Commentary

How Investors can Decarbonise the Mining Industry

Louis Bromfield, Lead Sustainable Investment Associate, Foresight Capital Management, identifies the changes needed for mining to play its part in the green transition.

Mining is one of the most carbon-intensive industries on the planet and currently contributes between 4% and 7% of global CO2 emissions through discovery, extraction, and production processes. Mining requires large amounts of energy and water, often in arid and remote areas, and generates a large amount of potentially hazardous waste. Furthermore, as accessible deposits of natural resources are gradually depleting, the mining industry has to use more energy to extract the same amount of materials. As a result, the sector is often seen as part of the problem, rather than the solution, when it comes to addressing the climate emergency.

As the world looks to formalise targets aiming to limit global warming to 1.5°C by 2050, the focus on natural resource extraction is increasing. The mining sector is increasingly facing pressure from regulators, governments, and the general public to address emissions and align their business practices with international targets to reach net zero. It is vitally important that investors also play their part.

The role of mining in the energy transition

Despite the carbon-intensive nature of the sector, mining will play a critical role in the energy transition with responsibility largely falling upon the industry to provide the materials required for the decarbonisation of global energy systems. As the global economy decarbonises, demand for critical minerals such as copper, manganese and various rare earth metals will fast outstrip demand for traditional natural resources such as coal. Estimates predict a doubling of cumulative demand for copper over the next 30 years, alongside a quadrupling of demand for nickel.

Investors must play their part in addressing the paradox presented by the mining industry; that is, a hugely carbon-intensive industry that also has a key role in the green transition. The role of investors will be split into two broad segments:

Firstly, investors must work to mobilise capital and direct flows so that the supply of rare earth metals will be able to meet exponentially increasing demand. Commodities consultant Wood Mackenzie recently estimated that US$2 trillion of investment is necessary in order to avoid more than a 1.5°C rise in global temperatures.

Secondly, investors will need to dedicate resources to identifying, and investing in, the solution providers that are able to help drive down operational emissions across the mining industry.

Identifying the solution providers

In order to reduce operational emissions within the mining industry, there is a need to funnel capital towards companies that understand both the inherent impacts of mining but also how to mitigate them. The environmental impact of mining must be managed through innovative solutions which support the efficiency of operational sites yet minimise the legacy left for future generations. Although efforts on multiple fronts will be required to address sources of emissions, areas such as haulage trucks, comminution or crushing equipment, bulldozers and excavators represent the largest opportunities to reduce overall mining emissions. Switching to sustainable fuels, for example, could provide reductions of over 70%. Scope 2 emissions can also be addressed through the sourcing of green electricity – this process is a crucial step on the path to decarbonisation, and a variety of solutions are available, from the installation of solar panels to the purchasing of renewable electricity from third-party providers.

Aside from mining companies themselves, environmental engineering and consultancy companies such as Stantec Inc. will also play an important role decarbonising the sector through their Net Zero Mining services. The company has tailored a holistic service offering that helps mining companies meet their ESG obligations and guide their paths to net zero emissions through shifts to renewable power, use of electric vehicles, and new technologies to reduce environmental footprints in general.

Comprehensive environmental management policies will also be required to ensure sustainable operations that enable miners to balance growth in production of materials with a reduction in total carbon emissions. The UK government has recently published its Critical Minerals Strategy, and in Europe, mining legislation is being drafted to encourage sustainable extraction methods. Whilst it is yet to be determined whether these developments will spur a move away from the emissions-heavy projects of the past, they are certainly a step in the right direction for an industry which urgently needs to adapt to a green economy.

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