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Path to net zero: Miners are starting to decarbonize as investor pressure mounts

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Metals and mining companies are facing rising pressure to address their greenhouse gas emissions as some align their plans with international goals to achieve net-zero emissions by 2050. Pictured is an open pit mine in Russia owned by Polymetal International PLC.
Source: Polymetal International PLC

Mining companies worldwide are working to slash greenhouse gas emissions, but many of the largest have yet to align their goals with international targets to reach net-zero emissions by 2050.

Mined materials are the starting point in the supply chain for much of the global economy. Decarbonizing the sector is critical to meeting global emissions targets, particularly as a growing energy transition increases the demand for critical raw materials. While governments in places such as Europe are solidifying net-zero goals in laws and regulations, shareholders everywhere are pushing companies to take more significant action on climate change.

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Path to net zero
How some of the biggest companies in energy and metals and mining are moving to decarbonize their footprints. Please click on the story links below to read more of our coverage.
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Overview: In taking plunge, US utilities ahead of global oil, mining
Utilities: Cracks appearing in natural gas' role as bridge fuel
Oil and gas: European oil majors outpace US companies on climate goals
Mining: Miners are starting to decarbonize as investor pressure mounts
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S&P Global Market Intelligence reached out to 30 mining companies ranking among the world's largest by market capitalization, and just eight have committed to reaching net-zero emissions by 2050 or sooner or already tout carbon neutrality. Many of the remaining companies have set less ambitious targets, are updating goals or have different climate-related aims.

"I think certainly you see moves which have been associated with a reduction in greenhouse gas intensity," said James Whiteside, research director and global head of multicommodity research at Wood Mackenzie. "We've started to see real action from companies."

Miners are likely to increasingly be held to account not only for their own emissions but also for those that occur from the use of their commodities that turn up downstream in many sectors of the economy.

"In some ways, it's out of their hands and that's the attitude. Once a product leaves the mine gate, they have no sway over what it's used for and what its emissions are," Whiteside said. "I think increasingly investors are going to question that."

The 2015 Paris Agreement on climate change aims to limit global warming this century to under 2 degrees C above preindustrial levels, and ideally to 1.5 degrees. Hitting that target will require substantial decarbonization down entire supply chains.

"So far, most of the measures that have been brought in have been just focused on power generation," Whiteside said. "But increasingly, it's looking like carbon pricing will be brought in on metals production as well. I think there's a lot of cognizance, from investors in particular, about the emissions intensity of the assets in a company's portfolio."

A growing trend

Mining is responsible for 4% to 7% of global greenhouse gas emissions in terms of the sector's Scope 1 and Scope 2 emissions, according to January estimates from McKinsey & Co. Including Scope 3 emissions links the sector to about 28% of global emissions.

Half of the global industrial greenhouse gas emissions in 2015 were traced to just 50 companies in heavy fossil fuel industries, including 20 mining companies, according to a report from the Carbon Disclosure Project.

"Several big mining companies have installed their own sustainability committees, signaling that mining is joining the wave of corporate sustainability reporting and activity," Oliver Ramsbottom, a partner at McKinsey & Co., said in an interview. "Reporting emissions and understanding decarbonization pathways are the first steps."

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Many of the largest mining companies will need to rebalance their portfolios as the world shifts to an economy with reduced emissions. While coal miners may see demand rapidly decline, new technologies supporting decarbonization efforts, including wind turbines, solar photovoltaics, electric vehicles and energy storage, will increase demand for other mined materials, Ramsbottom said. For example, electric vehicles and battery storage are likely to create growth markets for lithium, nickel and cobalt. At the same time, emerging technologies in hydrogen fuel cells and carbon capture could boost demand for platinum, palladium and other materials.

Ramsbottom said mining companies had previously thought more locally about their impact but are now thinking strategically and operationally to address the global challenge. Many are dropping exposure to commodities with a substantial carbon footprint and are increasing exposure to commodities used in batteries or other renewable energy technology. They are also looking at things such as reducing water usage or swapping diesel trucks for electric vehicles at the mine site.

"Some miners are pretty well placed to access [new green-focused] sources of capital," Whiteside said. "Through the commodities they produce, they play a role in the energy transition. But part of that is proving that they are running their businesses with as little impact on the environment as possible."

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Mining companies are increasingly addressing emissions by lowering exposure to fossil fuels, localizing supply chains, increasing technological innovation and recycling more materials, Whiteside said.

Ramsbottom predicted that setting and meeting environmental, social and governance targets will become the "new normal" for mining companies. Those who look at investments in mining through an ESG and climate lens could better identify companies that are positioning themselves ahead of the curve.

Energy is often among the top expenditures at a mining operation, consulting firm Deloitte said in its 2020 annual report on the sector. While renewables require upfront capital, there are few consumption costs once the technology is in place, which could unlock a wave of opportunity for the sector.

"While the path isn't expected to be easy, the commitment is necessary if miners are to contribute to the mitigation of risks associated with climate change and create value for customers, investors, governments, communities, and employees," the report said.

Varied approaches

BHP Group is the largest mining company in the world by market capitalization. While thermal coal still forms a significant component of BHP's portfolio, the company has announced plans to exit thermal coal.

