Ambition

Government policies are critical to creating the conditions for rapid decarbonisation and addressing fossil fuel related externalities. They are essential to ensure that the true costs of carbon are priced in, to foster the rapid build out of renewable generation, and to support the uptake of new fuels and technologies. Without enabling policies and in the absence of science-aligned or target aligned pricing, green hydrogen, green ammonia, zero emissions products and technologies may struggle to compete against fossil fuel incumbents. 

A key dependency therefore is governments' willingness to support businesses in pursuit of their decarbonisation goals through appropriate policy frameworks, incentives, and regulatory mechanisms. Whilst collective global action currently falls well short of what is needed to limit global temperature rises in line with the Paris Agreement, with analysis suggesting that even full implementation of Nationally Determined Contribution (NDC) pledges submitted by Parties to the Agreement would only limit global temperature rises to around 2.6°C, our transition plan depends on continued government commitment to facilitate business-led decarbonisation efforts regardless of the pace of broader international climate policy. 

Regulation can be an enabler (where it sets high environmental and sustainability standards) but also a potential blocker to our Climate Transition Plan. We are heavily dependent on navigating complex regulatory requirements at local, state and federal levels to build the renewable generation we require to power our decarbonised mining operations in Australia. The same is true for our international projects.  A key assumption is that we are able to work closely with regulators to avoid delays or cost increases due to regulatory and permitting factors.  

Regulation that has a sector-wide or multi-jurisdictional impact can be especially critical for Fortescue.  A good example are the emerging IMO rules on fuel standards and carbon pricing.  These have the potential to drive sectoral decarbonisation, and with it demand for low-emission shipping technologies and fuels such as green ammonia.  

Technologies required to decarbonise the vast majority our operations and value chain exist, however some now require further improvement and scale up to provide the value levers that will enable full deployment. Details of technology dependencies are provided for relevant emissions sources in Actions. Long development lead times and risks inherent to rapid scale up could impact our ability to realise our strategic ambition.

Fortescue assumes, based on the prevailing scientific evidence, that unproven technologies such as carbon capture and storage cannot be relied upon and indeed risk sustaining fossil fuel usage. Similarly, we assess many carbon offset schemes to be of low integrity. Our Climate Transition Plan and decarbonisation strategy is underpinned by a core belief that we need to eliminate fossil fuels from our operations and supply chain rather than seeking to mitigate emissions impacts.  

As a global business operating across multiple jurisdictions, we are exposed to macro-geopolitical and economic factors such as trade restrictions and tariffs, heightened international security tensions, budgetary and cost-of-living (affordability) “crises”, skilled labour shortages, and an increased commercial cost of borrowing that may influence the pace at which we can deploy sustainable practices into our operations.

Global interest rate movements, the availability of government incentives and the cost of capital affect the economic viability of large-scale infrastructure investments. As Fortescue maintains funding activities across multiple jurisdictions, we are exposed to differing monetary policy settings and capital market dynamics, which can influence the timing, structure, and affordability of transition-related investments. 

Fortescue is supported by a strong balance sheet and established access to global debt and equity capital markets. The formation of Fortescue Capital and Fortescue’s decarbonisation strategy enhances our ability to pursue innovative funding structures and attract finance aligned with sustainability outcomes, including green bonds and blended finance structures.

In addition, the relative competitiveness of renewable energy and low-emission technologies compared to fossil fuels is a key driver of investment decisions. While the cost trajectory for these technologies continues to trend downward, the global policy landscape is marked by increasing uncertainty. Shifts in regulatory frameworks, carbon pricing mechanisms and fiscal support for low-emission infrastructure may impact the timing and scale of investment. Fortescue continues to monitor these developments closely and remains committed to deploying decarbonisation solutions where they are both technically and economically viable. Short-term and temporary fossil fuel price decline could reduce profitability of decarbonisation impacting its pace.

China accounts for around 90 per cent of Fortescue’s iron ore sales. The country’s demand for iron ore and steel, and its climate targets, are therefore critical to Fortescue’s transition. With 98 per cent of our Scope 3 emissions coming from processing of our ore by our customers, of which 90 per cent are in China, our Scope 3 emissions reduction ambition is dependant on China’s efforts and we continue to work with our customers and the government to support those efforts. More details about the actions we are taking to positively influence these efforts can be found in Engagement Strategy.

