Climate change strategy and mining
In November 2017, the Energy and Mines World Congress will be held in Toronto. This is the 5th year that this conference has been running and this year's theme is Decarbonizing the Mining Sector. In the lead up to this conference, engeco was one of a number of companies interviewed to discuss the importance of climate change strategy to the mining industry. To get a copy of the report, sign up for one at this link. The Energy and Mines World Congress looks to be a very good conference, featuring attendees and speakers from across the mining industry - discussing climate and energy risks as they are felt by the resource sector.
Put simply, climate change is becoming a key strategic issue for mine operators and it is being recognised as a business risk. To develop a climate change strategy a number of things should be done.
Knowing what your emissions are is key to understanding the impact they will have on a mining company. They can be grouped into two broad categories. A company's Scope 1 (those they are directly responsible for) and Scope 2 (those associated with import of energy from a third party) emissions are one category. Scope 3 emissions (those associated with the supply chain of inputs and products) are the other. They should be considered separately as they have slightly different effects on the business.
With the emissions known and understood, the next phase of developing a climate change strategy is understanding what the external factors are that will have an effect on the company's ability to generate those emissions. These external factors are quite broad and encompass the international framework for climate change action under the United Nations and how this then translates to national policies both now and potential policies in the future to meet national targets. That is, what are a nation's policies for emissions reductions, can that nation meet its targets with current policies and what other policies may be implemented in the event targets won't be met or in the event that they are tightened in future UN conferences. The manner in which those policies are felt by emitters also needs to be understood. That is, will there be an explicit financial cost through an emissions trading scheme or carbon tax - or an implicit cost through direct regulation of emissions limits or requirements for renewable energy. In addition to the policy factors that should be considered, thought needs to be given to stakeholder interest and social license related issues.
There is a growing trend where increased disclosure on the risks of climate change has been requested by shareholders, investors and lenders - most recently championed in the work by the Task Force on Climate Related Financial Disclosures (TCFD). This has been discussed at length in previous blog posts.
The Scope 1 and 2 emissions present a potential financial risk when considering policy impacts that involve implicit or explicit carbon prices as well a potential social license risk. Scope 3 emissions become important because of the potential financial implications of increased cost of raw material inputs and input energy and, in the event that use of the products is emissions intensive, potential reduction in demand for those products - leading to reduced commodity pricing.
With the risks and potential financial implications understood, preventive and mitigating controls can be explored and implemented where it makes sense. This includes business case development of abatement opportunities, investigating offsets, plotting emissions reduction opportunities on marginal abatement cost curves. Companies will then need to make strategic decisions based on the risks analysed and their response to those risks.
Climate change is a serious issue for businesses and is very likely to become a more important issue into the future. However, it does present opportunities for businesses as well, if they can develop a deep understanding of the issues and how best to structure their business to cope.