD), Vale conducted a preliminary scenario analysis of its business resilience in the three climate change scenarios, considering the scenarios of the International Energy Agency (IEA).
The construction of climate-related scenarios allows Vale to identify indicators to monitor the external environment and more quickly recognize changes in the scenarios, allowing an agile adaptation to current needs.
Scope 3
Vale aims to reduce 15% of its scope net emissions by 2035, to encourage clients and suppliers in the same direction and aligned with its net-zero commitment. Through active engagement with clients from the steel and metallurgy industries, Vale will work to reduce emissions in its value chain. The company will guide its operations based on win-win relationships, less intensive products, and new technologies.
Absolute scope 3 net emissions (MtCO2eq)
1BaU stands for business as usual. Scenario based on production of ~400Mtpy.
Nota: Science based target.
Nota: Science based target.
Among the initiatives already implemented we can highlight:
Inclusion of contractual clauses related to greenhouse gas management for suppliers. For more information, visit the page about Suppliers here.
Creation of a joint venture focused on low CO2 metallics' production (here).
Premium product portfolio which promotes emission reduction through higher quality ore.
International Maritime Organization (IMO) goals – initiatives that have already added significant value to the environment and Vale shareholders:
Valemax 2G (Compared to capsize ships in 2011):
41%
less emission
41%
less fossil fuels consumption
38%
cost reduction
Risks Management
Risks and opportunities related to climate change are the responsibility of the Sustainability Department. The risks are identified based on strategic business planning, existing risk management processes, and regulatory environment monitoring. It is recommended that the risks should be reviewed by each risk owner whenever there are relevant changes in the risk management and/or control performance or at least within a maximum period of 24 months. Regarding Governance, the Sustainability risk theme are monitored and presented to the Sustainability Executive Risk Committee and Sustainability Committee in specific frequencies, where they are reviewed for reporting to the Vale`s Executive Committee and also published in the Annual Integrated Report. The Board of Directors is also continuously evaluating risks as well as opportunities to further align Vale’s portfolio to a low carbon economy.
Vale uses a risk matrix that considers the severity and probability of each occurrence. In the case of risks related to climate change, Vale has developed specific analysis methodologies divided between impacts resulting from the transition to a low carbon economy and physical impacts, in line with the guidelines of the Task Force on Climate-related Financial Disclosures - TCFD.
Our main risks related to climate change are:
Transition risks
Are those that arise in the shift to a low-carbon economy, being:
Regulatory / Legal
Changes in policies to restrict or adapt to the effects of climate change;
Disputes over non-compliance with policies to mitigate climate impacts.
Disputes over non-compliance with policies to mitigate climate impacts.
Technological
Substitution of products/processes for more efficient/current technologies.
Market
Changes in supply and demand due to awareness of cleaner products.
Reputation
Consumer and investor perceptions of the Company's adherence to greener policies.
Physical risks
Are those caused by the impacts resulting from global warming and are notable through temperature increase and greater occurrences of extreme events, such as hurricanes, storms, among others.
Vale methodologies for climate change risks and opportunities
Transition risks: Vale has developed an internal carbon pricing model to assess the risks linked to climate change through projections of possible impacts on the operating costs of each business unit. In addition, the company participates in external forums and has tools for monitoring and controlling transition risks.
Physical risks: Based on the Intergovernmental Panel on Climate Change (IPCC) studies, Vale developed, together with the Vale Technological Institute, a projection and mapping model of the possible physical impacts that pose risks to the Company's operation. Climate projection is performed using a climate modeling system that allows future temperature and precipitation scenarios to be obtained. Projections were made for the North Corridor, South Corridor and Corumbá sections.
TCFD
In 2017, Vale adhered to the Task Force on Climate-related Financial Disclosure (TCFD) recommendations led by the Financial Stability Board, containing guidelines for reporting financial risks related to climate change by companies and financial institutions.
Upon signature, the Company also began an in-house project to tailor climate risk qualification and quantification to the TCFD recommendations.
As main actions related to the TCFD, in the last years, we highlighted:
2016
- Technical contribution to the construction of the TCFD framework through the public consultation process;
- Review of published industry briefs and comment on performance indicators to be reported in financial reports, such as 20 F.
2017
- We endorse the TCFD framework as one of the first signatory companies;
- We signed a new positioning letter from the Brazilian business sector in favor of global carbon pricing (letter from CEBDS [1] – Brazilian extension of the WBCSD [2];
2018
- Definition of the emission intensity reduction target with 2017 as the base year;
- Vale's first resilience assessment against the climate change scenarios IEA [3];
- We report and publish the CDP in line with TCFD’s recommendations;
- Update on carbon pricing risk analysis;
- Implementation of the Powershift program (transforming the company's energy matrix into renewable) at Vale;
2019
Between the end of 2019 and the beginning of 2020, Vale conducted a diagnosis of the level of adherence of its risk management to the TCFD guidelines, which can be found summarized in the table below. In addition, it mapped opportunities for improvement and next steps.
