Following the Leaders’ Summit on Climate 1 in April 2021, a series of commitments by the world’s leading economies were made to keep average global warming to 1.5 degrees Celsius. This means that 70 per cent of the global economy is now covered by a net zero target. For the mining sector, global, regional, and local commitments have a direct and indirect impact on mining and metals companies, and the sector is responding.
Whilst the recent net zero commitments by organisations are truly transformational, they only tell half of the story. A key term that will be increasingly used by investors and regulators is climate resilience.
The Task Force on Climate-Related Financial Disclosures (TCFD) described climate resilience as “… organizations developing adaptive capacity to respond to climate change to better manage the associated risks and seize opportunities, including the ability to respond to transition risks and physical risks.”
Climate risk
This is not another black swan event; we know the risks we are facing. We have a decision to make as to how we invest in our climate capability for a resilient mining sector. Companies are making good strides to implement clear emissions reduction projects such as buying renewable energy or increasing the energy efficiency of materials movement, without a broad capability build, this can often be undone by decisions made across the rest of the business. When planning the areas of capability build that will be needed going forward, it is important to think beyond just the development of the initial strategy.
Driving forces
The bedrock for climate resilience is climate science, and the science is getting stronger by the day. The relationship between increasing greenhouse gases in the atmosphere and increased global temperatures has been long established and is irrefutable. What we are seeing more of recently, as our climate modelling capabilities and methodologies become more sophisticated, is the clear link between human-related activities impacting the Earth’s climatic system and which ultimately lead to catastrophic outcomes if not addressed.
On 9 August 2021, the world was presented with the latest climate science in the form of the IPCC AR6. This report focussed attention on the immensity of the global climate challenge, whilst recognising that we still have the opportunity to take action to avert dangerous climate impacts. Regionally in Australasia, this warming comes with increased intensity and frequency of climate extremes, such as floods, fires, cyclones, drought potential, and heatwaves both individually and combined. Long-term, the IPCC AR6 identifies the unavoidable chronic impacts like sea level rise – currently increasing faster than the global average around the Australian coastline.
Why climate resilience is important for the mining sector?
Transitional risks and opportunities are influenced from governments and markets while physical risks and opportunities refer to the impacts from the changes in the climate. For the mining sector, this will have much broader impacts beyond the mine gate. Climate resilience moves beyond operating assets to broader value chain impacts.
Like with any change, opportunities and threats emerge; but there are systematic approaches to understand and plan for such issues. A detailed understanding of both physical and transitional climate risks under a variety of future scenarios is critical to understand the risks that are embedded in your current business model.
Physical risks resulting from climate change can be event driven (acute) or longer-term shifts (chronic) in climate patterns. Physical risks may have financial implications for organisations, such as direct damage to assets and indirect impacts from supply chain disruption. Organisations’ financial performance may also be affected by changes in water availability, sourcing, and quality; food security; and extreme temperature changes affecting organisations’ premises, operations, supply chain, transport needs and employee safety. Transition risks are climate-related risks (e.g. policy and regulation, technology development, consumer/market preferences) resulting from mitigation challenges as societies decarbonise.
Climate resilience involves organisations developing the ability to adapt to and respond to climate change to better manage these risks and seize the opportunities. The challenge of course is that the future is not certain, so developing a range of contingency plans that can be enacted as the future unfolds is critical.
What climate capabilities do miners need now and in the future?
As the market forces and commitments intensify, it will be important to have the right climate capabilities in place. What climate capabilities are needed now and in the future? It’s not just about securing climate experts; climate capability requires capability to be embedded within an operating model.
Initially, this is an exercise that can be undertaken internally to understand the capabilities within the organisation to make these assessments, with a view to partnering with subject matter experts in climate change and decarbonisation in the medium to longer-term. For all mining organisations, but in particular smaller mid-cap miners, the value of collaboration and sharing between sector peers should not be underestimated. Everyone is grappling with the same challenges and will benefit from shared experiences.
While organisations that build climate capability will realise many benefits including access to more attractive financing, stronger employee recruitment and retention, and cheaper energy costs, collaboration is likely to drive better outcomes locally to increase competitiveness in global markets. As the saying goes, ‘if you want to go fast, go alone; if you want to go far, go together’. The more sharing we can do as an industry, the smaller the problem will become and the easier it will be to find and to implementation solutions.
Read Deloitte’s latest Climate Report.
Michael Wood, Partner Sustainability & Climate Change Services, Deloitte