The mining major's five-year target for greenhouse gas emissions, which took effect July 1, 2017, maintains total operational emissions in fiscal 2022 at or below fiscal 2017 levels while the company continues to grow its business. BHP set a longer-term goal of achieving net-zero operational greenhouse gas emissions by midcentury.

The company has a five-year, $400 million Climate Investment Program aimed at reducing its footprint and plans to update emissions targets in September with its 2020 sustainability report. It is moving toward zero emissions by accelerating the integration of renewable energy into its operations.

"If we then look at the world as it evolves through on this path to decarbonization, I think it's generally accepted that there will be a period in which oil, gas [and] coal will continue to be used by the world," BHP Group CEO and Executive Director Mike Henry said on a February conference call. "And having us in there with our strong view on climate change, taking the actions that we take around our operational emissions footprint, we think that that will be recognized."

Diversified miner and trader Glencore PLC has faced criticism as it continues to develop a major thermal coal project in Australia despite a recent pledge to cap annual coal production. However, the company has committed to Paris-consistent strategy and projected a 30% reduction in absolute Scope 3 emissions by 2035. The goal includes natural depletion of its oil and coal resources, while its 2019 capital expenditures were weighted toward energy transition materials, including African copper and cobalt and Canadian nickel.

Brazilian miner Vale SA announced in mid-May that it would invest at least US$2 billion to reduce direct and indirect absolute emissions by 33% by 2030. Vale also established internal carbon pricing of US$50 per tonne of CO2 equivalent for capital projects in late 2019.

Fortescue Metals Group Ltd., the fourth-largest iron ore producer in the world, updated its policy in June to accelerate its net-zero emissions target to 2040.

Several mining companies have not specified net-zero goals but are otherwise addressing climate change risks. For example, Canadian gold miner Agnico Eagle Mines Ltd. has not set a net-zero emissions goal, but all of its sites are implementing initiatives to reduce greenhouse gas emissions in 2020, spokesperson Natalie Frackleton said.

"We understand that maintaining our social license to operate depends extensively on our ability to respect our environmental commitments and improve our environmental performance," Frackleton said.

Wheaton Precious Metals Corp. is a royalty and streaming company and does not operate mines directly. However, such companies realize that investors are concerned about climate and other environmental impacts and are also responding.

Simona Antolak, director of communications for Wheaton, said the company is carbon neutral and plans to maintain that through offsetting programs.

In Wheaton's 2019 sustainability report, the company said it focuses on a site's energy requirements and sources during due diligence. For example, it reviews whether the operator plans to use electric mining equipment or renewable energy instead of relying on diesel and other fossil fuels.

"We look for programs to minimize energy use and to introduce renewable energy options such as solar power, which is increasingly being used in remote sites," the report said. "As of 2019, none of Wheaton's streaming assets have been identified as having a significant climate-related risk with the potential to lead to a substantive financial or strategic impact on the business."

Mining's role in supply chain commands climate action

Trucost research, which analyzed mines owned by the top 20 miners by market capitalization, showed that on average, 11% of the mines' profits could be at risk by 2025 due to potential increases in carbon regulation costs and higher water costs due to changes in climate. The companies could seek to pass on increased cost to their customers, which would drive up commodity prices, dampen demand and reduced revenue.

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A net-zero emissions future is only possible with the minerals and other raw materials provided by mining, according to Minerals Council of Australia CEO Tania Constable. The organization recently launched a Climate Action Plan to reach net-zero emissions at an unspecified date. Constable said the plan is "a global undertaking of major technological, economic and social challenge" in which mining heavyweight Australia must "play their part."

"Australia's minerals sector listens to stakeholders and acts to meet changing community expectations," Constable said. "The sector is committed to the Paris Agreement and its goal of net-zero emissions."

Constable pointed to emissions-reducing projects by mining companies, such as Rio Tinto's 34-MW solar farm in the Pilbara region and Glencore's carbon capture and storage demonstration project in the Surat Basin.

The diversity of mining operations often requires a good deal of nuance, given many ties to fossil fuels and materials that are traditionally associated with heavy greenhouse gas emissions. In the U.S., the National Mining Association calls for policies that would support coal demand and lower emissions through greater deployment of carbon capture, utilization and storage technology. However, spokesperson Conor Bernstein said the association is also raising awareness about material supply chain issues that could derail low-emissions technologies such as electric vehicles.

"Mining is the front-end of the supply chain for every energy technology we use," Bernstein said. "The technologies critical to our economy — energy technologies included — are only more minerals and metals intensive than ever before, using elements that stretch the full breadth of the periodic table."

For decarbonization to succeed in the mining sector, the course must be charted with the industry, according to a recent report by the Rocky Mountain Institute. That includes setting emissions reduction targets in line with climate science; tracking progress rigorously, consistently and publicly; evaluating long-term climate risks and opportunities; and actively seeking out and developing technologies and strategies to reduce carbon emissions.

"Cocreation of this pathway is certainly the next logical step," according to the report from the Colorado energy think tank. "Winners and losers in the mining industry, as in other industries, will be determined by how well companies prepare now."

Diana Kinch, Katya Bouckley, Filip Warwick are reporters with S&P Global Platts who contributed to this article. S&P Global Market Intelligence and S&P Global Platts are owned by S&P Global Inc.

Trucost is part of S&P Global Market Intelligence.