Climate change and the transition to a low-carbon economy present serious risks but also important opportunities for the mining sector. These are likely to only grow in importance in the years ahead. The challenge for management teams is how to respond when there is no ‘one-size-fits-all’ strategic response. Critical Resource’s latest research examines the risks and opportunities posed by commercial, operational and stakeholder pressures on mining companies and outlines what can be done now to protect and enhance value in a decarbonising world.
By Kathrin Wartmann, Associate
Commodity demand is becoming ever more influenced by prospects for recycling, electrification, renewable power, and battery storage technology, among other climate-related trends. Thermal coal, once a mainstay of the industry, has been largely abandoned by major mining companies. Companies will face growing pressures to reduce emissions associated with their operations, as well as the use of their end-products, and many will encounter the physical impacts of climate change at their assets. Meanwhile, shifting stakeholder expectations will impact companies’ reputations and access to capital, bringing climate change strategy to the fore in determining whether companies will succeed or fail in the long term.
The full article, which explores these issues in more detail, can be accessed here.
A brief summary of our key findings is outlined below:
- Climate change is driving major shifts in market conditions, creating opportunities for mining companies
As consumer and voter preferences shift towards low-carbon products, some miners may be able to position themselves to demand a premium compared to high-carbon competitors. Major brands such as BMW and Apple are increasingly seeking greener metals for their products, seeing it as a point of competitive advantage. Governments are also increasingly supportive of ‘energy metals’ and low-emission mined products.
- Companies need to think deeply about what they believe a low-carbon future could look like
Conducting thorough scenario analysis to understand the impacts of climate change on their businesses will enable miners to tackle the most important strategic questions – including how demand for specific products and minerals will evolve, and what external factors might impact consumer behaviour – as well as those regarding the vulnerability of assets to physical risks.
- Miners need to find ways to reduce greenhouse gas emissions from their operations Much of the technology needed to improve energy efficiency and shift to lower-carbon power is already available and cost-effective, but most operations rely heavily on fossil fuels. The cost of shifting to lower-emissions technologies for transport and production is rapidly declining, leaving fewer excuses for companies, despite the dilemmas around how to balance investment related to near-depletion mines alongside longer life assets.
- Net-zero and scope 3 targets will increasingly distinguish the leaders from the laggards
In addition to operational emissions, many stakeholders argue that companies are responsible for managing emissions from their supply chains. Miners should already be thinking about whether ‘scope 3’ and ‘net-zero’ emissions targets could be appropriate for their businesses, and if not, how that will be communicated to investors and stakeholders.
- Companies that fail to adequately address climate change could face increasing costs of capital
A growing number of financial institutions require companies to perform well on environmental indicators, and to align their reporting with the recommendations of the Task Force on Climate-related Financial Disclosure (TCFD). Setting transparent and well-defined targets will be a crucial way of demonstrating to investors and other stakeholders that companies have fully understood the sources of climate-related risk from their operations, portfolio, and supply chain, and have a well-considered approach for how to address them.