The world’s top five mining companies are becoming more sensitive to environmental and social risks, according to a report from S&P Global.
The data provider analysed information from Anglo American, BHP, Glencore, Rio Tinto and Vale. It found that environmental and social risks were becoming increasingly important for the companies’ credit quality, citing the January 2019 failure of Brazilian company Vale’s Brumadinho dam in Brazil as a turning point. The Brumadinho disaster, which occurred when a tailings dam failed at Córrego de Feijão iron ore mine in Minas Gerais, killed at least 237 people and caused extensive environmental damage. It was the company’s second major dam breach in just over three years, following the November 2015 Mariana dam breach in the same region that occurred at the Bento Rodrigues mine owned by Samarco, a joint venture between Vale and BHP. According to S&P Global, the Brumadinho disaster highlighted the severity of such risks in the mining sector, not just for dam failures, but longer-term risks such as greenhouse gas emissions, wastewater, air pollution, employee injuries and community impact. “Importantly, in our view, a second dam failure in just four years involving Vale leaves the company highly exposed to any failure or underperformance in the environmental and social domains,” the report said. “We also believe that BHP and even miners that have not been involved in any disasters in the past five-to-10 years will face higher pressure, scrutiny, and potential sanctions related to environmental and social risks from regulators and investors.” The report added that while such environmental concerns were unlikely to have a material impact on the top five miners’ ratings over the next couple of years due to financial cushions, their overall importance was growing in line with regulators’ and investors’ increased focus on environmental, social and governance (ESG) strategies. The five majors in S&P Global’s report have reduced their annual emissions per copper equivalent production by an average of six per cent from 2014–18, which S&P Global mostly attributed to disposal or offloading of assets, such as BHP’s creation of spin-off company South32. Glencore was cited as the miner with the highest overall level of scope one (direct) and scope two (indirect) emissions of the top five miners, as well as the highest intensity of emissions. Rio Tinto achieved a “meaningful reduction in emissions intensity” over the 2014–18 period, with 56 per cent of emissions attributable to the company’s aluminium production. Additionally, the company was found to consume 71 per cent of its electricity from renewable sources such as hydro. BHP achieved the greatest overall reduction in absolute emissions and emissions intensity, but this was mostly due to shifting its assets to South32, while Anglo American’s emissions remained relatively flat in the same timeframe. Despite the issues related to the two dam breaches, Vale’s scope one emissions were found to be the lowest of the five miners overall. When both scope one and scope two emissions are taken into account, Vale’s remained the lowest until 2016, at which point BHP’s figures became lower. It is important to note, however, that the report did not include 2018 figures for Vale. “BHP is now on par with Vale and well below other peers due to the notably high share of iron ore in its commodity mix,” the report said.
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