2020
In 2020, Vale conducted an analysis of the resilience of its strategy, using the International Energy Agency (IEA) scenarios, to assess the impacts of public policies, market dynamics, technological development and other risks related to the transition to a low carbon economy on our portfolio.
In the case of risks related to climate change, Vale has developed a specific physical risk analysis methodology, the Vale Climate Forecast. This methodology allows the identification of potential operational and financial impacts due to climate variables for all the company's operations, more information is present in the Vale Climate Change Risk Management Report (2020).
To verify Vale's main advances in relation to the recommendations proposed by the TCFD please access our 2022 ESG Databook.
The table below shows Vale's main advances in relation to the recommendations proposed by the TCFD in 2021:
Key elements of the disclosures on climate risks and opportunities recommended by the TCFD
TCFD Recomendation
Disclosure Vale
| Reference |
1. GOVERNANCE - transparency regarding the governance of risks and opportunities related to climate change
1.1. Description of the supervision of the Board of Directors
Sustainability Committee and Board of Directors responsible for validation and monitoring low-carbon strategic guidelines. Compliance and Risk Committee incorporates climate in its analyses.
Chapter “Governance” of the Integrated Report 2020. CDP question C1.1.
1.2. Role of executives in mapping and managing the agenda
"The Vice-Presidency of Sustainability is the highest governance body for the topic of climate change. It is responsible for proposing policies, plans, projects and goals on climate change for approval by the Executive Committee, as well as implementing policies and guidelines established by the Board of Directors. It is also responsible for evaluating, monitoring and communicating to the Board of Directors the performance, risks and opportunities for Vale in relation to climate change. Also at the executive level, the company created the Low Carbon Forum, a group led by the CEO and composed of executive directors and their technical teams. The initiative reflects the engagement of senior leadership on the topic, helps to monitor performance in relation to the commitments assumed, and boosts constant advances in Vale's climate agenda. The meetings take place monthly, with ample participation of leaders and technical teams that deal with the topic on a daily basis.
In 2021, the targets related to the climate agenda represent 5% of short-term remuneration (10% related to Sustainability) for all Vale employees and 6% of long-term remuneration (20% related to ESG) for all Vale leadership, including the President and Executive Committee. A target consisting of greenhouse gas emission indicators, forest recovery and protection, and renewable energy assurance has also been tied to long-term leadership remuneration. The corporate areas, which work on climate change, and the operational areas, which implement the decarbonization strategy also have targets linked to variable, additional and specific remuneration for project implementation, emissions management and/or risk management associated with climate change.
Sounding Panel, an advisory board within the Executive Board composed of global ESG experts."
In 2021, the targets related to the climate agenda represent 5% of short-term remuneration (10% related to Sustainability) for all Vale employees and 6% of long-term remuneration (20% related to ESG) for all Vale leadership, including the President and Executive Committee. A target consisting of greenhouse gas emission indicators, forest recovery and protection, and renewable energy assurance has also been tied to long-term leadership remuneration. The corporate areas, which work on climate change, and the operational areas, which implement the decarbonization strategy also have targets linked to variable, additional and specific remuneration for project implementation, emissions management and/or risk management associated with climate change.
Sounding Panel, an advisory board within the Executive Board composed of global ESG experts."
" Chapter “Climate Change” and “""Relationship with Stakeholders"""" of the Integrated Report 2021; CDP questions C1.1 and C1.2."
2. STRATEGY - current and potential impacts on the company’s business, strategy and financial planning
2.1. Transparency on risks and opportunities identified in the short, medium and long term
Transition climate risks: Regulatory and Legal (changes in policies to restrict emissions or adaptation requirements to the effects of climate change, imposing costs to emitters, carbon pricing, litigation for non-compliance with policies to mitigate climate impacts); Technological (replacement of products and/or processes by more efficient and/or current technologies); Market (changes in supply and demand due to alternative products); Reputation (perception of consumers and investors on the company's adherence to transition to a low carbon economy). Physical risks: Direct damage to assets and indirect impacts on the supply chain caused by floods, droughts, incidence of strong winds and higher incidence of atmospheric discharges. The causes are related to climate change and physical impacts are operational risks. 67% of Vale's assets were analyzed as exposure to physical risks arising from climate change. Publication of the Climate Change Report aligned with the TCFD in 2021. Implementation of the "Vale Climate Forecast" Methodology and mapping of physical risks for operations in Canada.
2.2. Impact of identified themes on portfolio and strategy
Transition risks could lead to increased costs, reduced market share and profitability. Physical risks eventually negatively impacting the company through operational interruption, increased costs, and reduced revenues.
