The following article was first published on CMJ January issue.
The consequences of climate change for the mining sector are informed by a complex and evolving dynamic. The sector is resource intensive and a major emitter of greenhouse gases (GHG), yet it also plays a strategically important role in the economy and is essential to the energy transition. It is also vulnerable to the effects of climate change and the energy transition.
Canada is home to half of the world’s publicly listed mining and mineral exploration companies. In 2020, the sector directly and indirectly accounted for 692,000 jobs, contributed $107 billion or 5% to Canada’s GDP, and minerals accounted for $102 billion or 21% of Canada’s domestic exports, according to Natural Resources Canada. Canadian exploration and mining companies are also active globally. In 2019, publicly traded Canadian-based mining and exploration companies were present in 96 foreign countries, and two-thirds of their total $263.2 billion assets were located abroad. Emerging technologies, including those that enable the energy transition, are heavily reliant on resources that are currently primarily sourced by mining. Until a viable circular economy is established, mining activity will be needed to meet demand.
Canada is a key global producer of critical materials including copper, aluminum, cobalt, nickel, lithium and graphite. There is high demand for these materials, driven by a global shortage, predicted further increases in demand, and concerns over securing long term supply.
Canada’s own low-carbon goals and ability to ensure a resilient supply chain for these resources depend on its mining sector. Natural Resources Canada has promised increased action to help develop Canada’s mining sector (alongside Canada’s clean technology and batteries sectors) and its transition to more productive and sustainable operations. NRCan’s goal, according to its 2021-22 Departmental Plan, is to “position Canada as a preferred supplier of ethically, socially and environmentally responsible raw materials.”
Evolving risks for mining companies
While the contribution of the mining sector is incontrovertible, there are significant climate change related risks to the sector, including physical, transition, and legal and regulatory risks.
The sector is vulnerable to the physical effects of climate change, directly and via its supply chain. Many mines are located in remote and challenging physical environments. The effects of climate change, including changing climactic conditions, more frequent and extreme weather events, and stresses on the availability of critical resources such as water, can exacerbate challenges at remote sites. Mining infrastructure is also at risk, which may impact operations and increase environmental and occupational health and safety risks. Transportation, which is critical to mining – bringing in workers, equipment and supplies as well as getting minerals to market, is at risk too. Extreme weather events and rising sea levels damage roads, ports and other critical transport infrastructure and impact the ability to safely transport people, supplies and commodities. In Canada, for example, degradation and reduced reliability of ice roads affects access to northern sites. In other parts of the world, rising temperatures cause railway lines to buckle and roads to melt, as well as impairing the ability of employees to work under those conditions.
The sector also faces transition risk. Globally, there are rapid and deep transitions underway across all sectors to move towards low-carbon economies. Transition risks span the entire mining value chain, such as: evolving political, social and consumer attitudes to high GHG emitting and polluting industries and products; evolving expectations of communities, shareholders, financiers and other key stakeholders; changing regulatory and legal frameworks; increased political risks (e.g. resource nationalization and trade tensions); regional security concerns; changing global markets and competition; and fluctuating commodity prices.
The sector is also at risk of climate change and sustainability related litigation and investigations. Mining operations are resource-intensive, contribute to pollution and environmental degradation, and are a major emitter of GHGs. UNEP’s Global Resources Outlook 2019 found that resource extraction and processing contributes to about half of global GHG emissions, and 90% of water stress and global biodiversity loss are caused by those activities. This makes the sector a target of climate-related activism, litigation and regulatory action. Such cases can have serious reputational, financial and operational consequences.
The range of climate-related disputes is vast. Legal issues traverse many fields of law and causes of action, and involve a variety of plaintiffs and defendants from multiple sectors. The risk landscape is in a state of flux as governments, regulators and the judiciary grapple with how to deal with these complex issues. But one trend is clear – globally, climate-related cases are on the rise.
Lawsuits have been brought against companies (and their directors) seeking compensation for damages associated with the effects of climate change. Oil and gas companies have been primary targets, but the risk landscape is evolving with claims threatened and brought against companies in a variety of other high GHG emitting sectors, as well as those that finance them.
Governments have also been targeted by plaintiffs seeking to compel action on existing climate change policies or to create new or better policies. Such claims have a knock-on effect on companies as new or changing regulations may lead to increased costs of compliance, and successful claims against governments can spawn copycat claims against companies.
However, the majority of climate-related disputes are found in routine licencing, permitting and other matters related to obtaining project approvals. This has been a quiet revolution over the last two decades, where it is now common to see climate change related arguments and science raised and considered by decision-makers. Approvals may also be prolonged as governmental agencies conduct additional analyses in order to mitigate their own litigation risk.
Companies have also faced claims related to reporting of climate-related risks, as well as a variety of “greenwashing” claims over allegedly inaccurate or misleading statements about the sustainability credentials of a particular service, product or company.
In addition, climate-related contractual disputes arise in a variety of ways, for example, disputes arising out of energy transition or resilience projects, or business disruptions caused by climate-related weather events.
Legal and regulatory changes can also lead to disputes. Governments globally are taking steps to respond to climate change and drive the energy transition. Some may also pursue resource nationalism agendas or seek higher stakes in projects. Particular risks for the sector include changes to tariffs, royalty or tax regimes, and restrictions or duties imposed on certain materials. Governmental action can impact the profitability or even viability of commercial mining arrangements – and when that happens, strategically important disputes follow.
Many major mining companies now place an emphasis on sustainable mine development practices. Companies are able to leverage technological advances that allow for increased efficiency, reduced waste, and greater use of renewable energies. But the sector needs to continue to focus on reducing emissions through greater adoption of technologies, operational innovation, resource efficiency and circular economy practices. Strong sustainability practices and stakeholder engagement are important for obtaining or maintaining social licence and also reduce litigation risk. Climate change risks should also be embedded into strategic risk management practices. Risk assessments should be undertaken in the normal course of business as well as at the outset of a project, and these should include the risk of litigation and investigations. Not all disputes are avoidable, so companies should also have protocols in place that put them in the best position to deal with disputes in an efficient and effective manner.