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Fixed On Bonds

An underground revolution: metals, mining and ESG momentum

Kishan Paun

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Mining and ESG in the same sentence? A contradiction, surely! Indeed, S&P rank the metals and mining sector as being the second-largest contributor to greenhouse gas emissions, waste, and pollution, narrowly behind the oil & gas sector. With a tainted history of accidents, spillages, and fatalities, it’s no surprise that many investors view the sector as “dirty” and exclude these companies from their portfolios. However, a systemic change in the mines is taking place, delivering significant reform within the industry and massively improving ESG, something I like to dub the “underground revolution”.
Increasingly, society understands that the decarbonizing of the global economy, the meeting of the Paris Agreement climate targets, and the achievement of the UN Sustainable Development Goals (SDGs) requires a consistent demand for metals and minerals over the coming decades. With a global policy shift toward clean energy, particularly through electric vehicles, we will find this to be close to impossible without the mining of copper, nickel, and cobalt, for example.
With ever more pressure from investors and society at large, the sector is understanding its need to up its game. Rio Tinto, for example, sold off their last coal mine in 2018, with Anglo American and BHP committing to divest from their thermal coal assets by 2022. Even Glencore, the supposed black box in the industry, has committed to net zero emissions by 2050 and is the only company within the sector to include scope 1, 2, and 3 emissions in their net zero definition.
Whilst it is easy to focus on the environmental aspect of the ESG revolution, both social and governance factors are essential for holistic change. Teck Resources, the Canadian miner, lead the sector for their ESG performance despite their significant exposure to mining metallurgical coal, often used in the production of steel. Where they particularly excel is in their relationship and dialogue with the local communities they operate in, alongside having best-in-class reporting procedures. Furthermore, Teck benefits from a relatively high share of electricity consumption from hydroelectricity, reducing the overall carbon impact of its coal mining.
Innovation is also in the vanguard of driving this change. In Chile, for example, Anglo American created its first floating solar farm atop a copper tailings dam, helping both to generate renewable energy to power mining operations as well as reducing water evaporation by 80%. The use of technology will also be key for the energy transition. Artificial intelligence (AI), drones, and computer vision are becoming increasingly popular in mine planning, thus helping to reduce waste by providing a more clear and scientific understanding of mineral deposits. In 2020, Freeport-McMoRan, the US based mining company, were able to use AI to increase throughput by 10% in their mines. The embracing of technology will continue a trend of reducing waste and increasing operational efficiency, both of which are essential for companies seeking to improve ESG performance.
Whilst change can be driven at company specific levels, it is difficult to achieve a sustained impact without universal agreement through the sector. In February 2020 the International Council on Metals & Mining (ICMM), founded to improve sustainability within the industry, made the validation and disclosure of ICMM’s principles at both corporate and asset levels a compulsory requirement of company members.
mining with principles
(Source: ICMM)
Members will be required to share progress on each of the above mining principles and to provide an explanation of expectations that have not been met. Their implementation by ICMM members, including 27 companies over 35 geographies and accounting for about 30 percent of global production of major commodities, will drive significant performance improvements and set a new standard of principles based mining.
Mining and metals are of critical importance to achieving global net zero targets. A company is judged by its ideals, provided they’ve planned how to reach there. There will be mistakes and slip-ups along the net zero journey undoubtedly, but we seek progress over perfection with credit given where due. As capital allocators, we have a responsibility to be part of the solution. Responsible miners are part of the solution.

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