2.3. Business Resilience to Climate Scenarios
"As the TCFD itself suggests, in 2020 the company conducted an analysis of the resilience of its portfolio to climate change scenarios, based on the International Energy Agency (IEA) scenarios, which are recognized by the industry and have international support.
The different supply and demand behaviors in the three IEA scenarios result in changing competitiveness dynamics that affect the long-term price of Vale's main commodities and its strategy.
For the company, the Current Policies Scenario impacts, in part, its value-generating capability. Besides the higher exposure to physical risks, the Current Policies Scenario (CPS) does not consider the opportunity for renewable growth, electrification of transportation and the need for decarbonization of steel, all of which are key parts of Vale's strategy today.
The Sustainable Development Scenario (SDS), in turn, creates an ecosystem that encourages the company's growth options and amplifies the relevance of its strategic pillars, which are base metals transformation and maximization of iron ore flight-to-quality.
The coal asset is negatively impacted in the Stated Policies Scenario (STEPS) and SDS scenarios, but is not representative in the consolidated result. On the path to carbon neutrality, Vale has evaluated its asset portfolio and announced in early 2021 the disinvestment of its coal business, which had its sale announced in December 2021. The responsible disinvestment of Moatize and CLN benefits the communities and governments where these operations are located and offers a sustainable future for operations. At the same time, the disinvestment was aligned with the company's focus on prioritizing its core businesses, its ESG agenda and a way to mitigate its exposure to transition risks.
Under a variety of climate change scenarios, Vale's EBITDA performs in a range of 90% to 140% relative to the base case used in our strategic planning. This resilience is the result of a flexible portfolio, able to adapt to different market conditions and has a strategic positioning well aligned with the trends of transition to a low-carbon economy.In 2022, Vale will update its scenario analysis, adding a scenario in which the global temperature increase is limited to 1.5 °C."
The different supply and demand behaviors in the three IEA scenarios result in changing competitiveness dynamics that affect the long-term price of Vale's main commodities and its strategy.
For the company, the Current Policies Scenario impacts, in part, its value-generating capability. Besides the higher exposure to physical risks, the Current Policies Scenario (CPS) does not consider the opportunity for renewable growth, electrification of transportation and the need for decarbonization of steel, all of which are key parts of Vale's strategy today.
The Sustainable Development Scenario (SDS), in turn, creates an ecosystem that encourages the company's growth options and amplifies the relevance of its strategic pillars, which are base metals transformation and maximization of iron ore flight-to-quality.
The coal asset is negatively impacted in the Stated Policies Scenario (STEPS) and SDS scenarios, but is not representative in the consolidated result. On the path to carbon neutrality, Vale has evaluated its asset portfolio and announced in early 2021 the disinvestment of its coal business, which had its sale announced in December 2021. The responsible disinvestment of Moatize and CLN benefits the communities and governments where these operations are located and offers a sustainable future for operations. At the same time, the disinvestment was aligned with the company's focus on prioritizing its core businesses, its ESG agenda and a way to mitigate its exposure to transition risks.
Under a variety of climate change scenarios, Vale's EBITDA performs in a range of 90% to 140% relative to the base case used in our strategic planning. This resilience is the result of a flexible portfolio, able to adapt to different market conditions and has a strategic positioning well aligned with the trends of transition to a low-carbon economy.In 2022, Vale will update its scenario analysis, adding a scenario in which the global temperature increase is limited to 1.5 °C."
3. RISK MANAGEMENT - process of identification, evaluation and management of corporate risks
3.1. Process for mapping and assessment of climatic risks
"At Vale, the identification and analysis of climate change risks are part of the company's corporate risk management process. The Executive Risk Committee – Sustainability, Institutional Relations and Reputation continuously monitors risks related to climate change and reports them to the Sustainability Committee. The main tools used by Vale to identify risks and opportunities arising from climate change are:
1. Analysis of climate change scenarios and Vale Climate Forecast, with robust methodologies for analyzing risks and opportunities related to climate change. For example, the Vale Institute of Technology has regionalized (downscaled) the global warming models referenced by the Intergovernmental Panel on Climate Change (IPCC) for the Brazilian reality. This allowed Vale to identify changes in rainfall regimes and volumes and temperature variation for all operations in Brazil. The RCP 4.5 and 8.5 models were regionalized.
Based on scenario studies by the Intergovernmental Panel on Climate Change (IPCC), Vale developed, in partnership with the Vale Institute of Technology, the Vale Climate Forecast, a methodology for analyzing risks and opportunities related to climate change. The Vale Climate Forecast enables:
2. Monitoring the external environment, including new regulatory frameworks, emerging technologies, market dynamics and public policies – the company internally consolidates a Monthly Climate Intelligence Bulletin, which maps the most relevant news to the climate agenda.
