While demand for coal is still rising, there has been a local trend towards financing more sustainable and ‘green’ projects. Through public and shareholder pressure and aligning with global trends, local financial institutions are also reconsidering their approach towards funding new coal projects.
This will pose a challenge for mines that are unable to decouple growth from carbon emissions, and will make capital investments in coal mines more difficult, states multinational professional services provider Deloitte Risk Advisory partner Mark Victor.
“Decarbonisation is being driven by vocal investors who are challenging mining companies to rethink their portfolios and future capital investments, and to improve the disclosure of sustainability performance and environmental impact.”
He adds that, consequently, companies are being pressured to share clear and defendable positions pertaining to their climate-related financial risks, in line with the Financial Stability Board’s Task Force on Climate-related Financial Disclosures recommendations.
Victor also highlights that South Africa’s energy plan, the recently adopted Integrated Resources Plan 2019 for electricity generation, which covers the period from last year to 2030, details that South Africa will pursue a diversified energy mix to reduce reliance on coal, in line with the 2015 Paris Agreement, to reduce greenhouse gases.
Currently, about 77% of the country’s electricity is generated from coal. While the plan envisions changing the local energy mix by increasing the contribution of solar and wind power, coal is still expected to contribute about 60% of the country’s electricity.
Victor argues that this reduction is not sufficient to meet the goals of the Paris Agreement, which includes limiting temperature increases to well below 2 ºC above preindustrial levels. Further, individual companies need to start investigating options for carbon offsetting, given the limitations around reducing reliance on coal.
Despite an announcement by Mineral Resources and Energy Minister Gwede Mantashe in February this year that mines could potentially produce electricity on site, Victor reiterates that the industry is still awaiting formalisation from government, and that companies will still depend on coal for energy generation.
As a result, local miners and other companies will still need to explore alternative options for decarbonisation and to achieve sustainability targets.
“Regulatory frameworks are placing further accountability requirements on the mining sector to ensure sustainable shared value and inclusive growth for the sector and the economy, and to drive responsible behaviour with good corporate citizenship,” adds Deloitte South Africa Sustainability Strategy and Advisory manager Renata Lawton-Misra.
Lawton-Misra notes that the shift towards a low-carbon economy will result in increasing adjustments to most corporate strategies, owing to the enhanced focus on technological innovation, as well as more stringent environmental standards.
However, the complex regulatory environment and the current reliance on State-owned power utility Eskom complicate South Africa-based companies’ ability to meet reduction targets set by international parent companies or to adopt low-carbon strategies.
Mining companies and governments need to prepare for decarbonisation by facilitating the availability of resources, streamlining regulatory requirements, investing in transforming mining operations and making targeted investments in innovation.
Adopting digital technologies is inherently challenging, Victor emphasises.
“Yet, the growing evidence of their benefits indicate that artificial intelligence-based and digital technologies in the mining industry are becoming more prominent, enabling companies to make informed decisions on a more timeous basis. This improves health and safety, boosts efficiency and ensures that human efforts are almost negligible, all while helping to create smaller environmental footprints.”
However, Lawton-Misra stresses that technology does not present a silver bullet on its own, but is part of the strategy to transform operations.
“The absence of one-size-fits-all solutions increases the burden to explore and assess options, leading to testing all possible technology combinations,” adds Victor.
It is imperative that technology and mining companies find the flexibility to create a tailored solution for the specific context of an operation, he concludes.