Good morning, ladies and gentlemen. Thanks for joining us on a Friday. Hopefully we'll have a good conversation later on. Some of you may know me. I'm John Moffat. I'm a non-executive director at BHP. Most of my career before that was with BP. I left before Macondo, before anybody kind of joins the dots. I ran safety and operations for quite a bit of time. I worked around the world with BP. I ended up running the refining business. I was mainly in the upstream business, so around the North Sea, things like that. One of the reasons I joined BHP was because I really like the values of the company. I think BHP is committed to HSE, committed to transparency and sustainability in its broadest sense. That was one of the reasons why I joined the board.
I'm really pleased I'm on the main board. I'm also on the sustainability committee, which is why I'm here with you today. I think too often some of the technical functional issues in sustainability kind of get delegated down to the technical professionals. At BHP, we think it's really important this is on the board agenda. It's part of our business conversations. That's why I'm here today. I've worked around the world and seen the impact of mismanagement of water when I was in BP and in water-stressed areas. I worked in the Arctic, I worked in the North Sea, where a lot of the issues about produced water and what you do with it.
Also at a different extent, I've negotiated in Papua New Guinea with tribesmen for access to their water, where it's really important that if you don't have water, you can't drill oil wells, you can't mine commodities. Actually seeing how dependent these people are on water sources in local communities, it stresses to me just the range of water issues we deal with in the resources industry, from the huge macro issues down to the smaller issues. I've visited a lot of our sites. I've been to Western Australia, I've been to Olympic Dam. I'm off down to Chile next month, trying to understand a lot of the issues. The board at BHP, I have to say, tries to stay connected with the business and see what's going on on the ground.
Issues like water, climate, safety are issues that sustainability committee goes out to site, talks to our frontline supervisors. Are we actually doing what we say we're supposed to do? I can stand here with a bit of comfort that what we're going to talk to you about today is actually around the company. BHP relies on water to operate. Water, as we all know, is a shared resource. It's getting more and more important. It's getting more and more in public awareness. For that reason, last year, we approved internally a strategy for water management. Erika is going to talk to you about that in detail today. What I would like to say is that forecasts are that there'll be a 40% gap in water by 2030 by the World Economic Forum. For us, we think this is a journey.
All journeys start with small steps. What we're trying to do is at the moment do three things. One is to improve our understanding of, and therefore the management of water. Second is to improve our transparency, because we think that holds us to account, actually, for doing that. Third, to actually really get our teeth into and address some of the shared challenges that we face around our operations. Erika, as I say, will talk you through that. There's lots of vignettes in the report, lots of numbers, but this is the start. This is the first year for us. Sometimes it's good to be out in front, sometimes it's not so good. If we make some mistakes, please forgive us, because at least we're trying. As I say, transparency, and that's why we're here today.
You are people who have shown an interest in this subject. We'd sooner have people interested in it than disinterested in it, because again, that helps us do what we would term the right thing, whatever that is. Erika, over to you. There'll be time for question and answers afterwards. Over the next year as we go through this process, we'll be looking for comments on this. I'll hand it over now, and Erika will lead you through the meat of the discussion.
Thank you, John. My name's Erika Korosi. I lead our water stewardship work across BHP globally. Just for some background for yourselves, I've had a range of experience from working within our operations to corporate-level activities ranging from, I guess, core business through to our business improvement activities across climate change, broader sustainability, tailing dams and now water. What I'd like to talk to you today about is really, I guess, firstly, a little bit of context on our water stewardship journey to date and our water stewardship strategy. Secondly, I will go into the report in some depth to provide you with an indication of some of the highlights, some of the key content. Thirdly, really would welcome open discussion and feedback, and I would ask, please don't feel compelled to wait till the end of the presentation.
If you have a burning question, please feel free to raise your hand at any time, and as James has already highlighted, we'll make sure a mic comes to you, and you can ask that question given this is being recorded. Just to reiterate some of John's comments as well. A key point, initial starting point is the recognition that water is critical to our business, but also a shared resource, and that's one of the differentiators that I'll be talking to as I discuss our water stewardship strategy that is different to some of our broader other strategies such as climate change. In regards to our business, we do recognize we have a varied ranging nature of water-related risks, and these are very dependent on the context where we operate as well as the nature of our operations.
For example, at our copper mines in the Atacama Desert of Chile, they're obviously in a very water-scarce region. Water scarcity is a significant issue and water security that our business needs to manage for. In contrast, while our iron ore operations are within a relatively arid area, they actually have quite abundant groundwater supplies. One of the key operational issues they have to manage for is actually that of water excess as a result of having to mine underneath the water table in those regions. Our coal operations in Central Queensland have another issue that's very context-dependent, and that's the issue of water variability, where they range from water scarcity at times during drought to what you can see here is water excess during significant rainfall events.
Finally, we also have a portfolio of closed mines, and in that context, we're dealing with legacy issues, often as a result of historic mining practices, where the accumulation and impacts on water quality create some long-term issues that we need to manage. The other aspect that is quite unique for our business is the fact that we're place-based, given the nature of where our resources are located for a long-term and a long amount of time. That means we have a long-term interest in the shared water resources that we utilize in conjunction with our neighboring communities. As a result of this, while water stewardship isn't necessarily something new for our business, it is certainly something that we understand we need to do more about.
That's particularly given the context of climate change, given the context of changing societal expectations, and knowing that this is necessary for the long-term sustainability of our business. Now, for those of you who may not be very familiar with some of the terminology as we talk about water, one of the key concepts that we discuss is the water catchment or the water basin. This is basically the geographic boundaries that define how water is captured and managed within a watershed. One of the important factors within that is these watersheds, catchments, or basins, depending on the term you use, are shared with others. It's not just resource extraction activities. It's often agriculture, it's often communities, and government as well, and the environment.
As a result of that, managing water is a very regional issue and it's an issue that requires collaboration across all those stakeholders. That's why this notion of water as a shared resource is fundamental and central to the way we think about water. In consideration of that, we have established our water stewardship strategy. Our strategy is basically based on the premise that we can only create long-term shareholder value if we safeguard the sustainability of our operations in conjunction with the support of our host communities and other stakeholders. This has informed our strategy in the sense that it focuses, as John said, on three core things. Firstly, improvement of our management of water. Secondly, an increase in our transparency. Thirdly, how we then contribute to the resolution of shared water challenges. These are expressed in our five pillars.
