Mining industry guilty of ignoring climate risks
Report Suggests Mining Companies are Failing to Fully
Recognise Risks Posed by Inevitable Climate Change
Acclimatise report, backed by IBM, over 80% of global mining
companies surveyed claim their physical assets would be affected by
extreme weather events, yet only 13% report taking action to
protect their assets that are critical to business success,
attracting financial investment and the safety of employees.
The report findings highlight the critical choices mining
companies now face to help prepare their business for anticipated
additional costs and challenges created by a changing climate. The
challenges facing mining enterprises today are pushing leaders to
adapt the traditional ways of thinking about their business to
discover and explore new practices that will improve the business
of mining.
Without building adaptation measures into their business plans,
climatic risks could impact upon a company’s financial and
operational performance, potentially increasing operational and
capital expenditure. This is particularly true for mining companies
where long term investment decisions have to be made. However only
3% of companies surveyed provided evidence that they mainstream
adaptation into decision making, highlighting the need for more
mining companies to consider action.
Investors and financial institutions recognise the importance of
a company’s assets and the contribution they make to overall value.
They are taking an increasing interest in the impact of climate
change and exploring the implications for their investments, and
for lending risk on project finance. If a company’s assets are not
adapted to cope with a changing climate, financial projections made
today based on current life, performance and value of assets may
not be robust, which could impact upon company value and interest
from investors.
Potential for change
“The mining industry has been an essential contributor to
society and the economy for many years and has continually adapted
successfully to changes. IBM believes this rate of change is
increasing and many within the industry realise that the modern
miner will need to work differently and work smarter to succeed,”
said David Carter, Mining Industry Lead, Growth Markets,
IBM Global Business Services.
“Increasingly companies need to think about the
potential impacts from inevitable climate change resulting from
past greenhouse gas emissions. Whether this takes the form of
adapting to reduce risks, complying with regulations aimed at
increasing energy efficiency or reducing greenhouse gas
emissions.”
The report titled “Global Mining - The Adaptation Challenge” is
based on the Carbon Disclosure Project’s annual request for
information that was sent to the world’s largest 144 mining
companies (based on market capitalisation) of which 43% sent
detailed responses. Analysed using Acclimatisation Index(tm)
Methodology.
Five climate change impacts for cost and
revenue
Natural resources under stress: Water is
becoming a major cost item for mining companies as global fresh
water resources are under increasing stress. However only 16% of
respondents indicated they were taking action on water management.
Less water, declining water quality and growing water demand are
creating challenges in the mining sector.
The sector has historically taken clean, reliable and
inexpensive water for granted. These trends amplified by the
affects of climate change are creating operational issues,
restrictions on abstractions, more stringent water quality
regulations, pressure to move towards full-cost water pricing, and
increased public scrutiny of corporate water practices.
Employee health and safety hazards: Climate
change may affect the health of the human capital upon which
businesses rely, including staff, labour pools, sub-contractors and
commercial partners. This could create additional costs for mining
companies through lower productivity, compensation claims and
disputes, and business interruption. Under a changing climate, risk
of death, disease or injury from heat waves, floods, storms, fires
and droughts for mining operatives could increase - but only 19% of
respondents considered that there may be an increase in disease
risks. The safety and performance of buildings, structures and
other assets that may not be climate-resilient could also translate
into increased costs to ensure worker safety, comfort and
productivity.
Risk to secure energy supplies: Most businesses
rely on a secure source of energy for the continuity of their
operations. Some industry sectors have critical logistics or
operations for which even a short-term disruption in energy supply
creates significant losses and lower revenues. Mining is one
such sector where disruptions and increases in energy costs could
challenge the financial viability of operations. 34% of respondents
recognised that climate change may create energy price volatility
and security of supply challenges. While only 11% identified the
risk to essential utilities.
