When it comes to environmental, social and governance (ESG) matters, the mining industry has long been thought of as a contributor to the problem. But investors and consumers alike are beginning to recognize the industry as a viable source of the solution. Mining companies are embracing their new role as stewards of the planet due in part to the perceived financial incentives that come from pursuing sustainability initiatives, specifically decarbonization.
Today, mining companies have a great opportunity to contribute directly to the green energy transition by providing many of the raw materials at the top of the value chain—copper, lithium, cobalt and nickel. What’s more, if they produce these materials with a lower carbon footprint, they will likely be able to charge a significant price premium.
Not surprisingly, institutional investors have taken a keen interest and have signaled they may reward mining companies that pursue decarbonization initiatives with higher valuations. Accenture’s Global Institutional Investor Study of ESG in Mining was launched to help mining companies understand investor expectations and motivations towards decarbonization initiatives. The survey uncovered that:
of investors want miners to aggressively pursue decarbonization and be market leaders in that effort.
of investors would be willing to divest or avoid investing in mining companies that fail to meet their decarbonization targets.
Decarbonization announcements are commonplace—but investors want to see financial results
Nearly all of the leading mining companies have announced plans for decarbonization. And many have launched major initiatives. But it will take more to get the full attention of investors.
Simply put, investors want to see favorable financial results before they will consider increasing valuation and investment:
of investors view improving financial performance and strengthening the balance sheet as “important” or “very important” in the allocation of capital.
of investors cited sustainability initiatives as having a great impact on the value of a mining company, coming in second to last.
When it comes to where mining companies should focus their decarbonization efforts, investors clearly pointed to Scope 3 emissions, which are created by the buyer of the mine products, not the miners directly (see Figure 1). In fact, when investors were specifically asked about the importance of Scope 3 emissions, they outranked Scope 1 and 2 emissions—those directly produced by mining firms and indirectly produced from power purchased for operations—in importance by a factor of nearly four.
Figure 1: Attributes that would drive a significant valuation premium for investors
While Scope 3 emissions are out of miners’ direct control, they can account for a much more significant amount of greenhouse gas (GHG) emissions than mining directly. While challenging, a key to making Scope 3 decarbonization initiatives financially attractive is to quantify and monetize the solutions. But how?
How mining companies can address Scope 3 emissions
Forming joint ventures and R&D partnerships with downstream partners that are innovating with low-carbon processes and products is one way mining companies can take on Scope 3 emissions. However, when it comes to bulk materials like iron ore, miners could have the most impact on Scope 3 emissions by focusing on beneficiation and grade control.
Consider this finding from our analysis: a modest improvement of just 0.5% more iron (Fe) for a relatively low-grade 58% iron ore product could reduce downstream steel mill emissions by an estimated 0.75% per unit of hot metal or steel produced—far more than the combined Scope 1 and 2 emissions produced directly by the iron ore mining company. Importantly, beneficiation of the iron ore can bring sizable price premiums—perhaps even 20% according to our projections.
The key is having accurate, auditable carbon tracking that starts at the mine and extends along the entire downstream value chain. This will require digital transformation.
The question is no longer about whether or not mining companies should pursue decarbonization, it’s how to make decarbonization both environmentally and financially rewarding.
Where miners can focus investment to decarbonize and gain shareholder favor
Our survey revealed numerous insights into what motivates buyers and investors in the mining industry. One point that stood out above all others is the need for miners to embrace emerging technologies and digital transformation. That’s where investors see the greatest opportunities for mining companies to increase value while lowering carbon.
From our analysis, we believe miners should first identify near-term initiatives that could deliver quick results that win investors’ favor. These may include leveraging technologies like data analytics and artificial intelligence to improve efficiencies that enhance profitability while reducing carbon footprint. Or they might mean automating operations to reduce energy consumption by regulating and optimizing machinery speeds and movement.
Once mining companies show results from these shorter-term initiatives, they can move on to bigger and longer-horizon projects (e.g., electrifying the mining infrastructure from renewable sources such as solar or wind). Both these short-term and longer-term initiatives can pay off generously. For example, Accenture research suggests that European companies that make such investments would be well positioned to hit their 2030 target of 55% emissions reduction while also gaining €28 billion in business value across multiple sectors.
The question is no longer about whether or not mining companies should pursue decarbonization, it’s how to make decarbonization both environmentally and financially rewarding. Mining companies that formulate an approach to this winning combination will not only be better positioned to meet increasingly stringent carbon targets, but also stand to realize higher valuations, opening more doors to capital investment to fuel growth.
The Accenture Global Institutional Investor Study of ESG in Mining surveyed decision-makers at 200 public and private institutional investment firms with mining assets in their portfolio valued at approximately US$847 billion in June 2021. The firms were primarily based in Australia, Canada, Hong Kong, New Zealand, Singapore, South Africa, the United Kingdom and the United States. The purpose of the study was to understand the impact of ESG factors on investment decisions.