By Artem Malkov and Ilya Epikhin, Arthur D. Little
Understanding current challenges
The metals and mining industry is responsible for approximately 8% of the world’s carbon footprint. In addition to the need to reduce greenhouse gas (GHG) emissions, the sector faces growing pressure to lower its water use, improve its waste management, protect biodiversity and local communities, and ensure the safety and well-being of its workforce. This is reflected in increasing regulation across the globe.
At the same time mining is essential to delivering the materials required for the green transition, including lithium, cobalt, and graphite for electric vehicle (EV) batteries. This is driving demand for stepped-up production and new mines, increasing the need for investment, despite long payback periods and uncertain future needs, with the possibility that this predicted growth may not materialize and could be uneven in terms of regional requirements. For example, EV sales have slowed in the US, while battery makers are shifting away from expensive, hard-to-source metals like lithium to more common minerals.
All this makes it hard to formulate effective sustainability plans. If you lag the market, your reputation and relationships with stakeholders will suffer, but if you are too far in front, you are at risk from requirements changes and market shifts. The metals and mining industry operates in a volatile, uncertain, complex, and ambiguous (VUCA) world, with fluctuating energy prices, uncertain regulation, resource nationalism, and climate change — all impacting decision-making.
To successfully navigate these challenges, companies must move beyond conventional management and leadership strategies in their daily operations. They must shift from seeing sustainability as a risk to embracing it as an opportunity, carefully selecting and prioritizing green initiatives that improve sustainability and positively impact shareholder value.
Balancing sustainability with value creation
To embrace emerging opportunities around sustainability, companies should take an end-to-end approach that focuses on value creation:
1. Set goals
Strategic sustainability goals for metals and mining companies operating on a global scale should be diverse and holistic, focusing not just on decarbonization, but on other aspects to meet stakeholder priorities.
It is important to understand that sustainability elements vary in importance for stakeholders, as shown in Figure 1. For example, GHG abatement is a key concern for Western governments and global investors, as well as for clients and suppliers looking to track and reduce their own emissions. In contrast, local communities are focused on the direct impacts of mining operations on their lives, so they are much more concerned about water usage, pollution/waste, and threats to biodiversity. Failing to tackle this second group of topics can lead to disruption in daily operations at some mines, reputation damage, and/or a loss of operating licenses. Waste management failures can lead to groundwater contamination and even the collapse of tailings dams, as in the Brumadinho, Brazil, dam disaster in 2019. That incident caused 270 deaths and led to a US $19 billion loss of market value for operator Vale, including $7 billion in fines and compensation.
To set effective targets, companies should move beyond long-term goal setting to create interim objectives and initiatives that demonstrate progress in short time frames, while also ensuring that goals are holistic, going beyond GHG emissions to reflect local and global perspectives.
2. Develop & prioritize initiatives
To balance compliance with opportunities, metals and mining companies should adopt a value-driven approach to sustainability, primarily concentrating on initiatives that enhance sustainability while contributing to the company’s bottom line, such as increasing shareholder value by improving access to funding, protecting revenue, reducing costs, and lowering risk exposure. The specifics will vary based on the minerals being extracted and the company’s overall environmental footprint.
When deciding which technologies and processes to employ, companies should focus on embracing internal innovation while discovering and analyzing best practices from peers across the world. Areas to focus on include:
Initiatives to reduce GHG emissions
Nearly half of all mines are off-grid, meaning they mainly rely on fossil fuels to power operations. To lower emissions, an increasing number of mines are moving toward onsite power generation, with a focus on renewable energy. Onshore wind and solar energy are relatively inexpensive to install and deliver a relatively high ratio of avoided emissions to CAPEX and OPEX. However, electricity from renewables has its own limitations, including reliance on the electricity grid, battery-charge limitations, and charging station availability.
Initiatives to improve water treatment & management
Many mining deposits are in water-stressed locations (as shown in Figure 2), which increases risks for companies and may bring them into conflict with local communities that rely on scarce water resources, particularly as mining processes require large amounts of water. Typical water initiatives should focus on purification/desalination, water-loss prevention, and water-use optimization through water recycling systems, smart water management software, and improved water treatment/discharge, including zero liquid discharge systems and bioremediation techniques.
Initiatives to improve tailings management
Metals and mining companies are working hard to transform their approach to tailings management. They are moving from viewing waste as a risk to seeing it as an opportunity, particularly through circular economy approaches, and they are exploring new storage methods (e.g., condensed tails, paste styling, and dry storage). Extraction technologies are now capable of reprocessing existing tailings to access valuable materials that could not be reached previously. This minimizes a company’s environmental impact (by avoiding new mining activities) and delivers economic benefits. Copper and gold tailings are especially valuable sources due to their low concentrations in normal ore.
Initiatives to improve the local environment
Improved water use and waste management deliver clear benefits for the local environment and local communities. Metals and mining companies can further improve biodiversity through initiatives such as soil recultivation, wildlife protection near sites, the protection of endangered species, support for nature reserves, and support for natural research projects and activism.
3. Ensure effective implementation
Once ESG initiatives have been selected, their implementation should be tracked against short- and mid-term milestones and connected with overall sustainability goals and ambitions. This enables organizations to both manage risk and compliance while creating value by gaining higher multipliers and green premiums while attracting customers/employees.
To ensure the successful implementation of sustainability initiatives, companies need to rethink their operating model, adopting an efficient sustainability approach that includes detailed processes, organization strategies, and plans to leverage culture and talent. Potential ESG organizational structures vary between being highly centralized to completely decentralized, and companies should create their own solution based on factors such as the level of operational independence of sites, availability of skills and competencies, and potential synergies between business units in terms of ESG best practices.
Aligning sustainability with value creation
The metals and mining sector faces conflicting goals. It must meet demand for essential metals and minerals while reducing its carbon footprint and ensuring the green transition. To drive success, companies must adopt an approach that aligns sustainability initiatives with shareholder value creation via rigorous goal setting that goes beyond reducing GHGs, thorough prioritization based on financial impact and alignment with strategic goals, and actionable implementation through a robust operating model and tools to ensure the effective execution of prioritized sustainability initiatives.
