February 2016

Managing the risks posed by climate change

  • By Shailesh Tyagi, Partner, Deloitte Sustainability Services

Integrating climate change resilience into mine and sustainability management

The mining sector finds itself subject to increasing levels of scrutiny regarding the management of climate change issues by an expanding stakeholder group, including federal and state governments, local communities, consumers, investors, non-government organisations and the general public. The sustainability risks that mining companies need to manage are wide-ranging, largely as a result of the sector’s core business activities.

Increased attention and focus on the subject of climate change has occurred as a result of the 2015 Paris Climate Conference (COP21), and while many of the current issues relating to climate change are not new for the sector, the attention being paid to reporting and transparency of these matters is rising.

Transparency and carbon management

In response to the growing scrutiny, both from investor groups and other stakeholders, mining companies have been keen to issue a clear, public response to climate change concerns. Navigating the opportunities and pitfalls associated with increased disclosure, however, has not been an easy ride for some.

In an effort to meet transparency demands, mining companies have issued a suite of strategies, policies and position statements on the matter. These provide opportunities to engage stakeholders, appease investor concerns, and claim a platform for discussion with policy makers. Key topics covered have included stranded assets, the future global energy mix and the role of fossil fuels in developing economies, carbon pricing, low-emission technologies and climate change adaptation.

Of particular attention in the Australian market has been the reliance on thermal coal, with current issues of oversupply combined with carbon risk leading to turbulent times for the commodity. We are seeing further transparency and disclosure to combat such concerns. BHP Billiton published its own Climate Change Portfolio Analysis in September 2015 to present a view of the robustness of their portfolio to helping keep global warming below 2°C. COP21 prompted collaborative disclosures with CEOs of eight of Australia’s largest companies signing a joint commitment statement in the run up to Paris acknowledging that their combined businesses account for approximately 12 per cent of Australia’s emissions, but recognising their role in helping to meet these global aims.

What this means for the mining industry

Increased transparency brings many benefits but also increased risk, including accuracy of published information, ensuring compliance with public commitments and failure to meet investor and other stakeholder expectations. A recent Carbon Disclosure Project (CDP) review ranked 11 top diversified miners based on their exposure to coal and carbon cost risks, water resilience, energy efficiency performance and targets, and carbon regulation readiness. The report concluded that there was ‘poor sector-wide management of carbon and water risks’ and estimated potential earnings loss in the face of future carbon pricing regulation. Companies lagging in the rankings received even further negative press in the wider media. These results indicate that the sector still has a journey ahead of it to achieve both sufficient disclosure and performance around climate change.

Looking forward, companies will aim to mitigate these risks, as well as capitalise on existing and future opportunities related to efficiencies whilst managing the regulatory push for a low-carbon economy, through innovative business practices and risk management. Technology and innovation rise on the agenda, coupled with the need for a strong focus on compliance to ensure companies deliver on their public commitments.

Emissions mitigation and reporting

From an Australian perspective, the introduction of the National Greenhouse and Energy Reporting (NGER) scheme from 2007 and the presence of the Australian Carbon Pricing Mechanism from July 2012 to June 2014, meant the industry placed an increased focus on the robustness of measurement and reporting practices – at both underground and open cut coal mines. At underground coal mines, there was increased focus on more precise and sophisticated instrumentation to improve the level of measurement. At the same time, and driven by the existence of a price per tonne of carbon dioxide released, investments were made into infrastructure such as flaring facilities and power generation facilities to limit the proportion of coal mine waste gas being released directly into the atmosphere, and hence reduce the emissions’ intensity at a number of operations.

At a number of open cut coal mines, particularly in NSW, there was quick recognition that default emission factors published in the Australian Government’s NGER Measurement Determination would result in a significant overstatement of emissions, and hence overpayment of carbon tax. A number of companies subsequently invested in undertaking detailed geological and gas content testing to enable the development of mine-specific emission factors.