The first pillar relates to risk, and risk is essentially, as you'd be aware, a very core management process for BHP. What we're trying to do here is through leveraging and building on our risk processes, make sure that we effectively consider and manage risk and opportunities at not just the operational level, but also the catchment level in the short term and the long term. The second pillar of our strategy relates to technology, and this is really about building long-term business resilience. How can we leverage technology to better manage risk and realize opportunities, not just for our business, but also for those that also utilize these shared water resources? The third pillar is about value.
Again, this is reflecting on some of our core business processes, and it's really trying to answer the question around how can we better value water to best influence our business-related decisions and our investment decisions? How can we work with our investment evaluation teams to either put a price on water or consider that more effectively in our investment decisions? The next pillar is around disclosure, and I'll talk to that specifically today. That is really focused on transparently disclosing our water interactions, risks, and performance, not just at the company-wide level, but at our operating asset levels. Our final pillar is collective action.
What this really is about is about building on the previous four pillars, where we've ideally over time established credibility in terms of how we can manage water so that we can work with others in our broader catchments to influence a better water policy and water governance, which also contributes not just to long-term business resilience for BHP, but also resilience for the broader community. I don't expect you to be able to read this slide. It's quite faint in this room, but this is essentially the roadmap we've established for our water stewardship strategy. It's a strategy that's been recognized as a global priority by BHP. As you've heard from John, it's also a strategy that's received board endorsement. The strategy is a five-year strategy, and it's initially, as I said, focused around getting our house in order.
We've got actions that are embedded within business scorecards that our assets are delivering upon to really get those fundamentals in place in the first instance to address actions around risk management, actions around accountabilities, actions around data, and actions around directional planning that feeds into our broader planning processes. In parallel to those asset actions, we have a suite of actions that we're progressing at the group level. Some of these relate to the establishment of more detailed engineering standards around how we should manage aspects of critical water risk, such as potable water, such as dewatering, such as water data. Others are around our value pillar, where we're working with our investment evaluation teams to answer that question I posed previously around how we better value water. We're also doing some work with Columbia University to help us with informing that position.
We've got the work around disclosure and collective action, which is really that externally orientated work, which I'll talk further to today. The strategy is really focused on, as I said, getting our house in order, embedding that to give us the credibility to advocate for effective water governance more broadly. Feel free if you do have any questions, to stop me. As I said, disclosure is a central pillar of our water stewardship strategy. Why disclosure? What's the value of disclosure? There's really two pieces here. Firstly, disclosure and transparency as a part of disclosure is fundamental for building understanding and holding us accountable for our water performance. Secondly, it's not just about our disclosure. An important piece here, as you'll recall, based on that visual of the water catchment, is that disclosure across all sectors will be critical.
It will be critical so that we get that full picture of water use, water interactions, water risk, so that we can ultimately effectively govern water and ensure the sustainability of that resource. To that end, I guess we've been on a journey of disclosure. It really started off in the early years with our sustainability reports where we've disclosed our water data at a group level for a number of years. We've also reported through CDP Water since its inception. Supporting those disclosures, we've utilized a couple of disclosure frameworks, the key one being an approach to water accounting that was initiated by the Minerals Council of Australia through their Water Accounting Framework. More recently, that has been built upon by the International Council on Mining and Metals in releasing their ICMM Water Reporting Guidelines.
Those guidelines also align with the Global Reporting Initiative, so that we now have a common framework for water accounting across the resource industry. In addition to those, we've also been reporting our public water targets for more than 15 years. Again, disclosure isn't new. It's something we've been doing for a while, but really recognizing that regional nature of water, we recognize we need to do more. We did some benchmarking. We've engaged with both investors and thought leaders in the NGO and other sectors to try and get a sense for where should disclosure on water be heading. Where we've got to with our benchmarking was there really isn't a consensus view on what the future state of water disclosure looks like. That's part of, I guess, the reason we've dipped our toe in the water, so to speak, with this first water report.
We've seen an evolution of water questionnaires over recent years, such as through CDP. We are still hearing from our stakeholders that there's not necessarily sufficient contextual information to appreciate water-related risk, and that it's still challenging to compare data, not just within sectors, but also across sectors for reasons around variations in approaches to water accounting. Further to that, our benchmarking highlighted that really if we're thinking about where disclosure should be getting to, what we should be seeking to do is provide an overarching understanding of approaches to management and stewardship of water. We should be seeking to provide transparency down to that asset or regional level around the physical and sociopolitical nature of risk. We should be providing an understanding of regional water accounts and performance utilizing a common language.
We should also be seeking to disclose our risk exposure, our risk management, and our opportunities, particularly in areas of water stress. Where we're going with this is we see it as a journey. We've started with those group level disclosures that I've mentioned in previous years through our sustainability report. This inaugural water report is the next step on this journey, and we're really keen to have feedback around where that future goes based on what you see in this inaugural report from all our stakeholders, investors, and others, so we can really help steer this more effectively into future years. With that, I'll move into this current water report, but I might just pause. Are there any questions in terms of the context to date? Yes. Just wait for the mic. If you could just introduce yourself. Thanks.
Juan Salazar with BMO Global Asset Management. I was wondering how is this program and strategy being communicated internally, and what actions have you taken or intend to take to ensure accountability?
It's a really good question. I might just quickly flick back to the roadmap slide. In terms of communicating internally, we've done a number of things. Firstly, water stewardship is one of our few global priorities for the organization. That means it's been recognized as one of the key pillars that we're working on across the company. We've established an internal team that's multidisciplinary, and it consists of membership from ourselves within HSE, and we're also leading it, as well as our Resource Centre of Excellence. They're a newly established technical group within the company, and they're very focused on communicating and sharing and leveraging best practice from an engineering perspective and a technical perspective across the organization.
