Rio Tinto plc – Annual report – 31 December 2025
Industry: mining
About the presentation of our consolidated financial statements (extract)
h. Climate change
The impacts on our financial statements from climate change and the execution of our climate change strategy are discussed below. Global decarbonisation and the world’s energy transition continue to evolve, with the potential to materially impact our future financial results as our significant accounting judgements and key estimates are updated to reflect prevailing circumstances. The impacts from climate change, our current strategy and approach to decarbonise our operations are considered in our significant judgements and key estimates reflected in these financial statements.
Strategy and approach to climate change
Our Climate Action Plan continues to guide our strategy to decarbonise our operations, grow responsibly producing commodities the world needs for the global energy transition, manage climate-related risks and opportunities, and support our partners in reducing value chain emissions.
We remain committed to delivering a 50% reduction in our Scope 1 and 2 emissions by 2030, and to reach net zero emissions by 2050 (relative to 2018 levels). These targets were set in 2020 and were consistent at the time with the Paris Agreement goals to limit warming to 1.5°C. This pathway relies on commercially available solutions, such as renewable energy contracts, and is contingent on advancing repowering solutions for our Pacific Aluminium smelters. Nature-based solutions (NbS) and carbon credits complement our decarbonisation activities. We have now reduced gross operational emissions by 14% below our 2018 baseline; and have a pipeline of projects and committed investments that support our 2030 target. Our gross emissions reductions are expected to be at least 40% by 2030, and the use of carbon credits towards our target will be limited to 10% of our 2018 baseline. Although the climate change targets published in our 2025 Climate Action Plan remain unchanged, we have updated our capital expenditure guidance to principally reflect the slower pace of commercially viable technology development in hard-to-abate sectors and our commitment to financially disciplined capital allocation. Consequently, our updated decarbonisation capital expenditure forecast is US$1 billion to US$2 billion to 2030, revised from the prior year estimate of between US$5 billion to US$6 billion.
Our approach to addressing Scope 3 emissions is to engage with our customers on climate change and work with them to develop and scale up the technologies to decarbonise steel and aluminium production.
Progressing our strategy to grow in materials needed for the low-carbon transition
Our forecast growth capital expenditure continues to capture new growth opportunities with a focus on materials that are expected to see strong demand growth from the low-carbon transition. This includes the recent acquisition of Arcadium Lithium plc completed in 2025 (note 5) and developing Rincon, Simandou and Kennecott Integrated Skarns. Our budget for central greenfield exploration mainly focuses on copper and lithium projects. These projects follow our existing accounting policies on undeveloped properties and cost capitalisation.
Further details on our approach and progress are provided in the front half of this Annual Report in our Climate section on pages 53 to 86.
Scenarios used to identify and assess climate risks and opportunities
We use scenarios to identify and assess risks and opportunities, including climate, that may affect our business in the medium to long term. To assess transition risk, we use market analysis for our short-term outlook, and our Conviction and Resilience scenarios for our medium- to long-term assessment. For physical risks, we use an intermediate and high emissions scenario. We review our scenarios every year as part of our Group strategy engagement with the Board.
Our Conviction scenario continues to be our central case. It underlies strategic planning and portfolio investment decisions across the Group, is used in commodity price forecasts, valuation models, reserves and resources determination, and in determining estimates for assets and liabilities in our financial statements. In this scenario, countries will decarbonise at a moderate pace, real gross domestic product (GDP) will grow at 2.2% between 2023 and 2050, climate policies will become more ambitious and effective over time resulting in a temperature rise of between 2.1°C to 2.3°C (previously 2.1°C) by 2100.
Resilience scenario, which limits temperature rises to around 2.5°C by 2100, is a sensitivity analysis that is designed to test our annual plan and investment proposals. Weaker governance, declining global trade, and lower economic growth will lead to less effective climate action. Real GDP growth will only average 1.6% between 2023 and 2050.
Neither of the Conviction or Resilience scenarios above are consistent with the expectation of climate policies required to accelerate the global transition to meet the stretch goal of the Paris Agreement. Despite agreements on climate change reached globally in recent years in Glasgow, Dubai and Belem, emissions today continue to rise, making the 1.5°C goal of the Paris Agreement unlikely to be achieved. In 2022, we developed a Paris-aligned scenario, referred to as the Aspirational Leadership scenario. The Aspirational Leadership scenario reflects a world of high growth, significant social change and accelerated climate action. The Aspirational Leadership scenario is a commodity sales price and carbon cost sensitivity, with all other inputs remaining equal to our central case. It is built by design to reach net zero emissions globally by 2050 and helps us better understand the pathways to meet the Paris Agreement goal, and what this could mean for our business. We do not use the Aspirational Leadership scenario in our broader strategic or investment decision-making.
