The transition to a low-carbon global economy is accelerating. Imposing emissions reduction targets, changing capital regulatory prices and carbon border targets will have significant implications for the mining sector.
Mining companies face the challenge of demonstrating their pathway to net zero due to the sector having a significant value chain emissions footprint. At the same time, an opportunity arises for the mining sector to provide the materials that will power this energy transition and the low carbon technologies of the future.
Sarah Barker addressed these opportunities and challenges as the chair of a keynote panel discussion on Accelerating the Energy Transition and Decarbonisation: Challenges and Opportunities for Mining and Resources, as part of MinterEllison's role as Legal Partner for IMARC 2022. In this article, she reflects on:
- some of the key points raised on the panel about the role of collaboration between mining companies and other participants in the mining supply chain to achieve decarbonisation ambitions
- the importance of mining companies making their decarbonisation ambitions concrete by incorporating a climate risk assessment into the development of their corporate strategy
Collaborating to achieve decarbonisation ambitions
Collaboration is a key part of the solution to the complex issue of decarbonisation in the mining sector. This collaboration brings different perspectives and can reveal different approaches that provide new solutions. Through collaboration, mining companies can learn from each other and adopt a sector-wide approach to addressing long term decarbonisation challenges. Examples of the forms this collaboration might take include:
- shared infrastructure – with hydrogen under consideration as a low carbon fuel source, companies need to assess the possibility of sharing pipelines and associated carbon capture and storage (CCS) infrastructure
- sourcing solutions – several miners collectively going to market to find a solution to decarbonize the fleets of trucks at their mines
While mining companies may look to other organisations in the sector, there are also many relevant learnings from other industries, such as the built environment or infrastructure industries, that they can draw on for effective approaches to decarbonisation. In all cases, companies should ensure they are receiving competition law advice to ensure that collaborative efforts do not fall foul of market conduct rules.
Addressing the uncertainty of climate change risks in corporate strategy
The physical and economic transition risks associated with climate change are both characterised by radical uncertainty. These risks are acute in the mining sector where projects often involve high-fixed costs, asset lives spanning decades, and back-ended positive cash-flows. Given these risks, litigation against companies, their directors and officers for climate-related risk management failures is no longer novel or uncommon.
Notwithstanding the potential liability associated with inadequate climate change governance, many companies are lagging in their approach to managing climate risk. The uncertainty associated with climate risk can lead some companies to defer their decision making on the topic until there is more clarity around the impact of the relevant policies and risks on their organisation. Other companies may take a 'business as usual' approach to incorporating climate change into their strategy development. They apply historical experience as a proxy for future market conditions when the one certainty about climate change is that the physical and market landscape of the future will look very different to today's landscape.
Either approach can leave mining companies unprepared for sharp market pivots in the transition to a low carbon economy and expose their directors and officers to claims for breach of duty.
To capture climate-related opportunities and minimise associated risks, mining companies should instead incorporate regular climate risk assessments into the core of their corporate strategy.”
There are tools that can assist with risk management in the face of the uncertainty that climate change presents, such as stress-testing and scenario analysis. These are critical inputs for diligent governance and strategy development.