HANS KUIPERS: Building climate resilience in the mining industry

The recent flooding in KwaZulu-Natal is evidence of the disproportionate effect of climate change and the consequent severe weather patterns on Sub-Saharan Africa. The mining sector is particularly vulnerable because operations are often in areas susceptible to climate change, infrastructure is vulnerable to physical risks from climate change, and water scarcity is likely to increase operational costs. 

Despite the challenges that climate change presents to SA mining companies, they can respond now to be more resilient. The typical response has been to enhance energy efficiency, secure water sources, and exit commodities (most notably coal) that negatively impact the environment. But companies that go beyond this response and embrace a holistic transformation of their operations, including leveraging digital talent and reskilling their existing employees to meet the challenges of the future, are most likely to succeed.

Instead of merely reacting to uncertainty, companies can use the uncertainty of climate change to their advantage and climate-proof their operations by tracking the risks, improving their international competitiveness, crafting the appropriate responses, and strengthening their agility and resilience.

To do so mining executives should focus on two priorities: developing a climate-conscious, scenario-based business strategy; and climate-proofing their operations. Mining companies that have been early movers in addressing climate change — that is, those in the top quintile of emissions-reduction performance — have valuations that are, on average, 20% greater than those in the bottom quintile.

The true impact of climate change is far from certain. As such, companies’ strategies to be adaptable to a range of scenarios. In structuring their approach, mining company executives should consider the following questions:

• How will climate change affect demand, supply, and implied pricing for various commodities?
• What specific impact will those changes have on my company's business?
• Which innovations or new material offerings might benefit our customers, and how can we turn those into new business opportunities?

By running such simulations, mining companies can gauge the various implications for the company’s portfolio and build effective responses both for the near term and the future. The more diverse their options for rebalancing their portfolios and minimising negative exposure the better.

Some industry leaders have been adept at scanning the market and tracking indicators; others have gained from shifting production and investing in exploration for commodities that will be increasingly in demand. However, radical changes aren’t necessary across the board. Demand for platinum group metals (PGMs) from SA is likely to stabilise with decreased volumes from Russia and demand driven by fuel cell technologies. There are tailwinds that are promising, and mining companies whose strategies and planning account for various outcomes are more likely to succeed.

Mining companies will need to choose a bold path. Given the reality of climate change and its escalating costs, miners should be acting now to climate-proof their operations and:

• Establish a dedicated activist programme management office (PMO) to manage emission reduction programmes and other environmental, social & governance (ESG) initiatives;
• Secure the necessary digital and ESG talent as well as upskill existing employees to meet future needs; and 
• Build an ecosystem that enables change by partnering with regulators, local communities, and employee organisations.

Mining companies should approach their emissions-reduction programmes with the mindset of a holistic business transformation and put in place a dedicated activist PMO. They should be assessing a range of reduction measures, including their technology options and the cost and feasibility of each option. Whichever emissions-reduction strategy is chosen, it must be implemented with the same rigour and commitment as a traditional holistic business transformation.

Understanding which reduction levers to use, how to apply them and in what sequence requires specialised talent. Setting up centres of expertise and modernising operations by introducing digital technology to collect and analyse data across all the company’s assets can help assess carbon abatement potential and costs. To implement these initiatives, digital talent will need to be secured.

Additionally, ESG initiatives will require securing talent with the requisite knowledge and competence as well as reskilling employees. With the high demand for digital and ESG talent across SA, mining companies will probably need to set up their own digital accelerators and train the next generation of talent, rather than relying on the external market.

SA mining companies should remember that their climate response will need to be co-ordinated and with the support of regulators and stakeholders, including employees and local communities. By working together, the various stakeholders can shape a greener mining industry in SA — and one more competitive on the global stage.

• Kuipers is MD and partner at Boston Consulting Group in Johannesburg.