Europe, given the mandated demand created by the Renewable Energy Directive (RED III), is the most significant market for products from Fortescue’s planned green hydrogen and ammonia projects, including the PECEM venture in Brazil.  The slower than expected transposition of RED III into EU member state national laws, combined with regional policy re-prioritisation, represents a challenge for project decision making. However, the positive regulations emerging from the International Maritime Organization’s IMPC-83 process do provide a reason for market optimism.

Fortescue monitors both short-term and long-term movements in key commodities and macro factors on a quarterly basis. This is undertaken using a combination of consultants’ forecasts and analysis, publicly available information and internal analysis, and the information is included in corporate modelling. Key assumptions are published internally for strategy setting and business cases and include: foreign exchange, mining commodities (iron ore, copper, lithium), energy commodities (gas, diesel, carbon) and green commodities (green ammonia, green hydrogen, green metal).

This year marked a historic climate milestone as average global temperatures exceeded the critical 1.5°C threshold set out by the Paris Agreement for the first time. Multiple global records were broken, including those for greenhouse gas concentrations, air temperature and sea surface temperature. Fortescue acknowledges the critical need to reduce greenhouse gas emissions as these alarming trends drive increasingly severe climate impacts worldwide.

Fortescue's climate targets are informed by and designed to align with the 1.5°C temperature goal established under the Paris Agreement, based on scientific guidance from the IPCC (see Alignment to external requirements).

Scenario analysis is a key tool in understanding how different climate futures may affect the resilience of our strategy and business model. Since initiating climate scenario analysis in 2019 in line with the TCFD Recommendations, we have progressively refined our approach. In FY23, we advanced our methodology using insights from the IPCC Sixth Assessment Report, and in FY24 we began transitioning to a more streamlined and consistent Scenario Framework across the business. This marks a strategic shift toward a consistent use of global climate scenarios to assess portfolio resilience and inform capital allocation decisions and forecasting.

The Scenario Framework considers both transition and physical climate risks across the short-, medium- and long-term. This framework is built around three climate futures, each anchored to a different long-term temperature outcome by 2100 and based on a range of externally referenced scenarios. These futures help us assess how different climate, policy and economic conditions could shape the resilience of our business model and investment strategy. 

To assess the resilience of our core business activities, we model two distinct scenarios, one aligned to a 1.5°C global temperature goal and another reflecting a limited global response to climate change in which temperatures rise by more than 2.5°C above pre-industrial levels by 2100. These scenarios are used to understand potential transition exposures for our iron ore operations, but also highlight opportunities tied to our investment in growth. 

Our Scenario Framework also includes the consideration of a third emission pathway with higher temperature outcomes as we work to understand the potential impacts for the identified climate hazards. The Pilbara region in Western Australia, where the majority of our operations are located, is projected to experience a markedly different climate compared to historical conditions. As many of Fortescue’s assets were built to meet engineering and safety standards that are informed by historical climate assumptions,  there is a growing risk that these assumptions may no longer hold true under changing climate conditions. 

In response, we are drawing on specialist external expertise to develop climate-related hazard profiles that support a consistent and integrated approach to identifying, assessing, prioritising and monitoring climate-related physical risks across our operations. The hazard profiles are used to progressively assess our current and future hazard exposure against key operational thresholds, enabling us to understand asset vulnerability and quantify potential future impacts on site operations, productivity, and cost. 

More information on our Scenario Framework and approach to assess the resilience of our core business activities can be found in our Climate Change Report within our FY25 Annual Report. 

Greenhouse Gas emissions pricing is sourced from third-party subscription services, RepuTex, a leading provider of carbon price information, forecasts and analysis for the Australian market, with more than 65 per cent of corporate emissions covered by the Commonwealth’s Safeguard Mechanism compliance market being RepuTex subscribers. This informs:

• our budget to meet compliance obligations in Australia (from the Safeguard Mechanism). 
  
  
• our corporate assumptions used to evaluate investment decisions.

Low emissions intensity energy inputs, including electricity, are limited in the Pilbara region of Western Australia, which is why Fortescue is developing its own renewable energy generation and storage assets. 

In global locations where Fortescue explores and develops a portfolio of opportunities and projects, some are grid-connected and rely on the carbon intensity of the grid. Self-generation or active sourcing of renewable energy through power grids are considered during opportunity and project development to help ensure projects will have the low carbon intensity required to meet our targets and the product certification we seek.