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The global movement towards sustainability is driving organisations companies to reinvent their approaches to managing their environmental impact.
When delegates gather for the Mining Indaba on the 5th of February 2024, it won’t just be the splendid sunshine and wines of Cape Town that foreign visitors will hanker for - it will be the once-in-a-lifetime chance to join Africa in a new green revolution. With rewards for all.
Global warming affects all industries and all countries, and a recent EY publication on the top 10 business risks and opportunities for mining and metals in 2024 cited the World Economic Forum’s Global Risks Report 2023, noting that “climate change and climatic events are the top global risks the world will face over the next decade.”
There are several factors at play, all impacting how mining companies plan for their future, greener operations.
In the face of pressure from governments and all its key stakeholders, the mining sector is battling to find ways to reduce emissions, primarily through a move to renewable energy.
In parallel with this, the unreliable power supply from South Africa’s state power utility Eskom, and some of its counterparts elsewhere in Africa, means that mining firms need to either develop green power provision at their mines or contract out such provision to private green energy generators.
While Eskom is transiting to greener production and some of its large clients are exporting to countries which are exposed to carbon border adjustments, it is still heavily reliant on its fleet of ageing power stations, meaning that the power it sells is carbon-heavy, adding to the importance of self-generation in the mining sector.
One important theme of the Mining Indaba will be that while there are new challenges, there are also exciting new green opportunities.
In reflecting on the complex challenges ahead, and the pivotal role to be played by the mining sector, the EY report notes that “miners are expected to provide minerals for the energy transition, while also reducing greenhouse gas emissions.” Transition minerals (ie those minerals critical to our energy transition) continue to attract large investment flows. Mining companies are reshaping their portfolios to gain greater exposure to transition minerals.
The rapidly growing and evolving carbon trading markets have been relatively slow to make an impact in Africa, but EY has seen a recent rapid spread in these financial products on this continent, and the trend is positive.
We are seeing more initiatives in the voluntary market - where carbon emitters can offset their emissions by purchasing carbon credits stemming from projects designed to curb greenhouse gas emissions.
The world’s largest free trade bloc, the African Continental Free Trade Area (AfCFTA), has been launched, with many of its member countries seeking to boost their manufacturing footprint through a rapid expansion in beneficiation - the upgrading of lower-value raw materials into high-value intermediary and manufactured goods.
Africa has vast mineral resources and extensive reserves of many of the minerals, such as copper, lithium and vanadium, required for the development of batteries and other green energy hardware. Africa can therefore be at the forefront of the wave of capital funding the development of new transition mineral projects and mines.
The key challenge for African countries is position themselves as attractive destinations for this global capital, including the now important sustainability and ESG requirements that are prerequisites for funders.
In this context, miners should ensure they source high-quality carbon credits and provide transparency around their activities to reduce direct emissions.
They must be wary of charges of greenwashing - which is defined as making an unsubstantiated claim to deceive consumers into believing that a company's products are environmentally friendly.
The EY report notes that “land-based carbon credits via nature are being considered as a priority, as they also can provide a positive biodiversity benefit. For example, Rio Tinto is exploring the role that nature-based solutions and offsets can play in the decarbonization journey. The scale of the first round of projects is significant, with the potential to generate up to one million tonnes of offsets per year by 2030.
“As governments double down on energy transition goals, many are introducing initiatives aimed at fast-tracking renewables while also reducing reliance on other countries, particularly strategic rivals and in critical sectors.”
There are also concerns that climate change-related regulations and subsidies in developed countries will exacerbate the global wealth divide, particularly for those countries without resource wealth.
Resource-rich countries in Africa and elsewhere, on the other hand, have an opportunity to play the big powers off against each other as countries scramble for influence in, and access to, mineral resources in emerging markets.
At the recent COP28 gathering in Dubai, progress on the adoption of key texts relating to international carbon trading was disappointing. Disagreements over technical aspects hindered consensus.
While EY believes the delay has some implications for voluntary carbon markets in general, imposing roadblocks for market-based private sector engagement, the carbon market is potentially quite a big source of financing for greening Africa, and I still expect to see a lot of growth.
The biggest buyers of carbon credits are expected to be from the Middle East, with increased demand from countries that are not otherwise going to meet their obligations.
This will assist Africa to monetise its carbon reductions while using greener power to produce more beneficiated products.
In this way, there is an enormous opportunity for businesses to leverage the carbon markets to generate revenue streams.
The World Bank has already committed to building and supporting the scaling of high-integrity carbon markets. This is supported by the Glasgow Financial Alliance for Net Zero - a global coalition of leading financial institutions that was formed during the COP26 climate conference in Glasgow, committed to accelerating the decarbonization of the economy.
The challenge is to ensure that Africa’s carbon markets can be speedily expanded to facilitate a growing carbon trade, while also meeting the highest global standards of governance and integrity.
Whatever the weather in Cape Town - and it is expected to be an immense treat for those delegates travelling from the Northern Hemisphere winter -it will be impossible to ignore the climate and environmental imperatives.
Quinton Hobbs is Africa Strategy and Transactions leader and Duane Newman is a specialist sustainability tax partner at EY
Summary
If the climate crisis can be turned into new green business opportunities, the mining sector in Africa may be able to convincingly shed its reputation as a sunset industry.