3. Engagement with stakeholders in key industry forums to monitor new positioning, trends and regulations."
1. Analysis of climate change scenarios and Vale Climate Forecast, with robust methodologies for analyzing risks and opportunities related to climate change. For example, the Vale Institute of Technology has regionalized (downscaled) the global warming models referenced by the Intergovernmental Panel on Climate Change (IPCC) for the Brazilian reality. This allowed Vale to identify changes in rainfall regimes and volumes and temperature variation for all operations in Brazil. The RCP 4.5 and 8.5 models were regionalized.
Based on scenario studies by the Intergovernmental Panel on Climate Change (IPCC), Vale developed, in partnership with the Vale Institute of Technology, the Vale Climate Forecast, a methodology for analyzing risks and opportunities related to climate change. The Vale Climate Forecast enables:
- Very short-term and short-term analysis and seasonal forecasting for physical risks, with the main focus on preventing impacts on the operation and shipment of products;
- Assessment of physical risks and their long-term impacts to identify necessary investments in facilities – for climate change adaptation and/or mitigation.
2. Monitoring the external environment, including new regulatory frameworks, emerging technologies, market dynamics and public policies – the company internally consolidates a Monthly Climate Intelligence Bulletin, which maps the most relevant news to the climate agenda.
3. Engagement with stakeholders in key industry forums to monitor new positioning, trends and regulations."
Chapter “Climate Change: Risks and Opportunities in Climate Change” of the Integrated Report 2021; ESG Portal - Climate Change; CDP questions 2.2., Climate Change Report, 2021. Implementation of the "Vale Climate Forecast" methodology and operational risk mappings for operations in Canada and the Northern Corridor.
3.2. Climate risk management process
"The main climate risks are inserted in the company's risk management process, through analysis by the Executive Risk Committee and reporting to the Board of Directors. In addition, the monitoring of the main risks is also reported within the Low Carbon Forum.
From changes in rainfall and temperature patterns, it was possible to identify the main vulnerable assets and potential changes in the intensity and frequency of operational risks previously identified by the company's risk management process.
For the transition risks, analyses of the strategy's resilience, financial impacts, in the face of different climate change scenarios, in addition to periodic regulatory monitoring, were elaborated.
Carbon pricing is one of the internal tools for managing the transition risk. The use of the US$50/tCO2e shadow price is in line with what is required to limit the temperature increase to less than 2°C and with the recommendation of the Carbon Pricing Leadership Coalition (CPLC). Internal pricing is integrated into the decision-making process to guide our capital allocation, enabling and accelerating the transition to a carbon neutral economy. It is integrated to the economic-financial feasibility analysis of capital projects and current projects (sustaining), within the budget and strategic planning cycles as of 2020.
For physical risks, their management takes place via the Vale Climate Forecast Methodology, which was implemented in 2021 in the Canada and Northern Corridor operations. This risk mapping and identification process was then integrated into corporate risk management and evaluated according to their severity and probability of occurrence."
From changes in rainfall and temperature patterns, it was possible to identify the main vulnerable assets and potential changes in the intensity and frequency of operational risks previously identified by the company's risk management process.
For the transition risks, analyses of the strategy's resilience, financial impacts, in the face of different climate change scenarios, in addition to periodic regulatory monitoring, were elaborated.
Carbon pricing is one of the internal tools for managing the transition risk. The use of the US$50/tCO2e shadow price is in line with what is required to limit the temperature increase to less than 2°C and with the recommendation of the Carbon Pricing Leadership Coalition (CPLC). Internal pricing is integrated into the decision-making process to guide our capital allocation, enabling and accelerating the transition to a carbon neutral economy. It is integrated to the economic-financial feasibility analysis of capital projects and current projects (sustaining), within the budget and strategic planning cycles as of 2020.
For physical risks, their management takes place via the Vale Climate Forecast Methodology, which was implemented in 2021 in the Canada and Northern Corridor operations. This risk mapping and identification process was then integrated into corporate risk management and evaluated according to their severity and probability of occurrence."
Chapter “Climate Change: Risks and Opportunities in Climate Change” of the Integrated Report 2021; ESG Portal - Climate Change; CDP question 2.2. Climate Change Report, 2021."
3.3. Integration into the corporate risk management process
At Vale, the identification and analysis of climate change risks are part of the company's corporate risk management process. Climate risks mapped by the different areas in the ambit of Corporate Risk Management (GRC), and included in the operational and business risk matrices regulatory and physical risks are included in the risk factors mentioned in the 20F report. Periodically, material risks and opportunities are presented to the Executive Risk Committee for analysis and quarterly reporting to the Board of Directors. The Executive Risk Committee – Sustainability, Institutional Relations and Reputation continuously monitors risks related to climate change and reports them to the Sustainability Committee. It acts in the second line of defense, continuously evaluating the process of managing the risks and opportunities of climate change. The main results are also presented at the Low Carbon Forum.
