Climate Change Risk Goes Beyond Carbon Footprint

Climate Change Risk Goes Beyond Carbon Footprint

Let me start off by saying that climate science is real. The world has pretty much come to a consensus about the long-term effects of carbon dioxide and other greenhouse gases on the environment. In fact, most mining companies have already built climate change mitigation strategies of some degree into their risk management processes and operating models and, on the whole, the industry is now actively addressing the risks associated with climate change.

However, their focus is far too narrow, mostly centered so far on the carbon footprint of their operations. Mining companies need to consider other, less-obvious risks that go beyond carbon footprints and emissions to consider how their operations impact the local climate and workforce. These include, for example, rising healthcare costs due to increased heat and diseases due to extreme weather, the cost of training compliance to reduce accident rates associated with climate change and resettlement costs of nearby communities hit the hardest by changing weather patterns.

Mining companies need to look beyond the operational aspects of climate change and broaden their scope to develop integrated solutions that can address both direct and indirect expenses related to climate change. In fact, banks and other investors are starting to put pressure on mining companies around the world to get them to show how they are managing risks associated with climate change. Yet, despite this pressure, 63 percent of large mining companies have not identified or reported the potential risks of climate change on communities, workers and the environment.

This lack of engagement with the full scope of climate change risk is dangerous — for mining companies, for the markets and for citizens of the world. To ensure a sustainable future and business viability that extends well into the future, mining companies need to look beyond carbon footprints and take a more comprehensive, long-term view of climate risks. Here are some of the concerns that should be under consideration in order to gain a better understanding of the environmental, social and governance (ESG) impacts and the link between them that unchecked climate change can create for the industry.

Physical risks. Identifying specific risks based on the unique nature and location of an operation goes far beyond carbon footprint. For example, higher rainfall on a tailing dam can cause structural risks, while less water in a water-scarce region can create operational risks. Knowing the possible operational disruptions depends on a close analysis of the local conditions and the range of possible climate changes over the coming years and decades.

Human risks. These risks extend beyond the operation itself to all of the individuals and communities who come in contact with the operation or who live near to it. For example, operators need to consider the workforce and how climate change may affect their workers (i.e. impact of higher temperatures, or the diseases such as malaria cropping up in areas previously too cold). There are community impacts to consider (changes in rainfall patterns and intensity, temperature changes, fire risk) and it is important to know whether adequate protection or evacuation plans are in place, whether awareness campaigns need to be mounted and so forth. More generally, impact on the environment (floods, fires, biodiversity changes, droughts, etc.) can rise to the level where it becomes a concern for regulators, public opinion or even national policy. Those risks need to be taken into account, as well.

Phased risks. Integrating climate change risks into all phases of a project requires an understanding of how those risks may change over the long time periods over which we will be dealing with climate change. Beyond the immediate mitigation or adaptation requirements, mining operations need to consider how to integrate this kind of modeling into the planning of new projects. Down the line, how does a potentially radically different climate affect closure and rehabilitation of a mining operation in five, 10- or 50-years’ time?

Communications risks. Corporate strategies, decisions and data must be fed down to the operations staff and implemented effectively across all phases of a project, so people on the ground can make critical business decisions. How will higher rainfall due to climate change affect the viability of building a tailing dam in a particular location? How will climate change-accelerated deforestation influence transportation logistics in the area? How will this information be communicated to staff, investors, regulatory authorities and the local community?

Financial risks. It is one thing to talk about risks in the abstract, it is another to attribute a monetary value to climate change risks and its associated legal and reputational risks. With the proper financial modeling and risk management capabilities, mining companies can assess the cost of having to shut down a mine due to a wildfire, flooding or environmental concerns from a neighboring community. The financial impact that a proposed carbon tax or a legislative limit on greenhouse gas emissions could have on mining operations is another crucial transitional type risk to understand. Even abstract risks such as public opinion can have a financial impact. Imagine being able to determine the impact that bad PR or climate-related greenwashing tactics could have on a mining operation’s bottom line.

Geographic risks. Finally, climate change risk is not the same across the world. Island or coastal regions may have different threat levels than mountainous regions. What may be acceptable in one political climate may not fly in another. There are different reporting requirements, rules and regulations, workforce demographics, community impacts and other factors. Your risk assessment and management strategy should be able to take these local differences into account and put them in the proper context for decision makers.

In order to understand the full scope of climate risks, mining operators need a lot of data from disparate sources: e.g., average local temperatures, rainfall patterns, wind, water and soil movement and so on. This data collection needs to encompass ordinary conditions as well as the frequency of higher intensity conditions, such as extreme weather events. Predictive modeling powered by deep data analytics, artificial intelligence (AI) and machine learning (ML) can help create a range of probable outcomes and tell us how specific actions are likely to change those outcomes. For example, studies can draw new water lines along the coast based on a range of average temperature increases over the next 10, 25 or 50 years — giving mining companies the context they need to make critical decisions. All this requires a powerful commitment to data collection and analytics.

Mining is the first industry in the global value chain and a crucial stakeholder in climate change debate and initiatives. In order to maintain sustainability in an uncertain world, the mining industry needs a better understanding of how the effects of climate change will impact operations and the bottom line. To do this, mining companies need an ESG-based risk assessment and management strategy that can inform decision making in real time and help predict long-term outcomes. The future of the industry and the planet depends on it.