The fact that the world’s largest mining companies have not been doing enough to reduce their carbon emissions has been an open secret at best—but a recent McKinsey report laid bare how far many of these firms are falling short. According to the company, industry majors like BHP, Anglo American and Rio Tinto – all of which are signatories to the Paris Pledge for Action – need to implement more assertive measures in order to prevent severe backlash from investors and consumers alike.
While the industry is admittedly starting to take action to combat climate change “as companies review commodity portfolios, set targets and engage stakeholders”, it may not be enough to significantly help the environment – or indeed, keep companies in line with society’s demands. Much as being a climate change denier renders a politician unelectable in most developed countries, a carbon-intensive business renders it almost unmarketable.
Traditionally considered one of the sectors most inclined to close its eyes to environmental damages, the mining industry now must to turn to clean production to keep shareholders and customers on board. That is a steep hill to climb for any mining giant, but especially so for Norilsk Nickel (Nornickel), the world’s largest producer of nickel and palladium.
The Norilsk case
Located in the Siberian Arctic, Nornickel has traditionally been known for trailing its global competitors, like BHP and Anglo American, in environmental performance, and much like other natural resource firms from emerging markets it is handicapped by politics and legacy. It doesn’t help that Russia’s current policies give businesses very little – if any – incentive to decarbonise or reduce pollution.
For Norilsk, among the most pressing issues is cutting sulphur dioxide (SO2) emissions, yet in permafrost regions this is much more costly than anywhere else. A feasibility study commissioned by Nornickel on a sulphur capture and storage plant to turn SO2 from its smelters into sulphuric acid, revealed that safe storage and removal of the acid produced via the Arctic sea route would require investment exceeding the total value of the company’s assets.
Yet, with the green technology revolution gathering ever more momentum, metals like nickel, platinum and palladium – used in energy storage and electric vehicles to hydrogen fuel cells – are turning into high-demand commodities. This has added extra urgency on Nornickel to clean up its act. After all, it is hardly becoming of a company involved in providing the raw materials for green tech to be anything but environmentally friendly or sustainable.
Its tarnished legacy and growing public pressure are thus likely behind the fact that Nornickel has begun to take the first steps towards tackling its environmental footprint in earnest. In the highly commoditized and competitive raw materials market, a company can only credibly compete and keep share prices at a healthy level when it manages to differentiate itself sufficiently from competitors.
Since announcing its plans in 2016, Nornickel has cut its emissions in the town of Norilsk by 30% through the scuttling of an obsolete Soviet-era smelter, and is in the process of shutting down another. It is also licensing a new sulphur capture plant for the Arctic, which would turn sulphur into gypsum (rather than conventional sulphuric acid) and is estimated to reduce harmful emissions by 90% by 2025.
The company meanwhile boasts to have achieved one of the lowest carbon intensity levels in its smelting operations compared to peers by replacing coal with natural gas as a fuel and boosting the share of renewables in its energy mix.
Such initiatives are not merely long overdue in Siberia, but also in other mining territories. This became abundantly clear in January 2019, when a dam containing mining waste belonging to Brazilian ore and nickel miner Vale collapsed in Brumadinho, Brazil. Killing 270 people, the disaster slashed $19 billion from Vale’s market value in a single day. As the company’s second major dam disaster after the 2015 Mariana Disaster, it wholly cost the company its reputation as a trustworthy industry player.
At the same time, Vale has presented rather unambitious environmental targets of achieving a 16% reduction in greenhouse gas emissions by 2030. Both BHP and Anglo American, each beset with problems of their own but making headway, aim for net-zero operational carbon emissions in the latter half of the century, with Anglo American stipulating a 30% reduction target by 2030. Vale is going to have to follow suit sooner rather than later if it hopes to stay competitive in the long run.
Apart from carbon, SO2 is a problem as well, and Vale has moved towards implementing a massive SO2 reduction project in Canada following stricter environmental standards enacted by Ottawa’s policy-makers. Anglo-American too is about to complete its long planned sulphur dioxide emissions abatement project in South Africa. As such, both companies seem to make an effort in reducing harmful SO2 emissions.
A “second-mover advantage”?
While it currently looks like Nornickel and Vale are still broadly limping behind BHP and Anglo American, this doesn’t necessarily need to be the case forever. In what is referred to as the “second mover advantage”, late-comers, who didn’t pioneer environmental improvements from the start, can take the lessons from “first-movers” and adopt best practices and emerging technologies faster than the pioneers. As such, these underdogs could eventually outperform their competitors, for example, in reducing more emissions and pollutants in a shorter time.
This dynamic could help to lift the entire mining industry’s track record up in the process, owing to knock-on effects and competitive pressures forcing the market players to respond quickly once new standards are set. Considering that product quality and profitability are no longer enough to shareholders and customers alike, responsibility is now part of the value proposition, all the way down to supply chains.
For the sake of the environment, mining companies had better learn their lessons, and learn them fast. The sooner they clean up their act, the better for the planet.
Image credit: Flickred! via Flickr
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