Chapter “Climate Change: Risks and Opportunities in Climate Change” of the Integrated Report 2021. Publication of the Climate Change report, 2021.
4. METRICS AND GOALS
4.1. Metrics Reporting used to monitor climate risks and opportunities
- "Absolute emissions and intensity;
- Energy consumption, intensity and matrix profile;
- Water and land use.
- Percentage of assets analyzed to identify physical risks related to climate change, following the ""Vale Climate Forecast"" methodology, percentage of assets with high exposure to transition risks, percentage of assets with high exposure to climate opportunities.
- Expenditures aimed at reducing emissions totaled US$ 187 million in 2021 and cover energy efficiency projects, renewable electricity, biofuels, electrification and innovative technologies."
Chapters ""Climate Change: Greenhouse Gas (GHG) Emissions"", ""Climate Change: Energy and Energy Efficiency"", ""Biodiversity"" and ""Eco-Efficiency: Water Resources"" of the Integrated Reporting 2021; ESG Portal; CDP questions C5., C6., C7., C8 and C9. Climate Change Report, 2021."
4.2. Transparency regarding scopes 1, 2 and 3 emissions
Reporting of absolute Scope 1, 2 and 3 emissions in the Integrated Report, on the ESG Portal, in Vale's response to the CDP Questionnaire and in the ESG Databook. Reported emissions do not include any type of offsetting.
Chapters ""Climate Change: Greenhouse Gas (GHG) Emissions"" of the Integrated Reporting 2021. ESG Portal - Climate Change. CDP questions C5, C6 and C7."
4.3. Setting goals clearly
The goals remained the same as in 2019 and 2020.
[1] CEBDS - Brazilian Business Council for Sustainable Development
[2] WBSD- World Business Council for Sustainable Development
[3] IA- International Energy Agency
[4] The greenhouse gases (GHG) considered under this policy are: CO2, CH4, N2O, HFC, PFC, SF6 and NF3. From now on, they will be called "emissions"; "carbon"; or GHG.
[5] The Vale Technological Institute regionalized (downscalling) the global warming models referenced by the Intergovernmental Panel on Climate Change (IPCC) for the Brazilian reality. This allowed Vale to identify rainfall regimes changes and volumes and temperature variation for all operations in Brazil. Models RCP 4.5 and 8.5 were regionalized. Based on changes in rainfall and temperature standards, it was possible to identify the main vulnerable assets and potential changes in the intensity and frequency of operational risks previously identified by the company's risk management process.
[2] WBSD- World Business Council for Sustainable Development
[3] IA- International Energy Agency
[4] The greenhouse gases (GHG) considered under this policy are: CO2, CH4, N2O, HFC, PFC, SF6 and NF3. From now on, they will be called "emissions"; "carbon"; or GHG.
[5] The Vale Technological Institute regionalized (downscalling) the global warming models referenced by the Intergovernmental Panel on Climate Change (IPCC) for the Brazilian reality. This allowed Vale to identify rainfall regimes changes and volumes and temperature variation for all operations in Brazil. Models RCP 4.5 and 8.5 were regionalized. Based on changes in rainfall and temperature standards, it was possible to identify the main vulnerable assets and potential changes in the intensity and frequency of operational risks previously identified by the company's risk management process.
Goals and Deadlines
Our next steps to evolve in the theme and in line with our commitments are:
- Conduct an strategy evaluation to achieve the neutrality, involvin forest assets, carbon credits, compensation, among others, with completion forecast for 2021;
- Conduct extensive carbon pricing training for capital project leaders, budgeting and planning teams;
- Update a scenario analysis by the strategic planning team.
Analysis of strategy resilience regarding climate change scenarios
Vale, aligned with the TCFD recommendations, analyzed the resilience of its strategy regarding the climate change scenarios. Click here to access the report with the analysis and results.
Management of Risks related to Climate Changes at Vale
Short-Term Horizon
The Climate Change & Carbon directory is responsible for the assessment of the climate change’s R&O based on the business strategic planning, risk management processes, and regulation monitoring. Therefore, for strategy and climate change analysis, Vale considers 3 years as short-term.
Vale’s short-term horizons include risk factors related to the increase in the intensity of and frequency flood-causing rains, which can lead to operational stopages and material environmental impacts; increase ore humidity impacting transportation; and operational accidents (such as train derailment, flooding, equipment damage, etc). In this regard, Vale's methodology for managing physical risks related to climate change allows for short-term analysis and seasonal forecasts, with the focus on impacts on our operations and product shipment. The analysis of short-term climate risks enables the inclusion of climate variables in the decision-making processes of Vale’s operations systematically and generates a higher control against the impacts of climate change.
