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:
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 2021, Vale’s activities resulted in 505.3 million tonnes of CO2
equivalent. From this amount, more than 97% 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
The direct Scope 1 emissions (fuels, industrial processes and other
minor sources) and indirect Scope 2 market-based emissions (electricity
purchase) totaled 10.2 million tons of CO₂e in the period, an increase
of 2% when compared to 2020 and reduction of 24% when 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 495 million tons of
CO₂e, representing na increase of 3% compared to 2020, and a reduction
of 15% 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 carbon neutral 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 carbon neutral 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
Plans to reach the 2030 goal
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 35 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. In 2020,
we spent approximately US$ 81 million with
climate change initiatives.
Investments in 2020 encompasses a series of initiatives related to
three main solution routes:
-
Energy efficiency and renewable electricity
-
Biofuels
-
Electrification and breakthrough technologies
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.
¹Amounts will be updated in February 2021, after year-end results of
the company are released.
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 carbon
neutral 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.
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
Risks and opportunities related to climate change are the responsibility
of the Sustainability Department and are identified based on strategic
business planning, existing risk management processes and regulatory
environment monitoring. These topics are periodically presented to the
Risk Management Executive Committee, where they are reviewed for
quarterly reporting to the Board of Directors and published in the
Annual Report and the Sustainability Report. Identified risks are
monitored and reviewed annually if no material change occurs during the
year.
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:
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.
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
Direct damage to assets and indirect impacts on the supply chain
such as floods, droughts, etc.
Vale methodologies for climate change risks and opportunities
Regulatory 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).
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."
|
" 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."
|
|
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:
-
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."
|
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. |
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."
|
" 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."
|
|
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:
-
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."
|
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.
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
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.
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.
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.
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 |
|
|
|
US$50 / tCO2-eq |
Shadow Price |
-
Economic-financial analysis of investments (Current and
Capital)
- Marginal Abatement Cost Curve (MACC)
- Project prioritization
|
US$10 / tCO2-eq |
Shadow Price |
-
Economic-financial analysis of forest carbon projects
|
For the prices US $ 50 / tCO2eq and US $ 10 / tCO2eq, stands out:
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:
Policies and Procedures
Vale's strategy on climate change is based on the
“Climate Change Policy,” which has the following
strategic guidelines:
The Policy defines principles and commitments on fighting
climate change for the Company and its subsidiaries, regarding:
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.