11 Feb. 2022

Decarbonization: A strategic opportunity to build long-term value

By EY Canada

Multidisciplinary professional services organization

11 Feb. 2022

As originally published on Canadian Mining Magazine.

Mining & metals companies are being called to address their carbon footprint by making big changes in how they operate and collaborate.

In Brief

  • Why should a decarbonation strategy be treated like any other strategic risk or opportunity?
  • Renewable energy is the most affordable abatement initiative that can significantly reduce emissions.
  • What is the importance of tying identified risks and opportunities to scenario analysis?
Treating decarbonization as a strategic opportunity to build long-term value

Mining and metals companies are facing a two-fold scenario with the energy transition. They’re being called on to address their carbon footprint and reduce emissions, while providing the minerals and materials needed to help companies in adjacent industries do the same. Balancing the two is becoming increasingly complex. And with recent calls from the UN Climate Change Conference of the Parties (COP26) demanding all businesses to take action, the pressure is mounting for Canadian mining and metals companies to accelerate their decarbonization efforts.

Though climate change action is not new news to the sector — COP26 just brought heightened awareness and urgency to it. The EY Top 10 business risks and opportunities report finds companies rank environment, social and governance (ESG), decarbonization and licence to operate (LTO) as the top three risks for 2022. The results are a testament that leading with purpose, long-term value and sustainability at the heart of decision making is no longer a competitive advantage, it’s just business as usual. It will be those businesses that can meet climate targets, while transparently communicating progress with stakeholders, that will gain an upper hand in the fight for capital and new assets.

 Those who don’t might not only miss out but be left behind. A recent survey found institutional investors around the world are increasingly placing greater emphasis on ESG performance in their decision-making, with 74% now more likely to divest from companies with poor ESG track records than before the COVID-19 pandemic. This trend was loud and clear at COP26, with Canada signing on to a pledge to halt investment in coal power generation and stop using coal entirely by 2040.

In addition to ending public financing, the Canadian government also urged all countries to agree to a global price on carbon — seeking 60% of global emissions to be covered by a carbon tax by 2030.

With many of the world’s governments trying to raise revenue after spending more than US$30t globally on COVID-19-related stimulus, there’s a risk that similar taxes and policies will be rolled out more widely. Right now, only one-fifth of the world’s greenhouse gases are covered by carbon pricing instruments, but this is likely to increase. Navigating these emerging regulations will be a challenge for miners, both in terms of managing decarbonization efforts and reporting against targets.

Setting a practical, flexible decarbonization strategy 

The good news is that many miners have made active commitments to reach net zero by 2050. Now, these commitments need to be turned into action. The challenge is that few have made the necessary investment to achieve this. For the most part, the sector is still working through what net zero means for them and will wait for answers before allocating capital. But the reality is, there’s no time to wait — action is needed now.

A decarbonization strategy should be treated like any other strategic risk or opportunity. It should be dealt with at a board and executive level, and managed as part of the overarching business strategy, rather than addressed as a separate climate strategy delegated to a discrete team.

Doing this successfully will require a number of tactics, including scenario planning the different pathways to net zero, incentivizing behaviour that encourages progress, incorporating targets into capital allocation strategies, making decisions about when to sell exposed assets and even how to make the best use of tax breaks, incentives and other financial instruments. 

Addressing the full scope 

Abating scope 1 and 2 emissions should be high on the agenda for miners, if not already in progress. These are either direct emissions from company-owned and controlled resources or indirect emissions from the generation of purchased energy. There are several opportunities for miners to reduce scope 1 and 2 emissions on-site. Renewable energy — solar and wind for example — is the most cost-effective abatement initiative and can reduce emissions significantly depending on site conditions. Plus, switching to renewables can be a smart use of the land that surrounds the mine.

Fleet electrification and replacing diesel with zero-carbon fuel options across the value chain are also opportunities to decrease on-site emissions. But these measures alone will not fully decarbonize a mine. Emissions from processing, ventilation, heating and cooling and backup power generation remain significant. Carbon capture and storage will be needed to achieve a net-zero target, potentially alongside other forms of carbon offsets.

The real game changer will be abating scope 3. These are indirect emissions that occur in the value chain and not owned by the company, making it difficult to track and reduce. Reducing scope 3 emissions will require mining and metals companies to make big changes in how they operate, collaborate more with clients to decarbonize the whole value chain and articulate the value to stakeholders. This last mile of decarbonization is hard, and data collaboration poses potential limitations to the accuracy and completeness of data needed to support targets. For miners, the key challenge will be to encourage and empower parties across the value chain to be carbon neutral.

Communicating transparently to drive lasting value

The Canadian Securities Administrators published proposals in the fall that would introduce climate disclosures for public companies that are largely in line with the standards set by the Task Force on Climate-related Financial Disclosures (TCFD). And similarly, the US Security and Exchange Commission, is reviewing proposed regulation for mandatory climate risk disclosures for public companies, which is expected to be implemented in early 2022.

With climate risk moving up the agenda, companies need to be prepared for climate-related disclosures to be added to the scope of their external audits. Though research by the EY Global Climate Risk Barometer finds that Canadian companies are responding to the recommendations of the TCFD and producing more robust disclosures around their climate change and governance strategies than their global peers, they still have work to do. One of the biggest missing elements was that identified risks and opportunities are not tied to scenario analysis.

Within the TCFD framework, scenario analysis is the critical planning stage that turns theory into tangible, actionable strategies. It’s vital for leading-class reporting because climate change risks are inherently longer-term and more complex than traditional business risks. Taking a robust climate risk scenario analysis, looking carefully at the broad risks and opportunities that climate change presents to the business and the industry as a whole, will be important in delivering trusted and financially material reporting insight to help stakeholders better understand the company’s long-term value strategy.

Amid uncertainty around emerging carbon legislation, miners need to respond appropriately to shareholder pressure to meet climate targets and avoid committing to potentially unrealistic goals. Sharing their road map to net zero and their successes along the way will be key to gaining investor confidence and, potentially, competitive advantage.


Mining & metals companies should start acting on their ESG commitment as regulations change and transparency are soon to come. Diminishing scope 1 and 2 emissions are to be prioritized, and renewable energy is an affordable way to do it. Tackling scope 3 will be the real challenger as they are not owned by the company. Companies need to prepare for disclosing climate-related information in their audit.

About this article

By EY Canada

Multidisciplinary professional services organization