We have our corporate affairs functions involved, legal, and also our investment evaluation and our portfolio strategy and development teams from the planning and from valuation perspectives. That core team is complemented by regional water stewardship working groups that are present across each of our regions as well. They comprise of, again, a multifunctional representation because water is such a multifunctional issue. We've got engineering, HSE, planning, valuation, legal, et cetera, as well as an asset water stewardship champion to represent each of our assets. Supporting that are asset level actions that you can see articulated here that I touched on earlier, have been embedded within our FY 2019 scorecards at the company level, which also cascades down into the business. That's really supporting the drive for our water stewardship actions. I mentioned there's some internal standards we're developing.
They become ultimately part of our core governance requirements internally that are then also audited on. There's a number of levels where we're seeking to influence. Does that help?
Yep.
Okay. Are there any other Yes. Thanks.
George Birch from Janus Henderson. Maybe this is a bit early of a question, but had you done this exercise 30 years ago and forgetting about all the technological difficulties and reporting difficulties, how different do you think your portfolio would look now as a result?
In terms of our?
Are there places that you wouldn't have gone into had you been aware of the issues around water?
That's a really good question. I wonder whether John or James might want to reflect on our water decisions.
I think one of the things it would say is that you'll probably proactively take more mitigation earlier on in the cycles. For instance, some of the desalination work we've done in Chile might have come forward a little bit if we'd have been more forward-thinking about it. Certainly in my own experience, I can only speak from, is that I think that the oil and gas business has been merely reactive to water as an issue as it's arisen. If you look, for instance, at the North Sea, and you talk about the approach to produced water discharge in the 1970s and 1980s compared with now, it's night and day.
I think one of the big improvements that we can have in the way we run our business now, speaking as BHP, is actually that the strategy allows us to forward plan for what will happen as an inevitable outcome of the change in grade standards, the change in footprint of the mines, the change in water tables. That we are now thinking about what will unfold as we move through the mine in a way that I don't think we have in the past, which starts us to predict problems and then put in place solutions before the problems really get insurmountable. Whether there's something we wouldn't do, I don't know. I haven't been around with the company long enough.
I'd echo that. I think it's more about moving forward proactively, what it means to how we think about this in our decision-making. In working with our portfolio strategy and development team, we're seeking to utilize our group scenarios as well to help do some stress testing. It's challenging to sort of back cast, I think, and say what would have been done differently.
Thanks. Emma Lupton, BMO Global Asset Management. Just really to follow on from George's question. Even though we can't back cast, would there then be instances of projects where you wouldn't now go into in the future because of water? Because you've done this kind of assessment, and you would decide that maybe the security of supply wouldn't be there to be okay for the basin and you to be there too.
Yeah. I think it's probably back to the Escondida case study that's probably sort of the best reflection in regards to those questions. I think it's more about assessing the context and understanding what controls you can put in place for that context. Is it about there are other options such as desalination? There may be other water sources that aren't shared and utilized. We have, for example, at our Nickel West operations, we utilize hypersaline groundwater resources there, which aren't resources that compete with anyone else. There might be opportunities through synergies with other industry, and again, our Nickel West operations actually do take industrial water off takes. Do our New South Wales Energy coal operations. It's more about the awareness that it then brings into your business planning and business strategy.
It may not necessarily be a no-go, but it's about bringing those options to bear and working through those as part of your broad options assessment. Yes.
David Sherratt from Legal & General. I have two questions, if I may. My first question is around water price. You mentioned it as one of the three pillars of value, I think. Could you educate us on the type of inputs that go into determining the water price? My second question is around coverage of this water strategy. How would you deal with JVs, for example?
Okay. Might start with the second question and then move on to the first. The coverage of JVs, and I will talk to this a little bit with the water report, but basically it's similar to how we approach our broader non-operational joint venture management. We do seek to influence. For example, with our Cerrejón operation over the last year, one of the things we did across the board with our operated assets was we undertook water risk reviews with those assets at a high level to understand what risks might be present and identify where further work needed to be done. We did a similar review with Cerrejón. We led the review in conjunction with our other shareholders, went to Cerrejón and worked through an understanding of what water-related risks might be present and where there were opportunities to improve some of those management approaches.
That's a piece we want to follow on with at our other non-operated joint ventures. In regards to water valuation, that's still a piece that's quite early in development. At the moment, we've got two pieces of work that we're progressing. The first is a piece of work with Columbia University in New York, and basically what we're doing with that piece of work is, we're using the Escondida desalination decision as a bit of a case study to look at retrospectively to say if we had fully factored in all the aspects of water-related risk, not just the explicit ones, but the implicit ones such as environment, community, how would that potentially have changed the decision?
At the moment, we're working through what that process is, how you would actually land on some form of value assignment for particularly the environmental and the social aspects, and then what that would mean to that decision. We're also doing another piece that's a broader piece around sustainability valuation more generally, and that's looking at a similar thing, with Deloitte, and it's building off the International Finance Corporation's financial value tool that some of you might have heard about, to look at alternative ways or alternative methodologies we could use to again attribute value to some of the less explicit price signals. Obviously, it's very challenging, particularly when you're thinking about the environmental and the social.
At the moment, I guess we're sort of landing on it's probably simplest to look at a maximum foreseeable loss view on some of those prices, and how it relates to business impact. That's a piece that's very much under development still. Does that help? Okay. I might just move on to the report because I'm sure there's going to be some more questions from that. Basically, today is about this water report, and as I said, we're very keen to have your feedback as you get an opportunity to wade through the report. I will say water puns are something that we like to utilize. If you do have any that you'd like to bring into the conversation, we'd welcome those.
As we said, this water report is our first step and it has taken account of the feedback and the benchmarking we did, but we do recognize there is opportunity for improvement. What we have sought to do in this report is really, I guess, provide a first indication in detail of our water interactions, extraction, use, discharge, and of our water performance and our risks. The report is based on the International Council on Mining and Metals Water Reporting Guidelines Minimum Disclosure Standard. That's quite a mouthful. What that basically means is there's a set of minimum requirements that the ICMM have articulated in terms of disclosure around risk, disclosure around data, and disclosure around performance. In addition to that, we have gone a little further because we recognize there is a need to provide a bit more context than the Minimum Disclosure Standard states.