Importantly, none of the above scenarios are considered a definitive representation for our assessment of the future impact of climate change on the Group. Scenario modelling has inherent limitations and, by its nature, allows a range of possible outcomes to be considered where it is impossible to predict which outcome is likely.
In addition, as our macro-economic modelling involves a range of variables, isolating and measuring the impact of specific climate risks and opportunities is challenging. We do not publish the commodity price forecasts associated with these scenarios, as to do so would weaken our position in commercial negotiations and might give rise to concerns from other market participants.
Low-carbon transition risks and opportunities, financial resilience of our portfolio
With higher GDP growth and a faster low-carbon transition, our economic performance is stronger in Conviction than in Resilience. In Aspirational Leadership, higher carbon penalties and the potential impact on demand for mid- and lower-grade iron ore result in mixed economic performance for iron ore, but stronger demand for other metals than in Conviction. Overall, the economic performance of our portfolio would be stronger in scenarios with higher GDP growth and proactive climate action, and is resilient under scenarios aligned with 1.5°C, 2.1°C-2.3°C and 2.5°C outcomes, respectively.
We carefully monitor and manage transition risks linked to our operational Scope 1 and 2 emissions and value-chain Scope 3 emissions. In particular, we expect the decarbonisation of our assets to benefit from the implementation of new technologies. The pace of technological development is uncertain, which could delay or increase the cost of our decarbonisation efforts.
Physical risk impacts
Physical risks such as extreme weather events, rising sea levels and temperature fluctuations can disrupt production, affect supply chains, damage assets and infrastructure and impact the health and safety of our people. Our approach to addressing physical risks integrates continued measures to enhance resilience, applying advanced weather and climate data for operational planning, emergency response and long-term risk management. Climate risk management is embedded across the asset life cycle, from project initiation to closure planning.
We have continued to progress our Value at Risk analysis by advancing physical climate change risk assessments through financial modelling top down at the product group level. This year, we completed assessments for our Aluminium & Lithium, Copper and Iron Ore product groups. These assessments, as well as our ongoing review processes, including impairment assessments, have not identified any material accounting impacts to date.
Building on our physical resilience approach, we implemented a number of measures to strengthen our resilience to physical climate risk. This includes the development of a seawater desalination plant in Dampier to provide a climate-resilient water source for our Pilbara operations and the communities it supplies, in collaboration with Water Corporation.
In addition, we do not foresee the renewal of our contractual water rights in Canada that have been classified as indefinite-lived intangible assets to be at risk from climate change (note 12). Further, closure planning considers future climate change projections at each step of the process to support safe and appropriate final landform design.
NbS and carbon credits
While prioritising emissions reductions at our operations, we are also investing in high-integrity NbS that can bring benefits to people, nature and climate in the regions where we operate. We will voluntarily retire associated carbon credits to complement other decarbonisation investments, but, as discussed above, will limit the use of voluntary and compliance offsets towards our 2030 climate target to up to 10% of our 2018 baseline emissions. We source carbon credits in 3 ways: we develop new projects, invest in and scale up existing projects, and source high-quality carbon credits through spot carbon credit purchases and long-term offtake agreements. This complements our abatement project portfolio and supports our compliance with carbon pricing regulation such as the Safeguard Mechanism in Australia. In 2025, we made progress on NbS, including advancing voluntary clean cooking, reforestation, grasslands management and sustainable landscape projects, and expanding our environmental planting ACCU pipeline in Australia.
In 2025, we purchased US$57 million (2024: US$50 million) of carbon credits. They have been acquired for our own use and are accounted for as intangible assets (note 12).
Decarbonisation expenditure
As part of our decarbonisation programs, we invested US$182 million (2024: US$283 million) comprising capital projects, investments and carbon credits referred to above, capitalised on the balance sheet. Our operating expenditure on Scope 1, 2 and 3 energy efficient initiatives and research and development (R&D) costs, inclusive of our equity share of R&D related to ELYSISTM, was US$430 million (2024: US$306 million), recognised in the income statement (note 7). Our capital commitments at the end of 2025 relating to decarbonisation totalled US$142 million (2024: US$114 million) and included Jinbi and Amrun renewable power purchase agreements (PPAs), both classified as leases not yet commenced (note 37).
We invested US$7 million (2024: US$89 million) in entities specialising in decarbonisation and related technology, accounted for as financial assets at fair value.
Given advancements we are making to abate our carbon emissions, we have considered the potential for asset obsolescence, with a particular focus on our Pilbara operations where we are building our own renewable assets and are prioritising investment in renewables to switch away from natural gas power generation. No material changes to useful economic lives have been identified in the current year as the assets are expected to be required for the transition (note 13). As the renewable projects progress, it is possible that such adjustments may be identified in the future.
