There’s no hiding from news of floods and droughts across large parts of the world. We are already in the teeth of extreme weather brought by climate change and the need for action to switch to a low-carbon economy is increasingly urgent.
There’s also no hiding from the fact that if we are to deliver the change required, it will need a lot of vital minerals — such as lithium, copper, nickel and silver — to build the batteries, solar panels and other technologies needed to drive the transition. And to use them, in addition to improving recycling, greater efficiency and substitution, we are still going to have to dig these materials out of the ground in ever greater amounts.
Mining companies haven’t traditionally been high up the list of "sustainable" investments, but investors have a strategic need to press the sector to be as environmentally and socially responsible as possible. It is and will continue to provide the raw materials crucial to a lower carbon future and is intimately connected to every other sector we are likely to be invested in. Importantly, however, recently released data from the Transition Pathway Initiative (TPI) reveals major mining companies are moving in the right direction on climate commitments.
Improvements in emissions target-setting are welcome
Diversified mining companies extract a wide variety of natural resources, including energy products such as coal, metals and precious gems. TPI assessed the 13 largest diversified miners by market cap and found that the share of companies with emissions targets aligned with keeping global temperature rise below 2 degrees Celsius in 2050 has improved to 45 percent from 31 percent since last year. The 2050 targets of 23 percent of mining companies assessed are aligned with keeping warming below 1.5 degrees C.
TPI’s benchmarks are based on the best available science, using the International Energy Agency’s (IEA’s) latest modeling and the Sectoral Decarbonization Approach, with assessments carried out using company disclosures applied against TPI’s methodologies.
The improvement in alignment is, in part, driven by an increase in net-zero commitments in the sector, but there’s still a gulf between what is committed and what is needed — and absolutely no doubt a great deal more must be done.
In spite of the carbon emissions from producing critical minerals for clean energy technologies, the IEA’s analysis makes clear the benefits for the climate far outweigh the environmental cost.
Some companies aligned with a below 2 degrees C scenario in the short and medium term achieve that status because their portfolio is weighted towards minerals rather than energy commodities such as coal. For these companies, it is key that they are further engaged with to reduce their operational emissions despite this inherent alignment.
Rio Tinto, South32, Mineral Resources and Vale have set long-term emissions targets that leave them significantly behind even the least ambitious of TPI’s benchmarks — to align with national pledges. The national pledges are based on the IEA’s STEPS scenario, consistent with the global aggregate of emissions reductions pledges made by countries up to at least mid-2020, depending on the sector.
Whilst it is commendable that emissions have been considered up to 2050, these companies must increase their ambition in line with leaders BHP, which has aligned its targets in the short, medium and long term. Improved ambition for these companies will mean extending the emissions coverage of targets to include downstream Scope 3 emissions from the use and processing of sold commodities.
Key components for the energy transition face shortages
TPI’s new model for benchmarking diversified miners also includes growth estimates for the use of minerals needed for renewable power generation and electrification such as copper, nickel and lithium — with one IEA scenario suggesting energy-related demand could increase sixfold by 2050. Lithium supply is already in deficit and shortages of cobalt, mostly a by-product of processing copper and nickel ores, are expected by 2024.
As well as exploding demand, there are bottlenecks in production and a reluctance to expand in a way that has negative market impacts. There is also little geographical diversity in the processing of crucial commodities, adding vulnerability to supply chains and increasing their carbon impact.
In addition to addressing a forecast shortfall in the availability of these minerals, efforts need to be made to produce them more efficiently.
China still dominates raw material processing, for example, often using coal-fired power which adds to the finished product’s emissions footprint. Spodumene, which provides more than half the world’s lithium, is mined in Australia, refined in China then moved on for further processing. By one estimate, the lithium in an electric vehicle will have travelled 31,000 miles before the car even leaves the showroom.
Investors need to drive systemic engagement
In the face of these challenges, investors must engage strategically across the whole mining sector to ensure it is able to play the role society demands of it. This means supporting not only strategies in line with a net-zero pathway but approaches that address the broad spectrum of issues that will challenge the sector’s ability to meet future demand. This is the focus of the initiative Mining 2030, which is developing an investor agenda to work constructively and practically with the mining sector, so it becomes an exemplar of best practice.
In spite of the carbon emissions from producing critical minerals for clean energy technologies, the IEA’s analysis makes clear the benefits for the climate far outweigh the environmental cost. Asset owners have an opportunity — and a responsibility — to work with mining companies to help reduce emissions intensity whilst meeting rapidly growing demand for scarce resources that are vital for tackling climate change.