Some of that relates to the requirements associated with the United Nations CEO Water Mandate. That's an action platform of the United Nations Global Compact that BHP endorsed late last year. We've also incorporated the Global Reporting Initiative and the Carbon Disclosure Project water disclosure requirements. I will note that this is something that is in substitute for us filling in the carbon disclosure, water disclosure this year. I will note back to the question of non-operated joint ventures that just like any of our reporting suite, this is really about our operated assets, how we do talk to some of the points I made earlier around our non-operated joint ventures. On to some of the key content. The first area to talk about is our water sensitivity assessment and our risk assessments.
Water sensitivity is the term we have derived to really try and explain the operating context for our business. As per some of the examples I highlighted earlier, the operating context is absolutely fundamental to the nature of the water-related risks we face. It's not as simple as water stress, you may have heard about water stress indices. There's certainly a number of tools out there, such as the World Resources Institute Aqueduct tool that seeks to provide a global indication of areas of water stress. Water stress is useful, it's actually quite a limited assessment as it relates to our business. It's one indicator, it's not the only indicator. This is predominantly because tools such as Aqueduct don't necessarily have the granularity we need for our business because of the remote nature of the operations where our operations are located.
Secondly, because Aqueduct doesn't currently consider groundwater resources, which is a significant part of what our business relies upon. In undertaking this water sensitivity assessment, we have incorporated water stress indices through Aqueduct, but also built on those and thought about aspects such as climate. I will actually just draw your attention if you can't read the slide, because it is a little bit hard to read. It's page 15 of the water report. The assessment's taken account of climate, so the climate zone. It's taken account of whether the area is cyclone or hurricane prone. Obviously, that has a significant influence on flood events. It's taken account of our nature of water source interactions. This is, for example, are we predominantly a groundwater extractor, a surface water extractor, seawater, where do we discharge to? Sorry, there was a question.
Yes.
Matthew Beardmore-Gray from M&G.
Yeah.
It may be a bit too specific for this meeting, but you mentioned groundwater two or three times. My understanding, which may be wrong, is this is not just for BHP, but the technology for assessing groundwater and aquifer usage is still pretty basic in my understanding. It's based on 1960s technology. I'm just wondering what technology you're using to measure your aquifer usage, which is a very difficult subject, and I'm just wondering if technology has moved on that front.
If my colleague who is leading the resource engineering side of the work, he would love to answer that question. Basically.
Oh, I'm.
It is quite a technical question. There is a recognition that with groundwater resources, for those who aren't familiar, basically, it does rely on a lot of modeling, and as any models, they also rely on appropriate monitoring wells that you sample and model from. There is a recognition that the groundwater modeling industry is, maybe not quite the sixties, but certainly has some opportunity for improvement. We're actually in the early stages of sponsoring some work across a range of universities to look at how we can further enhance groundwater models, and my colleague Blair is very passionate about this. I'd be happy to put you in contact with him. Yeah, you're right.
It's an area that we need to improve upon, but where we do have significant groundwater interactions, such as our iron ore operations, it's an area that we do have a lot of focus on the quality of our models.
Thank you. Could I ask one more question?
Yes.
Which is not quite so technical, but life is complex and desalination is great, but it's highly energy intensive. Six of one, half a dozen of the other in terms of climate change.
Yeah. To that point, I guess that's one of the reasons, as you're probably aware, with the establishment of the Escondida Desalination Plant, there was a distinct decision made for that to go to liquefied natural gas as opposed to coal, which was the existing energy source. That has been factored into consideration, and it's something that continues to be built upon as we make these decisions. That energy water nexus is absolutely one of the challenges that we're looking to address. Back to sort of the value question, it's one of the reasons we're also focusing on that in an integrated way with our low emission technology colleagues because we recognize that energy water nexus isn't so simple. It's not just desalination, it's technologies like recycling as well. There's often an energy trade-off that needs to be considered, too. Thank you for those questions.
Sorry, back to the sensitivity assessment, just briefly. Some of the other components we considered were the competition for resources. Where we're located, the nature of existing stakeholders, their utilization, stakeholder concern, any proximity to sensitive environmental areas, the potential for cumulative impacts. Cumulative impacts is quite a significant issue for us and many other industries. Back to that catchment model I showed earlier. It's often not just us who are present. There's potentially communities, there's potentially other industry and agriculture. How we account for cumulative impact is really important, and it gets back to the question that we've just had around groundwater modeling, water modeling more broadly as well. It's important to understand that in a quantitative way. Water regulation is really important to understanding context-based risk and the maturity of water regulation.
We've made some judgments around the maturity and the capacity of government to govern water resources. That's basically how we've ended up with this catchment level water sensitivity, which is really trying to indicate at a portfolio level the inherent relative context risk we have for water. Yeah.
George Birch from Janus Henderson. On the regulation piece, do you have an optimal model in mind or some sort of pricing mechanism that you would be working with national, local governments? Obviously, in a lot of places, the regulation isn't very mature, and it can be a bit of a free-for-all, which doesn't necessarily mean you should be engaging in that same free-for-all. Is there a sort of baseline standard you're looking for?
Yeah, it's a good question. It's a piece we've started working on, and we talk about it in our long-term goal response. The model we're utilizing at the moment was one established through the Australian Water Partnership as part of the High-Level Panel on Water and basically the product that was developed is a guide called WaterGuide, and it's more a process, which contains some principles around how to assess the effectiveness of water governance and regulation within an area. We've done a very high-level assessment to date of the regions where we operate and the maturity of regulation as applying that guide. Where we want to head is essentially establish a set of principles that we would like to advocate around, which articulate what effective water governance is.
Obviously, the nature of that advocacy is going to be different across the regions because you can't apply, say, a model that's been established within the Murray-Darling Basin within Australia, which is a highly regulated environment with a water price necessarily to the remote areas of Chile. Having some high-level principles that suggest what good looks like will be the basis of our future advocacy work.
Have you been engaging with governments yet on this?
Not to date, no. That's a piece of work that we'll be seeking to move forward into the next year. Yep. Just I guess to finish off on this slide, it is a relative assessment, so you'll see at this stage areas like Escondida and Pampa Norte are currently rated high, and that's both a result of their location and the nature of the shared water resources that they utilize. In contrast, say, to, Potash project, Jansen in Canada, one of the reasons that is low is also because of the operational phase it is in. There's much more detail if you have a read through the content in the report.
