Mined materials are the starting point in the supply chain for much of the global economy and decarbonizing the sector will be critical in meeting global emissions targets, particularly as energy transition increases demand for a number of clean energy raw materials.
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Mining companies around the world 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.
While certain governments such as Europe are solidifying net-zero goals in laws and regulations, investors worldwide are pushing corporations to take greater action on climate change.
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," James Whiteside, research director and global head of multicommodity research at Wood Mackenzie, said of recent sector announcements. "We've started to see real action from companies, but you've got to realize there are other pressures at play."
Counter pressures include rising demand for certain commodities, and limited access to renewable energy resources in some localities.
The 2015 Paris Agreement on climate change aims to limit global warming this century to under 2 degrees C above pre-industrial levels, and ideally to 1.5 degrees. Hitting that target will require substantial decarbonization across the global economy, particularly from the mining sector.
"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 around 28% of global emissions. Scope 1 covers direct emissions from operations. Scope 2 covers indirect emissions from power generation, and Scope 3 covers all other indirect 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.
"To date, mining companies have viewed sustainability mostly through a local lens, but achieving a 1.5 C to 2 C pathway will require significant global action," Oliver Ramsbottom, a partner at McKinsey & Co., said in an interview. "Several big mining companies have installed their own sustainability committees, signaling that mining is joining the wave of corporate sustainability reporting and activity. Reporting emissions and understanding decarbonization pathways are the first steps."
Ramsbottom said mining companies are thinking strategically and operationally to address the challenge. Many are dropping exposure to commodities with a substantial carbon footprint and increasing exposure to commodities used in batteries or other renewable energy sectors. They are also looking at things like reducing water usage or swapping diesel trucks for electric vehicles.
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.
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 may boost demand for platinum, palladium and other catalyst materials.
Some miners are well placed to access new green-focused sources of capital; however, the pressure is on miners to prove they are running their business with limited environmental impact, Whiteside said.
Mining companies are increasingly addressing emissions by lowering exposure to fossil fuels, localizing supply chains, increasing technological innovation and recycling more materials, he said. However, once a product leaves the mine, companies no longer have control of future emissions, he noted.
"In some ways, it's out of their hands and that's the attitude," Whiteside said.
Setting and meeting environmental, social and governance targets will become the "new normal" for mining companies, Ramsbottom predicted. 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.
BHP Group is the largest mining company in the world by market capitalization. While coal still forms a significant component of the company's portfolio, it has announced plans to exit thermal coal.
The mining major's five-year greenhouse gas emissions target, 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 Group set a longer-term goal of achieving net-zero operational greenhouse gas emissions by mid-century. It is moving toward zero emissions by accelerating the integration of renewable energy into its operations.
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 a Paris-consistent strategy and projected a 30% reduction in its direct and indirect emissions by 2035. The goal includes natural depletion of its oil and coal resources, while its 2019 capital expenditures were weighted towards 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 $2 billion to reduce direct and indirect absolute emissions by 33% by 2030. Vale also established internal carbon pricing of $50 per tonne of CO2 equivalent for capital projects in late 2019, and created a Low Carbon Forum led by CEO Eduardo Bartolomeo to reduce the company's footprint.
Fortescue Metals Group, the fourth largest iron ore producer in the world, updated its policy in June to accelerate its net-zero emissions target to 2040.
Wheaton Precious Metals is a royalty and streaming company and does not operate mines directly. However, such companies realize 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 stated.
Mining's role in supply chain
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.
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 US, the National Mining Association calls for policies that would support both coal demand and lower emissions through greater deployment of carbon capture, utilization and storage technology. However, spokesman Conor Bernstein said the association is also raising awareness about material supply chain issues.
"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.