Medium-Term Horizon
For the climate change area, the medium-term is equivalent to 10 years. Medium-term horizons are likely to include risk factors related to regulatory risks such as: i) changes in policies to restrict emissions or adapt to the effects of climate change, imposing costs on issuers, for example more stringent emission regulations and carbon pricing, e.g., carbon boarder taxes, and country-specific carbon pricing policies that will affect margins for carbon intensive businesses; and ii) market risks such as reduction in demand for thermal coal due to the energy transition and consequential substitution of the fossil fuel by renewables, also changing the met coal market dynamics due to the necessity of low-carbon products for steel industry decarbonization.
Long-Term
Vale considers 11 years or more as long-term. For instance, Vale the company conducted a business resilience test in the various climate change scenarios for a twelve-year horizon (until 2030), with the aim of being prepared for the challenges of the transition to a low carbon world.
Long-term analysis includes for physical risk chronic and acute risks are considered such as shifts in climate patterns (e.g., sustained higher temperatures). For example:
- Changes in precipitation patterns and extreme variability leading to increased operating costs.
- Sea-level rise impacting production and distribution of the ore, leading to losses.
Event-driven, including increased severity of extreme weather events, such as cyclones, hurricanes, or floods.
The long-term analysis for physical risks associated with climate change are focused on identifying necessary investments in facilities to adapt to and/or mitigate impacts due to climate change Additionally, Vale is mapping key emerging long-term risks that embed transition risks to a low-carbon economy. These risks are those related to technological, market, regulatory and legal or reputational aspects and includes: a) Product substitution due to new technologies and processes may result in the advent or discontinuation of some products in our portfolio; b) Alterations in demand, specifically for low carbon products, may impact our business, according to the scenario variation; c) Changes in public policies, including carbon taxation, may impose higher costs on emitters, which impacts the cost of our products; d) Litigation may occur as a result of more restrictive laws and reputational impacts due to consumer and investor perceptions about Vale’s approach to the transition to a low carbon economy.
Click here to access the report with Vale's analysis and initiatives for the risks management related to climate change.
CDP
CDP is a British NGO that aims to make companies more transparent regarding climate change theme management and on the business' risks and opportunities related to climate change. We respond to the CDP Worldwide questionnaire annually since 2003.
In 2018, CDP adapted the questionnaire to the TCFD recommendations and, as we understand the complexity of the challenge for all adjustments to this new type of reporting, we maintain our publications and are promoting a series of internal actions that lead us to better management and efficiency.
A paragraph is a self-contained unit of a discourse in writing dealing with a particular point or idea. Paragraphs are usually an expected part of formal writing, used to organize longer prose.
Carbon pricing
Vale acknowledges the climate change as one of the biggest challenges of society, and since 2008, periodically updates its Global Climate Change Policy, which defines the corporate guidelines, commitments and targets to ground Vale Net-Zero Strategy.
Carbon pricing consists of attribution of a price to compensate the negative impacts caused in the life cycle of the economic activities that generate greenhouse gas emissions (GHG). It is based on the pollutant-payer principle, which says that the polluting agents should cover the costs for the damage repair of their activities. This payment is made by means of carbon pricing mechanisms, and the most common ones are the carbon markets (emission trading system – ETS) and carbon taxes. (CDP and CEBDS, 2015)¹.
- Carbon Markets: an economic instrument, where a cap is set for the GHG emissions and there is allocation of rights or allowances to emit until achieving the threshold set by the jurisdiction (country, province or region). This allocation can be done by means of free distribution [2] of the permits and/or by means of auctions (current scenario of the European Union). Thus, a market for trading of permits is created, called Emissions Trading System (ETS), where the companies that emit quantities lower than their cap can sell such permits to companies that emit above their cap. The carbon price is defined by the market (offer and demand), but many governments set a minimum price to regulate the market. This instrument is also called carbon market or cap and trade.
- Carbon Taxes: it consists of charging a fixed price per emission unit (ex.: reals or dollars per metric ton of carbon dioxide emitted). This fee is paid to the government, serving as a carbon tax. In this instrument, there are no emission limitation, but the fee value is calculated in a way to achieve the socially optimal level of emissions. This optimal level represents the point, in which global heating is contained within the limit set forth in the Paris Agreement (below 2°C), assuring the highest possible level of well-being to the society.
Currently 22% of the global emissions are priced, according to the report of the World Bank “State and Trends of Carbon Pricing 2020”. Until mids 2020, 63 carbon pricing initiatives have already been implemented or planned 2, 31 of which consisted of carbon markets and 30 of carbon taxes. Totally, 46 in national and 32 in sub-national level jurisdictions participated in these pricing initiatives. However, almost half of these emissions are priced at prices under US$ 10/tCO2e.