Sorry.
Yeah. Patrick.
Patrick O'Hara from USS. Could you just explain the key at the bottom of that?
Yeah. The key, so that relates to low, medium, or high water sensitivity, and it's really the extent to which a region is sensitive to water and in consideration of the nature of our interactions.
It's more a measure of the region rather than your impact?
It's a combination of.
Combination of both.
Yeah. If in the case of Escondida, we recognize the region's water scarce, but the nature of our interactions, and particularly in regards to, I guess, the transition away from groundwater, has meant that there's, I guess, a high level of sensitivity there at the moment. Over time, that will reduce as we transition more fully to desalination.
Okay. Thank you.
Yeah. It is, as I've said. I will emphasize it's a qualitative assessment, but something we will build on over the coming years. Yep. The next area I'd like to highlight is the risk disclosure, and this is on page 16 of the report, if you'd like to have a look there. Basically, this was developed through the series of water risk workshops that I mentioned earlier, in combination with our assessment of the current risks that our businesses have identified. Where we got to was a broad summation of around 11, what we call significant water-related risks across the company, and they range from areas such as the catchment level risk. That's a little bit of what we were just talking about.
What risks does the catchment pose our business, either due to cumulative impacts or the availability of water, through to longer-term risks like climate change, through to more operational risks such as extreme weather, tailings, water access, sanitation, and hygiene. We often provide potable water to our employees and, in some instances, to communities as well. Through to the more, I guess, directly operational risks, such as what we call water excess management or dewatering, which is the activity of removing water from a mine pit to access the ore, or removing water from mine slopes to maintain slope stability. They're the high-level, I guess, significant water-related risks that we've identified, and then we've mapped the presence of those across our assets.
Because, as you might recall from the asset level actions, our assets are currently in the process of undertaking more in-depth risk assessments across these areas. We haven't been able to provide, I guess, a relative indication of materiality of these risks by asset yet. It's really, are these risks present at those assets? If that makes sense. Are there any questions on this? No. Okay. Happy to take some if they come up. The other piece I'd just like to highlight is often these risks can seem quite esoteric without examples. What we've tried to do is provide some case studies throughout the report to highlight the nature of these risks, particularly where they're more significant or material. A couple here.
The management of excess water as it relates to our iron ore business, and another where [inaudible] is one of the sites that has successfully closed and how we've gone about addressing the water-related risks on closure. There are many more case studies that we've utilized throughout the report. The next section of the report talks to our governance processes. Obviously we have risks. What's core to those risks is understanding how they're managed. We have management processes both at group level and operational level. At the group level, we have some core business processes, standards, and requirements. Some of these relate to our planning and our strategy and investment evaluation processes. We've spoken a little bit about investment evaluation.
The importance of planning is often, for example, understanding what are our future water demands aligned to production, and do we have sufficient water to support our production activities? In the case of, say, our iron ore operations, where are we seeking to access ore from next, and have we sufficiently preempted the dewatering activities to enable that access to ore in a timely manner? We have some specific requirements that touch on how we manage community interactions, how we manage environmental interactions, how we manage health and safety, that also cut across our water-related risks. We have other processes. For example, tailings management. We're still developing our standards around tailings, so we have a range of guidelines and requirements that support tailings management. Target setting, and I'll talk shortly to our five-year target and our longer-term goal.
Our target setting processes and how they're embedded within our scorecards are also important. Water accounting, so how we account, as I mentioned, for water. Currently utilizing the Water Accounting Framework of the Minerals Council of Australia. As we transition to the International Council on Mining and Metals guidelines, what that means. Finally, our audit and assurance processes, so how they apply and how we assure the implementation of our standards across our assets and also our non-operated joint ventures in regards to influencing those. At the operational level, we've provided an indication of the operational controls that we apply across the water-related risks that I've mentioned before. This is just an excerpt, but if you want to have a look, they're detailed within the appendices of the report.
These cover a very broad spectrum, as you would imagine, of controls that depend on the context of our operations as well as the nature of risk they're facing. For example, if we're providing potable water to employees, we need to have controls around testing and monitoring and verification of those potable water systems to ensure that that water management continues to be at the sufficient quality and volumes necessary. In contrast, if we're looking at managing excess water volumes, it's about how we maintain storages so we can receive those excess water volumes, or it's about how we can divert those excess water volumes around our sites. I'll now move on to some of our performance discussion. Are there any further questions around risk or context or governance processes that you'd like to ask?
Very briefly. Briefly, I was wondering if you had the chance to look at the opportunity side of things.
Yeah, that's a good question. We have. There's actually a table on opportunities within the report as well. It's a piece that we are working on in the coming years. Our new risk framework, we've got a piece that's developing as part of our new risk framework that's more explicitly seeking opportunities. Within the report, if you have a look, page-
28.
28. Thanks, Anne. Page 28 of the report, you'll see a table which highlights some of the opportunities that are associated with each risk. They range from, for example, increased business optionality, which gets to some of the questions that were being asked before. If we're more preemptive and more aware of our longer-term water-related risks, that really can then feed into increased business optionality when we're thinking about moving into new ore reserves, new areas, new products. Increased productivity, there's a very strong tie between effective risk management and productivity for our business. That's a very clear opportunity. Yeah, if you want to have a look at that table, that should give you a high-level overview of the opportunities. It was a challenging area for us to articulate, so I welcome some feedback on how we can better do that one. Okay. Performance.
One of the things I will highlight before I get into the performance data was in producing this report. As you can imagine, producing any form of report and moving into external disclosure is as much an internal journey as it is an external journey. This year, one of the things we did for the first time, given that we are disclosing data down to an asset level, was we undertook a third-party assurance of our water data at the asset level. That meant that the normal materiality thresholds that we apply, for example, for our sustainability report, which discloses data at a group level, dropped to the asset level. As a consequence of that, what we would find is we'd find more errors, more opportunities for improvement in our data.