Additional reputation management measures:
Climate change has the potential to create or exacerbate tensions
that lead to reputational damage, by modifying the relationships
between investments and their surrounding environments and local
communities. It is also changing stakeholders’ expectations, and in
particular those that are sensitive to social and environmental
impacts, for example Institutional investors. Only 18% of
respondents reported awareness of reputational issues that could
occur if they were not seen to be dealing with climate change.
Increase in operating and transport costs: As
minerals are often extracted from remote locations, companies face
a logistical challenge in terms of how supplies, workforce and
products are transported to and from the mine and onto the
customer. A common delay for mining companies is finding spare
parts for when an asset or piece of equipment breaks down. Direct
maintenance can make up a large proportion of expenditure.
Transport considerations, particularly cost containment and
visibility, are typically, vital components of any businesses
supply chain. 24% of respondents identified the risks associated
with rising sea levels, with 18% referring to potential problems
due to their reliance on marine transport and port facilities. 19%
recognised that land based transport systems could be
vulnerable.
“If ever there was an industry which has to get
to grips with the impacts of a changing climate, then it is mining.
You can’t invest in long-term capital intensive operations
without considering how climate change will affect your operations,
your markets, your workforce and your reputation,” said
John Firth, CEO and co-founder,
Acclimatise.
Legal and stakeholder pressure to adapt
Regulatory and legal drivers: Although new
regulatory provisions are being developed in many countries in
response to these challenges, there remains a great deal of
uncertainty regarding the scope, content and format of future
legislation. Greater certainty about the future regulatory
landscape is required to encourage companies to invest. New
regulatory pricing structures will be required in some countries to
encourage greater energy efficiency and demand management
measures.
Stakeholder pressure to disclose risks:
Investors and other stakeholders, including governments and
regulatory agencies, consumers, local communities and NGOs, have
started to place much greater pressure on mining companies to
address climate risks and opportunities. The status of climate risk
disclosure and management is changing, moving from a voluntary to a
mandatory requirement. These changes supplement the duty that
company directors already have, to disclose future material risks
to their shareholders, to regulatory investment authorities and to
their insurers.
Political stability and geo-political risks:
Mining companies operate in areas with varying degrees of
political, legal and commercial stability. Administrative change,
policy reform, changes in law or governmental regulations can
result in civil unrest, expropriation, or nationalisation. The
consequences of instability or changes could have an adverse effect
on the profitability, the ability to finance or, in extreme cases,
the operational viability of some mining operations.
Future of the mining industry
The challenges facing mining enterprises today are pushing
leaders to adapt the traditional ways of thinking about their
business to discover and explore new practices that will improve
the business of mining.
As inevitable climate change is one of the additional challenges
facing mining companies, Acclimatise and IBM have jointly prepared
a set of 10 Prepare-Adapt questions to help mining executives take
informed steps towards building corporate resilience:
- What are the operational impacts of climate change on your
company? - Have you evaluated the potential impacts of climate change in
your business plans and the financial consequences for your long
term investments? - How sensitive are price and product demand to climate change
impacts? - How could current and future climate change regulations and
industry standards affect your organisation and its
reputation? - Where are the opportunities for you in a world facing new
challenges driven by climate change? - What benefits could you realise from better managing your
response to climate change? - How clear and effective are your governance processes for
dealing with climate change? - How well structured is your approach for managing climate
change? - How can you ensure that your approach is based on robust
information and assumptions? - How can you demonstrate that your business contingency plans
are climate resilient, realistic and financially viable?
“This report shows how important it is for the mining sector to
plan for a changing climate. Issues such as operating cost,
community impact and reputational risks will impact if not managed
effectively. As a result, investors want to know how mining
companies are dealing with these risks and planning for them in the
future. This report helps answer those questions,” said
Paul Simpson, Chief Operating Officer, Carbon Disclosure
Project.
For a full copy of the report:
target=”_blank”>http://www-05.ibm.com/uk/green/cdp2009/mining.pdf
Source: www-05.ibm.com
