The decarbonising of operations across a company’s value chain – once seen as a nice-to-have reporting metric – is, today, a corporate responsibility expectation and an industry-level credibility test. More importantly, going forward, the ability to successfully decarbonise mining and metals businesses will become central to maintaining institutional investor commitment in an age where sustainability concerns determine global capital allocation.
To discuss the range of decarbonising options available to companies – especially those in the mining and metals sectors – ERM hosted a breakfast session on 3 February 2020 at this this year’s Mining Indaba.
“The decarbonisation of the mining and metals sector is a critical issue for ongoing business operations, both now and in the future,” said Lerato Sithole, Managing Partner at ERM.
Decarbonisation is one of the six pillars identified by ERM’s ‘Mines We Want to See’ initiative aimed at helping create safe, smart efficient, inclusive and responsible mining practices globally.
Runaway wildfires in California, Siberia, Europe, the Amazon and most recently Australia, as well as the coronavirus in China, highlight the intensifying effect of global warming, carbon overload, environmental destruction, unchecked human consumption and increasingly precarious planetary and human health. As long as governments, businesses and consumers continued to ignore climate change and the loss of biodiversity, the almost apocalyptic scenes recently witnessed in Australia and currently playing out in China are set to intensify over the coming decades.
Encouragingly, the World Economic Forum (WEF) in Davos this year evidenced a new level of convergence around the need to take concrete action. For the first time ever in the history of the WEF’s Global Risks Report, for example, the top five risks by likelihood – and the top three by impact – are environmental issues.
Business, and especially the investment world, is responding.
Bank of America, for example, recently announced that it will be investing USD 300 billion over the next decade in sustainable business projects. To date, Bank of America clients have already invested USD 25 billion in environmental, social and governance (ESG) funds. CEO Brian Moynihan says money will keep flowing to ESG funds as more investors seek to own companies that align profits with broader social goals.
In addition, Larry Fink, CEO of the world’s largest money manager, BlackRock, recently stated that climate change will lead to a fundamental reshaping of finance – the likes of which the world has never seen. Fink predicts that this significant reallocation of capital will take place – sooner than most anticipate. Climate change is almost invariably the top issue that clients around the world raise with BlackRock. BlackRock has just raised USD 1 billion for wind, solar and battery-storage projects.
Closer to home, a number of South African institutional investors and commercial banks are becoming increasingly interested in financing bankable ‘green’ projects and initiatives. Large investors have also started to require companies to be more transparent about their ESG and climate change related issues and measures.
Addressing the ERM panel, Jon Duncan, Head of Responsible Investing said, “pension funds, such as Old Mutual, will need to decarbonise their asset register over the next 30 years.”
The transition from fossil fuels to renewable energy sources presents, “significant opportunities for the mining sector – providing companies are able to effectively respond to investor signals,” added Sithole.
In order to remain relevant within this rapidly changing investment environment, mines, for example, “need to understand both evolving investor expectations as well as the technology, power source options and policy and funding perspectives able to support the decarbonisation of mining in a commercially and operationally achievable way,” explained Sithole.
National policy also plays a critical role in supporting the mining sector’s decarbonisation transition.
“It is important to balance regulatory stability with sufficient flexibility to promote innovative thinking,” said Kirsten Lori Hund, Senior Mining Specialist, Energy and Extractives, at the World Bank. This is particularly relevant within the context of South Africa’s energy crisis and President Ramaphosa’s recent call on government to thrash out legislation that will allow companies and households to generate their own electricity – to both alleviate and supply the national grid.
Over the past few years, there have been a number of interesting green energy projects emerging from major mining companies. These include Bushveld Energy’s 1 MW solar generation and storage project providing power at a lower price than South Africa’s national grid. Inspiration can also be drawn from international mining operations, such as the Anglo American mine in Chile that, in partnership with Engie, recently introduced a cost-effective hydrogen truck fleet. Anglo American plans to roll these trucks out across its other South American operations.
The panel assembled by ERM for this year’s Mining Indaba represented, “a powerful collection of first-hand experience in decarbonising operations in the mining and metals sector along commercially sustainable lines,” said Sithole. These insights are, “critical to understanding how the mining and metals sector can remain relevant – from a decarbonisation, alternate energy, and also a global capital allocation perspective,” concluded Sithole.