It's been a very helpful process in terms of highlighting further areas to improve our data, to improve our estimations where they're undertaken, back to the modeling question, because in some instances it's not always possible to meter data. We do rely on estimation methods. This data that I will present has been through this third-party verification process, but we do recognize there's going to be changes and room for improvement as we better mature our data. The other area associated with our data is we are transitioning towards the ICMM Water Reporting Guidelines, and they use slightly different terminology. They've built on the Water Accounting Framework of the Minerals Council of Australia, but they've aligned to the terminology used by the Global Reporting Initiative. What that will mean is there'll be some slight changes in terms of some of the terminology.
At the moment, we use terminology, for example, around water inputs, and that really is a combination of what the ICMM say are water withdrawals. The extraction of water intended for use plus consumption, the actual utilization of water. That's just, I guess, a slight detail when I go into talking about the performance data. The first piece of performance data I'll highlight, and I'll refer you to pages 36 and 37 of the report are our water inputs. Inputs under the Water Accounting Framework is water intended for use. This is water that we've extracted and may be stored and/or used. The first key point to highlight that you'll notice is the material jump between FY 2017 and FY 2018.
The key reason for that change was the strike that occurred at Escondida in FY 2017 that went for a period of around 40 days. As you may be aware, Escondida is a very water-intensive business, any strike action that affects production materially affects water extraction and consumption. The change to FY 2018 is essentially the resumption of Escondida's full production rates. The other material change you'll see in the overall input data is the change in water sources. Again, the transition to desalination at Escondida that is currently underway is seen by the increase in our extraction from seawater within our water consumptions data that you'll pick up in 2017. Then you'll also see within our inputs, we categorize water quality by three types. Type 1 is basically equivalent to drinking water quality.
Type 2 is essentially agricultural quality, and type 3 is industrial quality. That's a very simplistic explanation. The majority of our water consumption is type 3, and again, you'll see the increase there as a result of the increased extraction from seawater due to desalination at Escondida. In terms of the chart at the bottom there, that's our water inputs by source, by asset. This is the first time you will see the comparative extraction across our portfolio. Obviously what you can see straight away is the significance of Escondida to our water extraction. Therefore, I guess this helps highlight why water security and why a shift to desalination is so materially important for that business. Conventional Petroleum as an amalgamated asset is also a significant water consumer from the perspective of seawater that they then desalinate for production purposes.
As a part of the produced water, the water that they get as a result of the production processes. At West Australian Iron Ore, we have our largest groundwater consuming asset. What I will highlight here is what you can see here in this data is the water that was extracted from groundwater for consumptive purposes that is used. There is a lot of other water that we manage from the ground at West Australian Iron Ore, but what we seek to do, in most instances, with that water is actually reinject it back into the aquifer from which it came, and that's what we call the dewatering process to access the ore. BMA is one of the assets where we have our greatest surface water extraction.
A lot of this is quite cyclical, as you might recall, because of the high variability in water availability due to cyclonic events. Some of that is a core extraction of water, some of that is what we receive in from rainwater. As part of our transition towards ICMM, we will be getting some more granularity on those water accounts and hopefully over time, we'll be able to highlight the contribution from precipitation that contributes to these figures. Are there any questions on that water input data? No. Okay. The next piece of data we've highlighted is water outputs. Again, under the Water Accounting Framework of the Minerals Council of Australia, this is water that has been used by the business and then discharged.
Again, it doesn't necessarily account for water that we handle but don't utilize, which is often the case, for example, if we handle sediment-laden water as a result of rainfall events that gets discharged without use. You will see again that our water outputs have increased. Again, that's a result directly of the change or the increase in production at Escondida as a result of the resumption of normal production levels in 2018, and the transition to desalination, which is highlighted in both the destination of the water outputs as well as the quality of water outputs. Most of our water outputs are actually type 3, and that's consistent with what we would expect to be seawater or hypersaline water.
Again, if you have a look at outputs by destination by asset, which is the lower graph, you will see that the majority of our outputs are from Escondida, followed by Conventional Petroleum, Iron Ore, BMA and [Dalwoods]. A lot of this is directly also attributable to our production scaling. One key difference, though, that our output data talks about is a category called evaporation and entrainment. This is basically water that is used and then captured either in tailings or in ore and not freely available for other purposes. That significantly inflates some of our water data, as you'll see within Iron Ore and BMA. It's that water that's entrained in ore or tailings. Are there any questions on the water output data? No. Okay. Next is our public target.
In 2017, we introduced a whole suite of new public targets. For water, we introduced two: a five-year target and a longer-term goal. The five-year target basically is around a 15% reduction of water by FY 2022 compared to our FY 2017 levels. I'll point out, I guess, the reduction is around what we call fresh water. At this stage, what we have defined fresh water to be is essentially any terrestrial water, so any water that comes from land-based water resources, so surface water or groundwater, but it can be of any quality. Really what we're trying to highlight there is it's about appreciating water interactions, not just with people, which is the, I guess, typical definition of fresh water, but also water interactions where there might be environmental competing needs.
To date, we have achieved a 2% reduction against FY 2017 levels of our target. Again, a significant contributor to that is the transition that's underway to desalination at Escondida. Yes, sorry.
Thank you. Maël Gallène from BlackRock. What was your process to set this target? Why 15%?
Yeah, that's a really good question. The process was a bottom-up process, and what you could say is it was that some of you may be aware of the context-based targets discussion that's happening at the moment for water. Our targets, we went around to all our businesses and we asked them to provide a forecast of their fresh water use over the next five years, in addition to a pipeline of opportunities that could reduce that water use over the next five years. That was to take into account both their operating context, so whether they were in a scarce environment or an excess environment, and what was most meaningful for them in terms of achieving potential reductions, or if you would appreciate if you're in an excess environment, it may be more about water destruction, so something that's appropriate to that context.
What we did then was really a bottom-up build based on those forecasts and based on the reduction pipeline to say what was an appropriate target that had a suitable level of stretch but was also reasonable for the businesses, and that's where we landed with the 15%. I will point out, as you'd appreciate it, and this whole process is part of undertaking our assurance processes as part of the increased focus on water and water data as a result of the asset level actions through our water stewardship strategy. What we are seeing is much improved focuses on the quality of water data and much improved water forecasts as well. Over time, we will get a much better representation of how we're tracking against this target at an asset level and much more, I guess, improved understanding of the opportunities to continue to reduce consumption.
