The mining sector stands at the forefront of the fight against climate change and is supported by innovative financing mechanisms such as ‘green loans’. However, a delicate equilibrium must be struck because, while mining fuels the transition to renewable energy, it simultaneously relies on minerals that are crucial for clean technologies. As the industry navigates this intricate landscape, enabling responsible mineral extraction becomes paramount, writes Nivaash Singh, Co-Head: Mining and Resources Finance at Nedbank CIB.
Mining has always been more than just extracting minerals from the ground. In South Africa it remains a significant part of the economy, as well as a major employer, exporter, and a driver of infrastructure development. However, today’s mining companies grapple with the dual challenge of adapting to global warming while ensuring the resilience and sustainability of their operations.
These efforts extend beyond merely reducing carbon emissions. Mining companies now address water management, biodiversity conservation, supply chain resilience, community engagement, and regulatory compliance. In the formal sector mining companies have taken substantial steps toward cleaner, greener, and more accountable operations. They adhere to local and international laws and onerous listing requirements. For instance, the Canadian Securities Administrators mandate that mining companies must report relevant information on environmental, permitting, and social factors related to mineral exploration, development, and production activities. The Toronto Stock Exchange also emphasises this in its listing standards for mineral exploration and development-stage mining companies.
Sustainability-linked loans: a new paradigm
Mining companies that raise sustainability-linked loans undergo periodic evaluations by lenders. These evaluations focus on carefully constructed key performance indicators (KPIs) that are directly linked to the climate impact of mining operations and improved governance. By aligning funding with sustainability goals, financiers encourage mining companies to invest in environmentally beneficial projects.
Favourable terms and conditions
Sustainability-linked loans and green loans come with more favourable terms and conditions than traditional financing options, provided targets are met. These benefits include lower interest rates, extended repayment periods, and potentially reduced fees. The intention is clear: to facilitate the transition towards more sustainable practices in the mining sector.
Consequences for high-carbon emitters
For mining companies emitting high concentrations of carbon and neglecting their environmental, social and governance (ESG) responsibilities, the future is challenging. Accessing capital in debt and equity markets will become increasingly difficult. Buyers worldwide are prioritising climate-conscious supply chains, making it imperative for mining companies to address their carbon footprint.
Transparency and accountability
Stakeholders often express scepticism about the accuracy of ESG reporting. To address these concerns, mining companies must enhance transparency and accountability. But there’s a more valuable currency beyond reports: the social license to operate. Communities affected by mining operations should be compensated and actively engaged in decision-making processes. Earning this social license is paramount.
The social license to operate: a precious commodity
The social license to operate allows a mining company not only to establish operations in a specific area but also to operate alongside local communities while extracting minerals for profit. A robust social licence hinges on trust between the company and these communities. Trust is built through actions that are rooted in integrity, sincerity, fairness, and the ability to make and deliver on commitments.
When a mining company holds a firm social licence, its ESG reporting is readily accepted by stakeholders without scepticism. Conversely, without this trust, even the most transparent ESG reports may fall short. Therefore, the single most critical approval rating or operating credential for any mining company lies in its social licence to operate.
Kenmare Resources: A model for success
London-listed Kenmare Resources exemplifies this principle. As the sole owner of the Moma Mine in the north-eastern parts of Mozambique, Kenmare produces 7% of the world’s titanium feedstocks (ilmenite and rutile) and zircon. With an estimated lifespan of over a century at current production levels, the company has gone to great lengths to ensure that the local community walks its journey alongside it.
Community-centric initiatives
When Kenmare Resources began constructing the mine in 2004, it took a proactive step by establishing the non-profit organisation Kenmare Moma Development Association. This association drives development programmes within the host communities, focusing on livelihoods, economic development, education, and healthcare, as well as water and sanitation. In 2022, Kenmare invested $3 million in community initiatives while reporting a record profit of $206 million after tax. By prioritising transparency, accountability and social responsibility, Kenmare has maintained stakeholder trust, minimised social risks and achieved sustainable outcomes.
Mining and clean energy: An interdependent relationship
While mining companies strive for decarbonisation, they face a delicate balance. On the 1 hand, they are essential suppliers of critical minerals and crucial raw materials like manganese, nickel, cobalt, copper, vanadium, graphite, and lithium that are all needed for renewable energy technologies and are integral to wind turbines and batteries. On the other hand, mining operations themselves contribute to carbon emissions.
To navigate this challenge, mining companies can take several steps to decarbonise their operations, eg:
- Energy efficiency: Introduce energy-efficient technologies and practices.
- Transport optimisation: Optimise transport and logistics.
- Carbon capture and storage: Implement carbon capture and storage solutions.
- Environmental stewardship: Invest in reforestation, land rehabilitation and water conservation.
- Waste recovery: Extract valuable metals from waste streams.
Moreover, collaboration across the value chain is essential. Mining companies can partner with renewable energy firms, equipment manufacturers and engineering companies to accelerate the development and adoption of cleaner energy solutions.
Setting an example for industries worldwide
By harnessing renewable energy, embracing technology, engaging with communities, and forging partnerships, the mining sector reshapes its own operations while setting an example for industries globally. As we harmonise the contribution of the mining industry to renewable energy and climate action, we recognise that the social licence to operate remains more valuable than any ESG report. Through this lens, mining companies can genuinely lead the change towards a sustainable future.
