By Amos Safo
Mineral resources have over the years been the source of economic wealth for both developed and developing countries, though developed countries have benefitted more from mineral resources than host countries to technological advancement and power imbalance.
Nevertheless, due to the growing impact of the extractives industry on carbon emissions and climate change, managing mining transitions should be a shared responsibility. What is more, many mining companies often operate in remote locations, sometimes in politically unstable countries. This makes the risk management of mining challenging for the industry.
Risk management
Minerals are essential for society and economic development across the globe. However, the mining industry is a heavily polluting one and currently responsible for between 4-7% of greenhouse gas emissions (Scope 1 and Scope 2) globally and consumes up to 11% of global energy use, according to CSR, sustainability and climate change reports of some of the major industry players.
Across the world, regulation and legal requirements around resource management and carbon reduction are increasing. This is because the mining industry is a supplier to other emissions-intensive industries. At the same time, renewable low-carbon energy is heavily dependent on the mining industry to provide the metals and minerals necessary for construction and operation.
Paris Agree
Under the Paris Agreement, countries collectively agreed to reduce global emissions through material climate pledges. Amidst increasing activism, the willingness to act to decarbonise is gaining attention and momentum among mining industry stakeholders, including lenders, insurers, shareholders, regulators and other stakeholders, including consumers. Indeed, net zero-strategy is a basic question for every company, says former Bank of England Governor Mark Carney.
Due to the pressure on mining companies to comply with carbon emission reduction, it is prudent that companies become proactive by integrating climate-related risks, mitigation and adaptation measures into business and decisions and sustainability strategies. While decarbonization will be easier for some mining companies that have a lower carbon intensity, others require more collaboration and cooperation with stakeholders in the sector, such as host communities and the insurance industry to insure their operations. What is clear is that, whether mining companies commit to carbon reduction or not the old ways of extracting minerals need to change in line with international regulations and reporting standards. In other words, the wind of change for sustainable mining practices to protect the environment and promote better natural resource management is unstoppable.
Signs on the wall
Several reports on climate change and global warming indicate that the earth is getting hotter each day due to rapid industrialization and uncontrolled exploration of the earth’s natural resources. In fact, the scientific body of evidence from the Intergovernmental Panel on Climate Change (IPCC) is overwhelming.
Consequently, global environmental advocates and watchdogs are warning all of us about the environmental threats that will emerge over the next ten years, and mining industry leaders know this better. For the first time in the history of the World Economic Forum’s Global Risk Report 2020, environmental threats dominated the agendas of world leaders. The survey asked leaders what issues are crossing their desks before the onset of the COVID-19 global pandemic. The responses suggest that business and finance leaders admit that the likelihood and impact of environmental threats to the mining industry are high. The report indicates that high carbon intensive industries are vulnerable to three risks – physical, transitional and liability, which constitute significant financial consequences for the mining industry.
Physical risk
Physical risk indicates that mining assets are often found in some of the remotest and geographically diverse parts of the world. In addition, the environmental impacts of mining are associated with changes to land use, additional traffic infrastructure and the industrialisation of remote areas. Most importantly, climate change is not just about the world getting hotter, it is also about changes to extreme weather and climate events. It is becoming clear that the consequences of the physical risks of climate change will impact operations and workers, interrupt business and impact vulnerable supply chains and infrastructure.
Several sustainability reports affirm that mining operations are already exposed to natural catastrophes in some parts of the world. There are forecasts that climate change may impact these exposures further. Other reports indicate mines in South Africa are already facing extreme heat, while copper mines in Chile are already operating in extremely water stressed and dry locations.
In fact, the rate at which water pollution and water loss is occurring in Ghana suggests that the country will soon face water shortage, unless remedial actions and policy measures are implemented. In addition, increasing temperatures and potential changes to rainfall patterns pose challenges to environmental management and risk mitigation as well as putting more pressure points on community relations. The question is can mine workers, assets and infrastructure withstand an increased frequency and magnitudes of extreme weather events, not to mention the impact on vulnerable supply chains and increased bottlenecks?
