For most mining companies, the climate risk with biggest impact is water. Too little water at the plant or too much in the pit will affect production and the asset value.
When it comes to quantification of climate change risks, a lot of the attention from miners, investors and downstream off-takers so far has gone to the specific issue of greenhouse gas emissions. But a tonne of CO2 emitted in itself does not represent a direct risk for the mine. Instead, water is the input that decides whether the mine runs at all. The attention may need to change though, pretty soon!
Lots of mining companies are on the hook to start reporting on climate change following ESRS in the EU, or IFRS S2 and its local versions such as the UK’s, in the next 2-3 years.
What is new is that these regulations include the obligation for a monetary quantification of the climate change impact where it is material. And even though a company may defer the forward-looking climate (water!) risk financial numbers if it states the uncertainty is too high or it lacks the capability to do so, the company still has to describe the risk and point to the accounts it affects.
There is a catch in this situation. Deciding whether water risk is material already requires a view on how big the financial effect could be. Officially stating that you cannot quantify that effect, while at the same time judging it as being immaterial, does not sit together well.
Several mining companies have already started presenting in their financial accounts that the only estimate materially affected by climate change is the recoverable amount of its assets, and that the main driver is managing too much or too little water. But no numbers attached.
This reaches the financial sector. Banks, insurers and large investors now report under the same standards in several countries, and this includes the climate risk sitting in their portfolio. A mining investor carries the mine’s water risk on its own books.
Water is becoming a major differentiator where value can be won or lost in mining. The regulations are in place that require the disclosure for the quantification of climate change effects. A mining company’s access to capital will depend on the risk quantification and its disclosure transparency.
I am not sure that stating that your water-related risk uncertainty is too high or you lack the capability to quantify the risk is going to improve your investment case.