The next piece of our public target portfolio was a longer-term goal, this was really about, I guess, recognizing that it's not just the short term that we need to focus on, but it's also about the long term, how we position our business and how we contribute to broader resilience through our strategy work. We touched on this a little bit earlier, but essentially our longer-term goal is aligned to the Sustainable Development Goal 6, which is on fresh water, and in particular, what they call the Integrated Water Resource Management component of that goal. That is really about how all actors work within a catchment to collaborate for improved water governance.
Part of this longer-term goal, which is around achieving integrated water resource governance in all the catchments where we operate by 2030, has been to firstly work on getting that landscape understanding of what is the maturity of water governance within the regions where we operated. As I mentioned earlier, we worked with the WaterGuide, and you can briefly see the 6 elements there, which was a publication put out by the High-Level Panel on Water as part of the Australian Water Partnership to do a very high-level assessment of that maturity of water governance. We're going to be using that to feed into not only our view on what does good water governance look like, but also what's appropriate in terms of how over time we start advocating within the regions where we operate for improved water governance.
What's really important here to recognize is we are but one player, again, within a catchment. It's a shared water resource. Water governance is the responsibility of the government, we will be seeking in all instances to play an appropriate role, either a convening role, but always working with government and working with others to help further what appropriate water governance should be. The other key element we did over the last year, I briefly mentioned this already as well, was to join up to the CEO Water Mandate, and that's basically the preeminent platform that's multi-sectorial for water stewardship by the United Nations Global Compact. The benefit of that is it gives us the abilities to work across sectors and with other leading companies to better understand what role we can play and how we can support water stewardship and water governance.
With that was really, I guess, the high-level pieces from the report and a bit of context around the strategy. You've asked some great questions to date, but now welcome some more. Thank you.
Hi. [Sam Anthony] from [Investec Management]. I was just wondering, on the water outputs, would you disclose, or do you plan to disclose how much potential contaminants there are or the levels that you cut off? Presumably there are going to be some residual amounts-
Yeah
and things like that, which do you obviously-
Yeah. It's a good question. Currently, we disclose by type, which if you look at the detail in the water accounting standards, there's actually a decision tree to allocate the types to essentially fresh, the drinking water, agricultural, or industrial quality water. The challenge with disclosing by exact contaminant would mean we'd have to disclose by asset the contaminants that are relevant for that asset, then what the receiving body's background levels are. For example, in some of the regions where we operate, arsenic levels are naturally high.
It's not necessarily a bad thing to be discharging water that's in line with those naturally occurring background levels. There's a fair bit of additional context and complexity that would have to come through.
At this stage, beyond the standard water types, we don't have a plan to get into that level of detail.
All right. Thank you.
Hi. Sorry. Alex Sendek from J.P. Morgan. I was just wondering, to reduce your use of water, is it mostly about desalination plants or are you looking as well into technology to, for example, develop dry tailings stacks and things like that?
Yeah. It's very much a combination of things. For example, dry tailings obviously has a range of opportunities as well, aside from just water utilization. That's something that's being looked at. Water recovery is also really important. Again, tailings is a very central part of where water resides within a lot of our operating facilities. The extent to which we can recover water from our tailings facilities isn't just beneficial for tailings stability, it's also very beneficial for water utilization. Recovery reuse is very much a focus as well. There's examples like at Escondida, we have a project on compartmentalization of our tailings dams to look at how we can increase recovery there. We also have projects looking at increased recovery of the tailings beforehand as well.
Thank you.
Some questions for the others?
Feel free.
Yes.
Again, after having done all this work, what worries you the most now? How, just in terms of the psychology, are there things which you've got a much larger focus on, that you didn't have before?
Probably the content of when I said getting our house in order. It's really some of the basics. It's not so much worrying, but it's getting the basics right in the first instance. Water data, and this is not just for external disclosure, but for internal management purposes. How we can increase our utilization of appropriate data management through that data. How we can better understand and manage the spectrum of the water-related risks. Potable water is a very key focus, for example. As a result of the work we've done, we've recognized that there is a fair variation across the business in terms of how we manage the provision of potable water to our employees and communities. A very basic health and safety piece. It's really around getting those fundamentals in place and embedded, which is part of our key focus.
Just on community relations, I think other organizations have probably, in terms of operational stoppages and things, a lot of things very often related to misunderstanding of water use. Has this helped how you relaying this type of information to the local communities and getting them involved?
Yeah. It's a good question. Back to our thematic for the first year, and it's really been a year and a bit of this strategy has been focused in the fence because we need to address some of our internal management measures to then credibly start talking externally. Over this year, we'll be transitioning more to those community conversations. It's a little bit challenging to respond, aside from we do have activities underway at the moment, such as some permitting processes at Monturaqui, which is one of the groundwater resources we utilize at Escondida, where we have been involved in significant conversations with the local communities around maintaining access to that groundwater resource. There's ongoing conversations as part of our activities within our Queensland coal businesses, as well as our West Australian iron ore.
There's still, I guess, aside from where there's immediate business need, this strategy hasn't really externalized itself at the community level yet.
How do you, when you look at your peers in industry, where would you say their water stewardship journey, how far along are you or are they in certain areas?
What we've seen to date, and I think it extends probably beyond peers, and feel free to I feel like someone else needs to talk. Yeah, to date, it's really been a reactive-based water strategy across the industry and more broadly. Often we've seen pockets of leadership emerge where it necessitates. For example, Teck have done some excellent work in Elk Valley in Canada around working with governments and communities to address water quality issues associated with, essentially, they have a large cluster of operations in that region. Part of that was necessitated by the fact they saw an emerging water quality issue, and they needed to maintain their license to operate. I think, yeah, to come out proactively, is probably the differentiator for us, in this instance.
