Investing in a greener future for the mining industry

I couldn’t write a series of articles about mining and climate change without speaking to the International Council on Mining & Metals (ICMM).

The organisation has been leading the charge for sustainable mining practices and greener extraction technologies since its inception in 2001. Its 27 council members now make up approximately 30% of the global metals market, including 46% of copper production, 27% of gold and 42% of iron ore.

The weight of these numbers not only make the ICMM one of the best indicators of change within the mining industry, but also one of the greatest forces to instigate it.

In December, I spoke to senior programme officer, Verónica Martinez, about how mining companies can prepare to weather the impacts of climate change, and how investment is driving the industry’s sustainability agenda.

CL: Tell us about the work that the ICMM has been doing in the field of climate change

VM: ICMM members recognise the need for an urgent global response to the threat of climate change across all areas of society and the economy and are committed to being part of the solution. This is done by taking action to mitigate CO2 emissions at site level and across the supply chain, and by building resilience to adequately respond to climate-related risks.

Over the last few years we have focused on the physical impacts of climate change on mining assets and how to properly address them. We launched the Adapting to Climate Change: Building Resilience in the Mining and Metals Industry report in 2019, which was the result of two years of work with our members.

We’re engaging with investors to understand their expectations on climate-related risks and opportunities, disclosure and reporting, specifically under the framework recommended by the Task Force on Climate-related Financial Disclosures (TCFD). Out of our 27 company members, 11 already report to the TCFD framework which is great.

We also run knowledge sharing sessions on different climate change-related topics to identify common challenges and opportunities. And, through projects like the Innovation for Cleaner Safer Vehicles (ICSV) initiative, we are engaging with the supply chain to accelerate technology development to reduce greenhouse gas (GHG) emissions from the large trucks used in mineral transportation; one of the main sources of emissions in the mining sector.

How could climate change affect the mining industry?

Going forward, mining operations will be exposed to increased physical risk.

In gold and copper, we are already seeing the impacts of restricted water supplies, and disruption of personnel and materials transportation in certain regions. These risks must be identified early so that mining companies can develop suitable mitigation and adaptation strategies.

If those risks are not managed properly then they can result in unplanned downtime – for example, to repair critical infrastructure following a storm – and that can weaken a company’s balance sheet.

On the other hand, we acknowledge that there are also opportunities for the mining sector to contribute to the sustainable production of commodities like copper, cobalt and lithium. These are essential inputs to clean energy and mobility technologies, and the growth of the green economy.

We can make the most of those opportunities by working with partners and suppliers along the value chain.

Why is it so important that miners start to prepare for this change now?

One reason is that mining companies are already seeing the impacts of climate change-related risks in geographies like South America, Africa and Asia, and the associated costs have proven expensive.

Companies with a proper understanding of the risks and opportunities also make better progress in implementing adaptation measures. They are seen more favourably by investors for placing greater emphasis on the disclosure process, identifying risks and putting the right management strategies in place.

I think everything has come together to a point where mining companies need to act; not just because they are feeling the impacts already, but also because of increasing pressure from investors.

How would you say investor attitudes have changed over the past 5-10 years; is there greater interest now in what companies are doing to combat climate change?

Yes definitely. For example, in October 2019, we held a workshop for our members. We invited investors to talk about their expectations from mining companies in terms of what information they want them to disclose.

We know that failure to address climate change can weaken a company’s balance sheet, and for investors that’s very important.

Mining investments are long term; mines are expected to operate for 20, 30 even 50 years, so investors are looking for an overall assessment of risks, including future risks based on climate change predictions, over the lifetime of that operation.

Investors are requesting more information and they’re asking miners to report under the four categories specified in the TCFD recommendations. They’re also expecting that information to be accessible not only in sustainability reports but also in financial reports, with details on how climate change-related risks identified could impact a company’s balance sheet.

In our workshop, investors also called for the disclosure of scope 3 emissions (emissions from mine supply chains). While there isn’t consensus on how best to do this, ICMM members have committed to collectively engage with external parties to determine a preferred approach to reporting Scope 3 emissions.

They also wanted to know not just GHG emissions, but carbon intensity – GHG emissions per tonne of ore or pound of copper produced.

We understand that investors are not necessarily technical people, so we need to work together to make their analyses and decisions easier and make it easier for mining companies to understand what the next steps are.

What are scope 4 emissions?

That’s a new term and we don’t have specific methodologies to measure scope 4 emissions yet. Those account for avoided emissions of goods and services. For example, if you produce copper that is used to build electric vehicles, then scope 4 emissions would be those that would otherwise be produced by the vehicle with an internal combustion engine.

That sounds incredibly hard to measure.

It is, but investors are asking for those numbers.

The ICMM’s members account for 46% of global copper supply. That’s why we need to start thinking about how traceable our supply chains are, and how we’re engaging with suppliers both upstream and downstream.

Ok. What three practical steps can mining companies take today to help prepare their businesses for future climatic uncertainty?

In our adaptation report we provided detailed steps to help mining companies identify and prioritise areas related to climate risk and develop measures to address them. But, if we choose just three…

The first would be to understand their current situation and future vulnerability to weather conditions and natural hazards. We have developed a tool for our members that provides future climate predictions for any place in the world. They can enter coordinates for their operations, get an accurate prediction and find out which natural hazards they could face.

Having this information will help companies to understand their current situation and where they could be in 2, 5- or 10-years.

Once companies understand what hazards they might be exposed to, the second is to do a proper assessment of the risks and opportunities and identify management or adaptation options.

Third is to develop adaptation pathways. There is a lot of uncertainty surrounding climate change. We are working with miners to discuss different scenarios and how different could things look with a three-degree or five-degree temperature rise.

We see value in developing multiple adaptation pathways so that miners can be prepared whatever happens. These can be reviewed over time and miners can use a modular approach for flexibility.

Do you think the industry is doing enough to reduce its emissions and make extractive processes more sustainable?

We recently reviewed CO2 emissions using publicly available information from our members which showed that their emissions have dropped by 6% in the past three years. Our members are working hard to reduce the amount of CO2 they produce.

That said, we do need to go further, and look at what is holding us back.

There have been huge developments in renewable power agreements over the past 12 months. The mining sector has become a big buyer of renewable power in regions like South America where it is readily available. For example, the world’s largest copper mine, BHP’s Escondida, will be run entirely on renewable energy by 2021.

Fact: Scope 1 emissions from trucks typically account for 30-50% of a mine’s emissions. In Chile, that number rises to around 80%.

The mining sector is doing a lot in terms of decarbonising its power supply.

Scope 1 emissions are a different challenge, because there are still technological limitations that are preventing mining companies from decarbonising their operations faster. The scale of our operations mean that it’s much more complicated than in other industrial applications.

ICMM member companies are working hard to make changes there too, but to make further and faster progress, we need to engage with technology suppliers to develop solutions.

How could we improve our efforts going forward?

I think the industry needs to engage more actively with technology suppliers.

Another thing we are hearing from investors is they want to see change in scope 3 emissions, and they are leaning heavily on companies in the mining sector to disclose those numbers.

That has become a very relevant piece of information for decision makers, because it indicates how well a company would fit within the low-carbon economy and how resilient its business model is.

There are several methodologies that can account for scope 3 emissions, but we at the ICMM feel that it is a priority for us over the coming 12 months to engage with external parties and determine what kind of approach our members should take to report these emissions

That will be critical this year, because investors are moving fast and they’re becoming one of the driving forces behind change in this industry.