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Renewables promising for miners, but edge may go to most responsible operators

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Codelco, the National Copper Corporation of Chile, operates the Chuquicamata copper mine in Calama, Chile.
Source: Diego Delso, courtesy of Earthworks

The rise of renewable energy to meet global climate goals could be a boon for global mining companies but new customers may also bring higher levels of scrutiny to corporate responsibility practices in the sector.

Increased production of renewable energy resources to meet the goals set out by the Paris Agreement on climate change is expected to drastically boost demand for valuable materials including lithium, cadmium, silver, rare earth metals, aluminum and copper. As demand rises, a growing number of stakeholders are calling for close attention to the environmental, social and governance practices of mining companies crucial to the renewable energy supply chain.

Historically, miners produced a small amount of some of the materials now crucial to renewable energy technologies, according to a report prepared for environmental group Earthworks by The Institute for Sustainable Futures at the University of Technology Sydney. However, as mining's role in the sector continues to expand, the renewable sector should demand that materials come from responsible sources when not sourced from recycled products, said Payal Sampat, mining program director for Earthworks.

"A few years ago, there was a lot of pressure that came from some of the large buyers of jewelry and electronics," Sampat said. "I don't think that's happened yet with the renewable energy sector."

Under the Institute for Sustainable Futures' modeled scenario of 100% renewable energy by 2050, demand could exceed current production rates for several materials over the next decade or so. Demand from renewable energy and storage alone could exceed available reserves of cobalt, lithium and nickel as well as 50% of reserves for indium, silver and tellurium. Electric vehicles and battery storage could account for up to 50% of the end-use market for lithium by 2020.

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Investor and customer focus on responsible mining received renewed attention in the wake of Vale SA's recent highly fatal tailings dam failures in Brazil that killed about 300 people. Potential criminal charges loom and prosecutors continue to investigate the incident and Vale's mining practices. Already, the International Council on Mining and Minerals has said it is working with other organizations to develop new standards on tailings dams and their safety implications.

The disaster is a reminder that while the mining industry can do tremendous good if there are incentives to mine responsibly, there is also the potential for tremendous harm to human life and the environment, said IRMA Executive Director Aimee Boulanger. The Initiative for Responsible Mining Assurance, or IRMA, is a multi-stakeholder group that aims to protect people and the environment from the potential harms of mining by creating financial value for mine owners who have their mines independently verified as conducting best practices.

No one raises their hand and admits "I'm the irresponsible miner," Boulanger said. That is why IRMA offers customers and investors increasingly savvy to ESG concerns a means of independently verifying mining practices.

"The environmental and social impacts at the top of the supply chain could easily undo the efforts that we intend in addressing climate change with renewables if we don't make sure that the materials that we mined for are done differently than the current status quo," Boulanger said.

Mining sector reacts

Rising demand for renewable energy could be bad news for coal and other fossil fuels but even some large coal mining companies see opportunity in the shifting energy landscape. Noting its "key role to play in enabling a transition to low carbon economy," major global coal producer Glencore PLC announced in February that it was capping its coal production at current levels. While some criticized the move as self-serving given that Glencore's cap on production could serve to keep coal prices higher for longer and environmentalists characterized the move as only a first step, the company said it now plans to prioritize capital investment that will grow the production of commodities essential to transitioning to an energy system emitting less carbon dioxide.

A 2017 study from international asset manager Robeco found recycling material does not pose an imminent threat to primary commodity supply and that mining operations with lower emissions per product unit tended to report higher profitability. Last year, The Responsible Mining Foundation published a Responsible Mining Index that concluded a majority of companies made policy commitments on topics such as ethics, human rights, worker safety and the environment, but few can demonstrate they systematically operationalized those commitments into action.

"Many companies are performing relatively well in certain thematic areas," the report concludes. "At the same time, all areas show clear potential for continuous improvement."

Multinational diversified mining company Anglo American PLC is seeing more customers come to them with detailed questions about the sourcing of minerals, said Jonathan Samuel, group head of social performance and engagement at the company. While industrial metals are not as far along as the commodities that go into jewelry, the means for tracking the source of materials like copper through a complex supply chain is currently in development, he added.

"Our view is that this is coming quite quickly and it's coming in different forms," Samuel said. "Short term, I think you could get away with cutting costs in [certain ESG] areas, but long-term — mining is a long-term industry — we think it's better to start by doing it right and meeting stakeholder expectations and demonstrating that in a credible way."