The stakeholder perspective
These dramatic changes in the weather pattern and its likely effects on livelihoods is causing stakeholder sensitization and agitations in some developing countries. In a 2019-2020 survey of over 250 mining sector participants across the world, Ernst and Young found that, the social ‘license to operate’ is the number one rated risk. As climate change impacts deepen, the mining industry’s social license to operate will need to include increased transparency, mutual value creation and respect to satisfy stakeholders and society. In other words, the approach to mining as business as usual will have to change, if corporations are to have a peaceful environment to sustain their operations. This means companies should not only focus on shareholder value but should pay equal attention to stakeholder concerns and priorities. In Ghana a network of stakeholder engagement on environmental social governance (ESG) in mining communities is gathering momentum. Spearheaded by Thomas William Cook Dankwah Executive Director of Hanssen Global UK &Ghana Ltd, the network plans to advocate for good corporate relations and stakeholder engagement to promote win-win collaboration between mining companies and host communities.
Water as a casualty
One of the key casualties of mining, which is also a factor of production for mining is water. Water is a key component for refining materials such as copper and iron ore. For this reason, the shortage of water is one of the primary ways that the mining industry may feel the effects of climate change. It is no secret that some miners have had a major impact on water resources, sometimes depleting water supplies through high usage and, in certain instances, polluting them with discharged mine effluent and seeping from tailings or waste rock impoundments.
In fact, water has been described as the most common casualty of mining. It is estimated that by 2030 up to $50bn of mining revenues are likely to be exposed to high levels of water stress risk. A study by McKinsey found that 30-50% of production of copper, gold, iron ore and zinc is concentrated in areas where water stress is already high. In short, water stress can impact a mining company’s business operation, revenue generation and expenditure requirements. In some regions, one of the most significant variables for mining projects is the availability of water.
Other studies indicate that global water demand is expected to increase between 20- 30% by 2050 above the current level of water use, which will further increase stress levels as the effects of climate change intensify. Since mining executives are aware of the impending water crisis sustainability and adaptation plans will be crucial as climate path evolves.
In a recent report titled, “Water storage is at the heart of climate change adaptation”, the World Bank notes that water is at the centre of economic and social development, as it is an indicator whether communities are healthy places to live, good places to grow food, or have reliable clean energy. Water also underpins natural ecosystems such as forests or wetlands, drives industry, creates jobs, and touches every aspect of development, with a direct link to almost every Sustainable Development Goal (SDG).
Currently, many countries are placing unprecedented pressure on water resources. The global population is growing fast, and estimates show that with current practices, the world will face a 40% shortfall between estimated demand and available supply of water by 2030, just seven years from now. Thus, chronic water scarcity and extreme weather events are perceived as some of the biggest threats to global prosperity and stability, says the World Bank report. The availability of water and its management is therefore one of the keys to sustainable mining activity from a health and environmental perspective.
Transition risk
The above assertions justify the need for all stakeholders to pay attention to transitions and drive towards a zero-carbon economy. Since some mining companies are operating in some of the poorest countries they should commit more funds into environmental sustainability, especially water resource management. Reports indicate that the market capitalisation of the ten largest mining companies is over $350 billion, some of which contribute to annual carbon emissions of over 1.5 billion tonnes.
In 2021 the World Bank produced a report, “Minerals for Climate Action: The Mineral Intensity of the Clean Energy Transition”, to signal how the shift to a cleaner energy system could impact the demand for minerals. This report is interesting because it shows how increasing demand for minerals and metals are likely to adapt under low-carbon technologies, such as renewable energy and battery technology supply chains.
Fortunately, a few large mining companies, such as Newmont Corporation, Rio Tinto and Anglo American have set targets to achieve carbon neutrality by or before 2050. Some companies of these companies are setting Scope 1 (direct) and 2 (indirect) emissions targets while others, such as BHP, have announced plans to include Scope 3 emissions, which are the third-party emissions from the end use of products, in their targets.
Increasingly, investors have a growing concern over the viability of high carbon business models in an increasingly carbon-constrained world. Investors and other stakeholders are advocating for attainable decarbonisation strategic plans. Therefore, it is in the best interest of mining companies to create and execute transparent decarbonisation strategies, which will provide value for investors and other stakeholders.
According to a 2019 report titled, “Global trends in climate change litigation” and published by the London School of Economics, climate change litigation is expanding across jurisdictions as a mechanism to strengthen climate action. Indeed, climate change litigation is increasingly viewed as a tool to influence policy outcomes and corporate good behaviour. Furthermore, new climate mandatory reporting rules are on the rise. This means that financial market participants and large companies will soon face the legal obligation to report and reduce the carbon footprint of their activities. Nothing short of environmental social governance will promote sustainable mining for both shareholders and shareholders.
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The writer is a Development and Communications Management Specialist, and a Social Justice Advocate. All views expressed in this article are his personal views and do not represent those of any organization(s).
