Standard aims to improve investor engagement and tackle transition risks amid recognition of mining’s “pivotal” decarbonisation role.
Climate Action 100+ (CA100+) has launched the Net Zero Standard for Diversified Mining to provide its signatories and investors with a “transparent, systematic, and evidence-backed” engagement tool.
The investor engagement initiative – which is currently comprised of 171 companies – said that mining companies have a “critical role” to play in the global economy’s net zero transition, but that the sector is subject to “significant transition risk”.
CA100+ added it is “vital” for investors to have “robust tools” to “independently and consistently” assess their transition plans to understand their transition risk and support engagement efforts.
The initiative noted that investors want to ensure that commodities deemed to be key transition materials – including cobalt, copper, graphite, and lithium – are “mined responsibly”, with any accelerated mining not incurring “unacceptable costs” in environmental and social impact, or carbon emissions.
Dan Gardiner, Head of Transition Research at the Institutional Investors Group on Climate Change (IIGCC), told ESG Investor that the resources diversified mining firms provide are a “vital and substantial component of the global economy” which will be “pivotal in its decarbonisation”.
“This new standard provides both a framework for investors to assess these risks and opportunities, doing so in a way that is consistent with a just and orderly transition to net zero,” he added.
Enhancing investor engagement
Diversified mining companies are key in investor portfolios, with the ten largest accounting for US$706 billion of market capitalisation. Sectors including autos, property, steel and manufacturing are also highly dependent on the commodities produced by the mining sector, further heightening the risks facing investors.
Gardiner, the one of the standard’s co-authors said that the standard was “explicitly designed” to complement the sector neutral CA100+ Net Zero Company Benchmark.
The development of the standard was led by the Investor Group on Climate Change (IGCC) and IIGCC following an initial investor and company roundtable in November 2021 and took 18 months to develop, including a final consultation in May this year.
The concept of the standard came from the recognition that productive engagement conversations require investors to understand how companies are responding to transition risks and opportunities specific to their sector which requires robust data focusing on these topics.
The aim of the standard is to offer investors the data needed to support their engagement, voting and investment decisions.
The standard has been designed to improve investors’ ability of to assess the credibility of companies’ climate commitments and strategies against climate scenarios, allow investors to directly compare companies’ disclosures and net zero alignment using relevant sector specific metrics, and identify issues related to the transition that investors and companies in the diversified mining sector wish to address in collaboration.
The standard is underpinned by six principles. Those principles are strategic flexibility, separate disclosure and net zero alignment testing, a transition risk focus, the use of existing frameworks, simplicity, and transparency.
The metrics laid out in both documents will now be pilot tested by mining firms with the objective of “testing their practicality”. CA100+ focus companies including BHP, Glencore, Rio Tinto, and Vale will be assessed with the standards during the pilot stage.
Feedback from these pilots will be used to further refine the metrics into a final list, which will then be used for public assessments to offer insights to support engagement dialogues.
Cutting out the non-essentials
CA100+ said that mining will be “pivotal” to the transition with the extraction of key materials needing to grow at “unprecedented rates” to build out the required clean energy technologies and grid capacity.
According to the Energy Transitions Commission, the energy transition will require the production of 6.5 billion tonnes of end-use materials, 95% of which would be steel, copper and aluminium, with much smaller quantities of critical minerals/materials such as lithium, cobalt, graphite or rare earths between 2022-50.
CA100+ noted that the mining sector and its value chains will also need to decarbonise, with some reducing production and other decarbonising downstream.
Gardiner said that mining firms are “vulnerable to transition risk”. To mitigate such risks he suggested diversification into non-fossil fuel sectors, reducing their fossil fuel production and cutting operational emissions.
He noted that accelerating the transition will require miners to scale up production in key transition materials such as lithium and nickel, but meeting net zero goals “will require investment today”.
The standard covers commodities and themes including coal, transition materials, coal mine methane and how the mining sector interacts with a just transition.
Gardiner said that current volumes of mined coal are “well above” what is needed in a net zero world. Lord Adair Turner previously told ESG Investor that approximately 70% of the mining sector’s large-scale direct and indirect deforestation impacts are attributed to coal and gold mining.
“Neither coal nor gold is necessary for the energy transition, and coal mining is projected to disappear altogether in the transition,” Turner said.
He also urged mining firms to “strike the right balance” between evaluating the environmental effects of mining and meeting demand for critical minerals and that investors need to differentiate between mining activities that are vital for the energy transition and those that are harmful.
There is already support for the Paris Agreement in the industry, with members of the International Council on Mining and Metals (ICMM) – an industry body that represents 26 mining firms – acknowledging the need for “an urgent global response to the threat of climate change”.
ICMM has published Scope 3 Emissions Accounting and Reporting Guidance that provides a standardised framework for mining and metals companies to calculate and disclose their value chain emissions. The body said that the framework has the objective of “improv[ing] transparency and accelerate collaborative action with suppliers and customers on reducing these emissions”.
Rohitesh Dhawan, CEO at ICMM, said that its members had “embraced their role” in decarbonisation with the “urgent” progress required needing “collaboration at a scale we’ve never seen before”.