Since the repeal of the Carbon Pricing Mechanism, however, effective July 2014, the level of investment in emissions abatement infrastructure has decreased significantly. This reduction is also due to the subdued coal prices that have been experienced across the industry. With climate change firmly back on the agenda at both business and government levels, it remains to be seen whether there is a return to investment in infrastructure and other technologies to assist mining companies to improve their emissions profile. 

Beyond carbon

As well as mitigating climate change through emission reductions, the mining sector also has to respond to current and potential future impacts. Climate change adds a new lens to wider sustainability issues already being managed, as well as presenting some new ones. The sheer scale of the industry – large local impact, long supply chains, and long lifetimes – presents challenges to achieving successful sustainability management beyond carbon alone.

The sector is on its way towards understanding and managing climate-related water risks. A robust understanding of risk is required to meet mine planning and stakeholder concerns. Additionally, more detailed tools are now freely available online to inform risk mapping, for example the World Resource Institute’s Aqueduct Water Risk Atlas. On the ground, technologies are already well-established to reduce water use, for example through intelligent dust suppression, as well as more large-scale projects to ensure the maintenance of high-quality water supply, for example through desalination plants. More recently, companies have had to develop their responses to extreme weather events. In 2010–11, heavy rainfall and cyclone events in Queensland resulted in an estimate loss of $5.7 B in coal exports. This triggered Anglo American to make a $110 M investment to improve water management, including targeting predictions and monitoring, infrastructure upgrades and risk assessments. Overall, a delicate balance is required between the maintenance of water supply and ensuring sufficient infrastructure capacity to cope with instances of oversupply.

Concluding remarks

As the predicted impacts of climate change become well understood, we can expect further integration of climate change resilience into other areas of mine and sustainability management. For example, understanding and mitigating supply chain risks, risks to successful implementation of biodiversity offset and rehabilitation requirements, and human capital risks around maintaining a healthy workforce. Successful climate change management will require further integration and communication between units in traditional management structures both at site and corporate level. 

References

Australian Financial Review, 2015. CEOs push for Australia to play its ‘fair part in global action’, Australian Financial Review [online], 16 September. Available from: <http://www.afr.com/news/policy/climate/ceos-push-for-australia-to-play-its-fair-part-in-global-action-20150916-gjo9pt> [Accessed: 7 December 2015].

BHP Billiton, 2015. Climate Change: Portfolio Analysis [online]. Available from: <http://www.bhpbilliton.com/~/media/bhp/documents/investors/reports/2015/bhpbillitonclimatechangeporfolioanalysis2015.pdf?la=en> [Accessed:7 December 2015].

Carbon Disclosure Project, 2015. Extractive sector struggles to make the grade: New report finds largest global miners failing to handle major climate risks [online], 23 November. Available from: <https://www.cdp.net/en-US/News/CDP%20News%20Article%20Pages/Extractive-sector-struggles-to-make-the-grade.aspx> [Accessed: 7 December 2015].

Fitzroy Partnership, 2015. Anglo American’s water management success[online]. Available from:  <http://riverhealth.org.au/stewards/integrated-water-management-anglo-americans-metallurgical-coal-business-unit/> [Accessed: 7 December 2015].

Queensland Government, 2011. Economic performance and outlook [online]. Available from: <https://www.treasury.qld.gov.au/publications-resources/state-budget/2011-12/budget-papers/documents/bp2-2-2011-12.doc> [Accessed: 7 December 2015].

World Resources Institute, 2015. Aqueduct Water Risk Atlas [online]. Available from: <http://www.wri.org/applications/maps/aqueduct-atlas/#x=8.00&y=0.41&s=ws!20!28!c&t=waterrisk&w=def&g=0&i=BWS-16!WSV-4!SV-2!HFO-4!DRO-4!STOR-8!GW-8!WRI-4!ECOS-2!MC-4!WCG-8!ECOV-2!&tr=ind-1!prj-1&l=3&b=terrain&m=group> [Accessed: 7 December 2015].

Share This Article