The CGLN were delighted to be a supporting sponsor of the Natural Resources Forum’s ESG week - a series of in-person events and online webinars between the 3rd and 7th of October, examining all the major ESG trends to watch including the continued role of critical minerals and technology, sustainable investment, stakeholder engagement, and diversity and inclusion.
I was delighted to be a panellist on the opening day of the Forum at the London Stock Exchange, and for some of our expert CGLN Fellows participated in virtual events throughout the week.
Looking at ESG and sustainability challenges as a whole, in his excellent keynote speech, Pavan Sukhdev (CEO of GIST and former Special Adviser and Head of UNEP’s Green Economy Initiative) put it well when he said that ‘if you cannot measure it, you cannot manage it’.
It cannot be the case that ‘value’ is only measured in black-and-white terms. Not only is value so much more than profits, but we must also consider the disvalue to society that acting (or not acting) can do.
Part of my background is as an executive within the metals and mining industry. As such, I was asked to provide the forum with an overview of the trends and issues facing the sector.
The simple fact of it is that the world consumes a lot of metals. Each one of us consumes roughly 350kg of metals per year without really taking much notice of it. What’s more, the consumption of metals is growing in line with GDP and population growth.
The first mega-trend facing the mining industry is climate change and, related to it, the need to undergo a global energy transition and provide energy security to all.
196 governments have pledged to decarbonise their economies to meet the climate change challenge, and while that is undeniably a good thing, it must be known that to decarbonise will be metals intensive.
In fact, the economy of the future cannot exist without metals. Do you want to roll out 5G? If so you need silver. Want to transition to electric vehicles? Then you’ll need lithium and cobalt. This will not only create a substantial demand for mined commodities but also presents a business continuity risk for miners themselves.
During my panel, I asked the audience how many of them possess an iPhone – naturally, the response was well over half of the room.
Producing an iPhone requires about 17 different metals. The 172 grams[1] iPhone 14’s lifecycle emissions are equivalent to roughly 65 kg of carbon emissions [2], this translates by simple arithmetic into about 375 times the weight of the iPhone!
It is well documented that there is a huge opportunity awaiting the mining industry, but this does not come without its challenges.
The first of these is that not only are deposits scarce but are often located in regions that suffer from the consequences of a changing climate.
According to IEA[3] estimates Copper and lithium are particularly vulnerable to water stress given their high-water requirements. Over 50% of today’s lithium and copper production is concentrated in areas with high water stress levels.
That’s just one example, a changing climate is likely to affect mining operations by:
- Causing more frequent droughts and floods, altering the supply of water to mining sites and disrupting operations.
- The effects of floodings and extreme rain causing operational disruptions, including mine closure, washed-out roads, and unsafe water levels in tailing dams.
- Extreme weather combined with the rising of sea levels damaging the processing or transportation infrastructure located near coastlines; and,
- The extreme heat in already hot places—particularly Australia, China, and parts of North and West Africa—decreases worker productivity and raises operational cooling costs.
The second trend the mining community faces is the growing pressures from new generations of end-consumers, who not only have different consumption patterns but demand greater responsibility in sourcing for the products they are willing the purchase.
It is not the mining industry that faces this issue directly, but its buyers and their customers do.
The customers who are producing the end-consumer product (automotive, white goods, construction, packaging, etc.) put pressure on their supply chain – intermediary product manufacturers.
And the manufacturers in the middle of the chain have to select a higher share of recyclable materials, low-carbon materials and responsibly sourced materials. Exacerbating the risk of materials substitutability.
Given separate niches for products satisfying the ever-increasing demands of end-consumers, a pricing differential occurs across the entire value chain including mined commodities, which among other technical properties would look at Scope 1 & 2 emissions level. More often than not companies have to account for Scope 3. This is a well-perceived phenomenon which creates an opportunity for end-consumer-facing brands, such as 'Apple', 'BMW' or 'Heineken 0.0'
Recognizing the product differentiating opportunities, those consumer-facing manufacturers start to look at how they can take control over their supply chains and make direct enquiries up those chains. They are under pressure from their consumer to deliver responsibly sourced and sustainably produced goods.
No one prevents conglomerates such as Google, Apple, or Tesla from creating their own ecosystems of providers including the creation of the category of “in-house” miners… and those would mine not only crypto-currencies!
The mining industry must move from a ‘bulk extraction, moving and processing’ paradigm to being in the mindset of service companies, who provide essential materials for the energy transition and consumer goods fit for the 21st century.
I echo the words of Shripra Gupta (Investments Steward Lead for Responsible Investment Strategy at Scottish Widows) during the last panel of the opening day, that ‘…we need to stop looking at the world in silos’.
The mining industry should become part of large ecosystems. It is not enough to only collaborate with their usual stakeholders – capital goods, heavy industries or metal processers – for the mining industry to thrive, it must also engage with:
1: The general public:
Society says that it wants a low-carbon economy, but many stand against the mining industry.
It was explained well during panel 3 of the day, where the conversation surrounded the need to ‘…build social license to operate mining.’
We must work to explain for example how every ounce of platinum is mined and beneficiated in a clean (low water and low carbon) and responsible way, with equal opportunities and engaged communities.
2: The finance sector:
The industry must actively work to help attract the required huge capital for their physical assets transformations. This requires substantial improvement in disclosure standards and their harmonisation. Mining has to come to a general baseline for reporting of operations impacts: environmental, biodiversity and social, for each commodity category. And those impacts must be traceable to the end-consumer product.
The industry has to not only demonstrate a credible path to decarbonise its own mining, beneficiating and processing operations with specific milestones and technological solutions. So that the financial sector can recalibrate its risk metrics and cost of capital. It has to explain further how the move from fossil fuels intensive energy to sustainable energy that is metals-intensive mining helps avoid emissions. This is commonly referred to as Scope 4 the topic that was well covered by Karina Litvack (Founding Chair, CGI and Non-Executive Director at Eni) and Jonathan Grant (Principal Advisor - Climate Change, Group Strategy at Rio Tinto)
3: The consumer-facing conglomerates:
The industry must play a greater role in the whole supply chain, to understand how and why their products are evolving and what they seek from their stakeholders and suppliers to deliver.
It is only companies that understand that they must change now that will survive in and become indispensable elements of nascent ecosystems of the new economy, one that is electrified, digitalised and shared.
As Pavan outlined in his keynote, ‘…when you face a complex problem, do not expect a simple solution.’
The challenge of creating a clean economy fit for the future affects all of us – across sectors, generations and regions.
It's only by bringing all relevant stakeholders together to debate their ideas in an accessible way that we will develop effective long-term solutions.
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