The world’s major publicly-listed mining companies are generating up to $16 billion in emissions costs by passing the climate risk down their value chain, and are exposed to up to 30 times more emissions by passing down the buck.
These are the key findings from a new report published by CDP (formerly the Climate Disclosure Project), the world’s leading climate change research provider, which analysed a $294 billion market cap grouping of the world’s major publicly listed mining companies.
The analysis found that mining companies still remain heavily dependent upon fossil fuels, regardless of the fact that efforts to reduce mining emissions have seen the industry source almost half of its energy consumption from renewable energy sources — with 9 of the 12 companies analysed in the report taking active measures to reduce the emissions intensity of their operations. Further, mining companies spend almost half of their capital expenditure (45%) on low-carbon materials such as copper and nickel, yet still continue to spend over a quarter on fossil fuels.
The problem identified in the report is that the mining industry supplies to emissions-intensive industries, which face significant risk from downstream regulation and changing consumption patterns. Specifically, there is significant potential exposure to carbon emissions regulation in the mining industry’s value chain. Further, the mining value chain contains up to 30 times more carbon than their own operations.
“The mining sector must take stock and not risk being left behind in the global transition towards a low-carbon economy,” explained Paul Simpson, CEO of CDP. “Miners depend on continuing demand for the commodities they supply and the countries consuming the most commodities are making significant changes in addressing climate change. This is most acute in China’s proposal of putting a price on carbon, signifying a strong transition to a low-carbon economy. The recent recommendations of Mark Carney’s Taskforce on Climate-related Financial Disclosure (TCFD) is another factor of increasing investor pressure for companies to not only disclose but manage their transition risk.”
The 12 companies analysed in the report are actively moving away from reliance on coal, but have more than doubled their reliance upon oil and gas production over the last 6 years. Further, as Simpson suggested, given that the sector is still so heavily dependent upon continuing demand for their supply of commodities, the global mining sector is at risk of being hit hard by China’s proposed plans to price carbon, which CDP predicts could be a catalyst for more widespread carbon pricing in commodity consuming countries, subsequently disrupting commodities markets and demand for miners’ output.
Further risks to the mining industry are the increasing possibility of water stress due to drought and shortages by 2030 in major mining countries such as Chile, Australia, and South Africa. Specifically, CDP predicts that by 2030, 27% of production and up to $50 billion of revenues is likely to be exposed to high levels of water stress risk.
The CDP report benchmarked the mining companies based on their performance on climate issues.
“As a sector with a significant carbon footprint and that supplies the wider economy, mining is faced with the reality that a low-carbon transition will impact many of the industries that currently demand its commodities,” said Tarek Soliman, Senior Analyst, Investor Research at CDP.
“Accordingly, the companies we featured in our research will need to adjust their long-term strategies to reflect the changing grounds in carbon regulation and commodity consumption trends in light of events such as China’s proposed carbon pricing scheme. Miners in general have cut operational emissions and costs in recent years as well as scaling down thermal coal exposure, however their significant Scope 3 emissions footprints remain a concern. Some companies are doing more than others to ready themselves for a transition, and investors will want to know what the potential implications are for their portfolios.”