I think it's also, you can look for best practice, but it's actually a very difficult subject to numerically benchmark. As you've heard today, our issues are quite local and quite bespoke to every one of our operations. The solution is different. Escondida is a huge investment in desalination. That doesn't work anywhere else in the portfolio. Everywhere else in the portfolio, it's about aligning 60,000 people to do the right thing every day to reduce our impact on water. I think if you start looking at benchmarking climate, you can look at unit emissions on a global sense because it all gets aggregated. Waters, it is an aggregation of local issues. Benchmarking, you are looking more to whether companies are being transparent, I think, about what they do, whether they are really focused locally, and whether they're handling the issues locally.
I think benchmarking just on numbers could be fraught with a lot of dangers and come into very simplistic answers, I think, if you go too far down that route.
I think further to that, in terms of the question of peers, when we did our benchmarking, a lot of the other companies that were doing a lot on water were food and beverage and agriculture companies, and they face different challenges. As Erika said, I think for the food and beverage industry, a lot of it's come out of crises at particular points and particular locations that they've been at around competition for water resources. One of the key differences between us and their business is that if things get too tough from a water security perspective, they can pack up and move their operations to a different location that doesn't have that problem.
For us, because we're place-based and for Escondida, we've got a very long life looking forward, we really need to address the issue that will allow us to have security for a very long time into the future. That place-based and very long-term nature really differentiates our strategy, I think, a bit from our peers as well.
Do you have an idea of the percentage of your CapEx that goes into water infrastructure?
It's a really good question. It's something we're hoping to get a better number for this year. Obviously the Escondida decision is one significant example where it was around a $3.5 billion total investment.
Do you have the overall percentage?
I don't have that.
$8 billion a year is our kind of CapEx frame at the moment.
Oh, okay. Thank you.
I don't think Don't walk away from here, please, saying that desalination is the answer to the world's woes in terms of water. I think it does show just the scale if you want to be serious about handling this. I thought the question about climate, for instance, and the linkage with climate on going to desalination. You go one step further, copper is actually the real essential ingredient towards electrification. When you run out the life cycle impacts of your products, which for us is really important, how water and how climate emissions play into the use of our commodities, I'm sure we'll be talking to you later on about whether it is Scope 3 emissions down the line. As you look at it, what we have to do as a company is to weigh up the totality of this.
We can go to LNG, which is not cheap and it's not easy to go away from coal to move to desalination to being gas-based rather than coal-based. At the heart of it is, we are one of the major providers of copper to the world, which is allowing electrification, which allows wind turbines, it allows solar, allows more distributed power. It is quite a complex machine that's joined up in terms of our contribution to sustainability, that at the board, we try and think of it when we make big investments like the desal.
Yeah. Maybe just to build on John's point, which is an excellent one of the things that's missing in the water sector. I've been talking a lot about water accounting and the sector-specific frameworks we apply, but there isn't actually a common framework for accounting across all sectors. We're supporting a piece of work through the United Nations CEO Water Mandate to look at how can we build a water protocol similar to the Greenhouse Gas Protocol so that we can really more effectively get that full life cycle sense of our water utilization in comparison and alongside our energy utilization across our value chain. That's a key piece that's actually missing across the sector as a whole, is that commonality around how we account for water use. Not just our direct, but also our indirect water use.
Hi, Sabahat Salauddin, BlackRock. Just wondering, as a result of undertaking this exercise and you're trying to get your house in order, were there any findings that surprised you across this journey?
I think it's a similar answer to that that I gave before, which was it's really the basics that we need to focus on in the first instance. Data accountability. Water's an incredibly complex, multifunctional area, and just getting accountabilities clear across the operational plays is really, really important. How we better factor water into our direction or our long-term planning activities to make sure that it's considered in the same way as our planning for access to ore in all instances is fundamental. It's some of those basics. Not so much, I guess, surprising, but it's really the core of what's come out to date.
I think the key thing is companies achieve things by measuring, whether you measure financial output, accident injury rates, use of water, climate emissions. I think until you actually start to understand the measures, people and organizations get aligned behind performance targets of different ways, and how you cut those targets, and how you drive those through the organization. I think we're at the first stage, which is saying we need to get a baseline, accurately measure, set ourselves a target of 15%. We don't know whether it's the right target, to be honest, over five years. It's out there. The reality to me is that all my experience says that once you start on that journey, then people find things and say, "Well, why on earth do we do this?" We do this because we've never really thought about the impact of what it is.
We've just always done it. I'm sure that over the next four or five years, we'll find places where operating practices will just change, because water will become a factor in the decision-making rather than just an outcome of another decision-making that doesn't include it. I think that's kind of.
Yeah
realistically where we are in the process. Next year, we might come to you, we might be talking to you and say, "Well, in this mine, we found once they started thinking about water, they did this." I don't think we're quite there yet.
Yeah.
Thanks. I'm just curious, you have a withdrawal target. Are you also going to have a consumption target as well?
At the moment, our target combines the two. Yeah, sorry. That's one of the confusions of terminology. It's based on our definition of withdrawals, which at the moment is inputs, which is consumption and withdrawals. Yeah.
Will water targets be linked to compensation at various levels of the business?
Yes. They currently are.
Yeah.
They're part of the stretch of our company-wide scorecard. The threshold and the target elements relate to those asset-level actions I was talking about before, and the stretch component's the targets.
Thanks.
Are there any questions that you were hoping none of us were going to ask you?
That's a fantastic one.
I'll have to remember that question.
Yeah.
It's a good one.
No, I'm hoping for feedback.
We should have a question for you. You see, as part of, I guess, we've been engaging with some of you in the room over a period of time around understanding how you look at water and water-related risk, and how you measure that. I guess a question that we don't necessarily need an answer to right now, but we would appreciate in terms of feedback is this information that we're disclosing helpful to you in how you analyze water-related risk across a company's portfolio? If not, what else would be useful in you doing that? There's a question back.
We could do it now on a show of hands.
Yeah.
How many people in the room think this is useful information that we're giving you, and that you will use it? How many people think that we're trying to move the agenda in the right way?
Good. Thank you.
How many of you will read it and give us some serious comments when you read it through, please? Okay. Thank you.
We'll hold you to account for that.
On which note, thanks very much again.
Thanks
For coming today. Thanks for all the brilliant questions. We're serving some lunch next door if you'd like to stay around and continue the conversation a little longer. Thank you.