Large-scale renewable PPAs require judgement to determine the appropriate accounting treatment and may result in a lease, a derivative or an executory contract depending on contractual terms (refer to note 22 for further information on significant judgements in lease assessment). The renewable solar and wind PPAs at Richards Bay Minerals (RBM) are accounted for on an accrual basis as energy is produced. The renewable offtake arrangements at QIT Madagascar Minerals (QMM) and Amrun are leases, while our own built renewable solar farms, Gudai-Darri and Karratha, follow usual policies on capitalisation of construction cost and depreciation when ready to use.
As part of the program to develop renewable energy solutions for our Queensland aluminium assets, we entered into a hybrid solar and battery arrangement with Edify Energy in 2025 and 2 longterm renewable 2.2 GW PPAs: the Upper Calliope solar farm and the Bungaban wind farm, in prior years, to buy renewable electricity and associated green products to be generated in the future. These PPAs are in the final feasibility stage and development remains subject to achieving financial close. In 2024, our New Zealand Aluminium Smelters signed long-term PPAs with electricity generators for a total of 572 MW of hydroelectricity. We have also signed 2 renewable PPAs in the US to date. These contracts are recorded as level 3 financial derivatives (note 25 (iv)) and require complex measurement over the contract’s term, with inputs such as unobservable long-term energy prices being key sources of estimation of uncertainty (note e).
No adjustments to useful lives of the existing mining fleet have been identified to date as a result of planned electrification in the Pilbara. The solutions are still in development or pilot stages and the gradual fleet replacement is intended to be part of the normal life cycle renewal of trucks. Depending on technological development, which is highly uncertain, this could lead to accelerated depreciation in the future. Similarly, our target to have net zero vessels in our portfolio by 2030 has not given rise to accounting adjustments to date, as the replacement is planned as part of the life cycle renewal. The expenditure on our own carbon abatement projects and technology advancements follows existing accounting policies on cost capitalisation, and research and development costs.
Use of Paris-aligned accounting
Forecast commodity prices, including carbon prices, incorporated into our Conviction scenario are used to inform critical accounting estimates included as inputs to impairment testing, estimation of remaining economic life for units of production depreciation, and discounting closure and rehabilitation provisions. These prices represent our best estimate of actual market outcomes based on the range of future economic conditions regarding matters largely outside our control, as required by IFRS. As the Conviction scenario does not represent the Group’s view of the goals of the Paris Agreement, our commodity price assumptions used in accounting estimates are not consistent with the expectation of climate policies required to accelerate the global transition to meet the goals of the Paris Agreement.
Impairment
In our impairment review process, we consider the risks and sensitivities associated with climate change.
In 2025, we recognised an impairment charge at Rio Tinto Iron and Titanium Quebec Operations and QIT Madagascar Minerals due to challenging market conditions. To illustrate the sensitivity of the impairment outcome to the cost of carbon, the post-tax net present value of the cash generating unit would be US$250 million lower if the carbon tax per tonne was increased by 25% from 2040 with all other valuations input remaining the same (note 4).
The Gladstone alumina refineries are responsible for more than half of our Scope 1 carbon dioxide emissions in Australia and therefore have been a key focus as we evaluate options to decarbonise our assets. In prior years, we recorded an impairment of the Yarwun alumina refinery and of the Queensland Alumina Limited (QAL) refinery and provided carbon cost sensitivities. We continue to progress lower-emission power solutions for the Boyne smelter that could extend its life to at least 2040.
Under the Aspirational Leadership scenario, which is not used in the preparation of these financial statements, nor for budgeting purposes, the economic performance of copper and aluminium is expected to be stronger under supply and demand forward-pricing curves, which we believe will be consistent with the Paris Agreement. It is possible therefore, under certain conditions, that historical impairments associated with copper and aluminium assets could reverse.
In the Aspirational Leadership scenario, the prices for lower-grade iron ore are lower in the medium term due to higher recycling and lower value-in-use relative to high grade ores. In the longer term, we assume the pricing for lower-grade iron ore to be weaker than in our Conviction scenario and will depend on the development of low-carbon steel technology, the pace of which is uncertain, but is expected to be partially offset by higher prices for higher-grade iron ore. As was the case in the prior year, this is very unlikely to give rise to impairment triggers in the short to medium term, due to the high returns on capital employed in the Pilbara and the slow deployment of low-carbon steel technology.
Closure provisions
Closure dates and cost of closure are also sensitive to climate assumptions, including precipitation rates, but no material changes have been identified in the year specific to climate change that would require a material revision to the provisions in 2025. For those commodities with higher forward price curves under the Aspirational Leadership scenario, it may be economical to mine lower mineral grades, which could result in the conversion of additional Mineral Resources to Ore Reserves and therefore longer dated closure.
Additional commentary on the impact of climate change on our business is included in the following notes:
Accounts examples 