Source: World Bank, Carbon pricing dashboard. Link: https://carbonpricingdashboard.worldbank.org/
Vale is subject to carbon pricing in its operations in countries, such as Canada, at the national and regional level (Ontario, Manitoba and Newfoundland), the United Kingdom and Japan. In Brazil and Indonesia, carbon pricing is still under consideration.
Vale follows up the trends and the studies on climate changes in global forums, which aim to define regulatory and economic strategies to mitigate risks and encourage prioritization of investment in innovative technologies with lower emission worldwide.
Our teams monitor the development of the regulations and support the elaboration of climate policies on carbon pricing as a way to stimulate transition to a low-carbon economy. We understand that the economic instruments, such as carbon pricing, are the most indicated to deal with reduction of the greenhouse gas (GHG) emissions, once they met the environmental goals at lower cost for the society (cost effectiveness).
Therefore, we support external opinions of institutions, such as CEBDS, a branch of WBCSD in Brazil, Carbon Pricing Leadership Coalition, a group of the World Bank, which leads discussions about carbon pricing in companies, among other institutions.
The purpose of the adoption of internal carbon price by Vale is to encourage investments in GHG reduction until anticipating most restrictive regulations in terms of emissions.
1 CDP and CEBDS, 2015. “Navigating the carbon pricing scenarios: A practical guide on its different mechanisms, applications and tools to adapt the business strategy".
[2] Using the grandfathering criteria based on historical emission, or benchmarking based on reference index for the sector.
2 It is considered an initiative with planned implementation when it is formally adopted by means of legislation and there is an official start date.
[2] Using the grandfathering criteria based on historical emission, or benchmarking based on reference index for the sector.
2 It is considered an initiative with planned implementation when it is formally adopted by means of legislation and there is an official start date.
Internal carbon price at Vale
One of the internal tools adopted to operationalize the Vale Net-Zero Strategy is carbon pricing, recently implemented at Vale. At the end of 2019, Vale adopted an internal carbon price (shadow price) of 50 dollars per ton of CO2 equivalent (US$50 / tCO2eq). This price is aligned to the temperature targets of the Paris Agreement, according to the recommendations of Carbon Pricing Leadership Coalition (CPLC)³.
Carbon pricing is a tool used in order to make Vale's emission reduction and neutrality targets feasible. To price carbon means to attribute a monetary value to greenhouse gas emissions (GHG). For companies, an internal carbon price enables evaluation of the financial impact of the low-carbon strategy and anticipation of potential regulatory risks related to emission restrictions.
In June 2020, the use of the internal carbon price in economic-financial analysis of new investments started. The association of cost to the greenhouse gas emissions in the feasibility analysis enables explaining the impact of the emissions on the project valuation at the time of decision, making the projects from the Carbon Target portfolio feasible. Thus, the carbon price starts supporting the risk and opportunity assessment, selection and prioritization of projects, contributing to Vale's decarbonization trajectory. It shall be pointed out that Vale also elaborated its marginal discount curve by means of which it prioritizes the most cost-effective emission reduction initiatives, having the internal carbon price of 50 dollars as a reference.
Technical sheet on internal carbon pricing at Vale:
|
Value
|
Approach used
|
Application
|
|---|---|---|
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US$50 / tCO2-eq
|
Shadow Price
|
|
|
US$10 / tCO2-eq
|
Shadow Price
|
|
For the prices US $ 50 / tCO2eq and US $ 10 / tCO2eq, stands out:
Goals
- Achievement of reduction (scopes 1 and 2) and neutrality targets
- Cost-benefit analysis of mitigation options
Scopes
- Scope 1 and Scope 2
- Not applicable to Scope 3
Indicators
- GHG emissions of the operation phase of the projects and the native vegetation removal
- Emission Cost
- NPV (Net Present Value) with and without carbon
- IRR (Internal Return Rate) with and without carbon
- Marginal Abatement Cost
For implementation of the internal carbon pricing methodology at Vale, numberless internal trainings were done for the project leaders, budget and strategic planning teams, as well as review of instructions, procedures and tools in the project and budget areas. Vale also prepared a carbon pricing manual to support the project leaders and developers when applying this tool.
Quantification of GHG emissions of projects and investments is the first step for carbon pricing. As of the accounting of the carbon from the projects, carbon is monetized and the emission cost is included in the project financial indicators and results. The main stages of this methodology are:
³Source: CPLC, Report of the High-Level Commission on Carbon Prices, May 29, 2017.
External Engagement
We follow trends and studies related to climate change in global forums that aim to define regulatory and economic strategies for mitigation and adaptation worldwide. In Brazil, we participate in discussions on the theme, collaborating on policies and strategies aimed at transitioning to a resilient and low-carbon economy.
Examples of relevant agreements and initiatives on climate change in which Vale participates:
Carbon Pricing Leadership Coalition
Brazilian Business Council for Sustainable Development (CEBDS - Conselho Empresarial Brasileiro para o Desenvolvimento Sustentável)
International Council of Mining and Metals
WBCSD (World Business Council for Sustainable Development)
Task Force on Climate-Related Financial Disclosure
CDP Worldwide
Policies and Procedures
Vale's strategy on climate change is based on the “Climate Change Policy,” which has the following strategic guidelines:
GHG emission reduction
Protection and reforestation
Renewable energy
Energy efficiency
Portfolio
The Policy defines principles and commitments on fighting climate change for the Company and its subsidiaries, regarding:
Mapping opportunities and risks related to climate change
Implementation initiatives that Vale's internal efforts to reduce and neutralize emissions
Engagement and establish partnerships in search of transformative solutions for a carbon-neutral economy, especially in the production of steel and base metals
Monitor, evaluate and disseminate the climate change strategy's performance in Vale's Reports and communication channels
Business Case
Battery Use - Ilha Guaíba Terminal (TIG)
Vale is installing at Ilha Guaíba Terminal (TIG), in Rio de Janeiro, one of the country's largest battery energy storage systems to supply electrical demand. The system, installed in partnership with MicroPower Comerc (MPC), consists of lithium-ion batteries manufactured by Tesla. The initiative is an important step in Vale's strategy to replace fossil fuels.
The BESS (Battery Energy Storage Systems) system, which is being developed in partnership with Siemens and MicroPower Comerc (MPC), will reduce the electric energy cost of the port by almost 20% by substituting the electrical grid supply during peak demand periods when the tariff is more expensive - known as Peak Shaving. The equipment has a storage capacity of 10 megawatt-hours, which is enough energy to power 45,000 homes for one hour.
With the cost reduction, BESS will bring gains to Micropower, savings to Vale, and free capacity for the local electrical grid. MPC will also be responsible for the operation of the equipment.
100% eletric locomotive
Vale, in partnership with Progress Rail - a company of the American group Caterpillar -, is developing a new 100% electric, battery-powered switchyard locomotive. In addition to significantly reducing greenhouse gas emissions by replacing diesel fuel with sustainable electric energy, the equipment also reduces noise emission, which mitigates its impacts on the communities surrounding Vale operations.
The pilot-phase for EMD® Joule locomotive is expected to be launched in this second half of 2020, at Tubarão Unit (in Vitória, in the state of Espírito Santo). The equipment is under the construction phase at the Progress Rail's industrial plant in Sete Lagoas (Minas Gerais state). EMD® Joule's batteries will provide a 1.9 MWh storage capacity, expandable to 2.4 MWh, which means being able to operate up to 24 hours with no need to recharge.
This 100% electric switchyard locomotive is part of the PowerShift Program to replace Vale's energy sources with clean ones.
Autonomous Truck
Huge 240-tonne off-highway trucks travel on the roads of a large mining area without a cab operator. Controlled only by computer systems, GPS, radar and artificial intelligence, vehicles move efficiently between the mine front and the unloading area. Autonomous trucks are a reality at Brucutu mine, in the state of Minas Gerais, Brazil. The autonomous operation of iron ore transportation has a higher productivity, generates less wear on parts and extends equipment life by 15%. The initiative has great importance to the Company’s ability to reduce both emissions and fuel and to decrease CO2 particulate emissions.
PowerShift
Vale has created an internal program called PowerShift to support its sustainability goals, focusing on the transition to a low-carbon economy. The program aims to make the Company's energy matrix clean by focusing on the use of renewable energy and alternative fuels, greater efficiency of operations using new technologies, and forest promotion. PowerShift-linked initiatives are expected to contribute approximately 40% of Vale’s planned reductions to help us reach the United Nations 2030 Agenda target.
Sentinela Project – Artificial Intelligence
Vale's AI Centre, located in Vitória in the state of Espírito Santo, has been developed in partnership with researcher Ali Soofastei from the University of Queensland in Australia. It is a new tool that uses artificial intelligence for better off-highway truck operation. The tool offers the best speed option for the least fuel consumption on the vehicle operator panel.
This technological solution was tested on 50 trucks in Itabira, Minas Gerais, resulting in a reduction of 585 thousand liters of diesel consumption and generating savings of R$1.8 million. In terms of environmental impact reduction, the reduction in diesel consumption prevented the emission of 1,500 tonnes of CO2. This is the equivalent of planting 3,000 trees in the Atlantic Forest.
Perspectives
Vale is constantly evolving its climate change risk management guidelines. In 2018, we collaborated with an external consultancy to survey and detail the impacts of this theme on the Company's long-term strategy. The results of this work will allow us to refine, over the next cycle, our climate change management by focusing on identifying risks and opportunities.