Why climate regulation is an unmissable opportunity for Australia’s miners

From the Clean Energy Regulator’s Safeguard Mechanism (SGM) reforms, to the Rewiring the Nation program and the proposed mandatory climate-related financial disclosure, a new climate reporting regime has dawned. 

Now, in the cold light of day, Australia’s mining companies have a significant opportunity. Organisations can opt for mere compliance with climate-related regulation. Or they can choose to go the extra mile – to deeply embed sustainability within their organisation, to drive value creation, and to thrive during the transition to net zero.

The key is to view new climate reporting requirements as an opportunity to align organisational strategy and governance with the sustainability metrics that are increasingly guiding investor decisions.

Think of it as a blueprint for more sustainable value creation.

Forward-thinking organisations, for instance, are investing in solutions that have the potential to yield positive net cash flows to accelerate the energy transition. These provide strategic avenues to mitigate risk and allow companies to prosper in the low-carbon economy. 

Yes, there will be greater risks and increased reporting obligations for management and boards, but organisations need to resist reporting for reporting’s sake.¹

Also, there will be leaders and laggards. It’s already clear that Australia’s mid-tier 50 mining companies (MT50) will play a pivotal role in Australia’s net zero future. But at the year ended 2022 reporting cycle, only around half (52%) of the MT50 companies have disclosed a decarbonisation transition plan, and 40% are yet to adopt the Taskforce on Climate-related Financial Disclosures’ recommendations, as part of the reporting standards developed by the International Sustainability Standards Board. In short, there’s room for improvement and we expect fast movers will reap rewards. 

The headline news for Australia’s mining industry, however, is that there’s an unmissable opportunity to unlock value by putting sustainability at the heart of organisational strategy. PwC’s Global Investor Survey 2022 found that sustainability is a major consideration for investors. In fact, three of the top five priorities for investors relate to sustainability (namely: data security and privacy (51%), effective corporate governance (49%) and reducing greenhouse gas emissions (44%)).

How, then, do mining organisations embrace sustainability in practice?

When considering decarbonisation, it’s important to consider both the opportunities ahead of you and the strategy to reduce your organisation’s emissions profile through the value chain. In addition to considering broader strategy of your business and the opportunities to diversity into a more future facing portfolio, we’ve identified the top three opportunities Australia’s mining organisations should be exploring right now, informed by our research and first-hand experience:

1. Decarbonisation transition strategy

Organisations must have i) an acute appreciation of the emissions profile of their operations and broader value chain. This will include identifying the opportunities to collaborate, as well as things such as tackling emissions reductions across your value chain; ii) a clear picture of the transition activities needed to meet their climate ambition and disclose this accordingly.

2. Carbon strategy

All organisations, whether they’re covered by the recent SGM reforms or not, should develop a carbon strategy which complements their decarbonisation programs. This means identifying how to create value from carbon at the same time you pursue decarbonisation.

From fostering carbon market expertise to play in carbon markets, through to developing Australian carbon credit units (to cash in at an opportune time), there’s several steps you can take to set yourself up for carbon strategy success.

Ask yourself:

• Do we understand our role in the carbon market? Are we a credit creator? Or a buyer, seller or retirer of credits? 
• What constraints do we face? (e.g. Compliance obligations, commitments to stakeholders or capital availability.) 
• Are we valuing carbon credits correctly? How are we defining ‘fair value’ for a carbon credit?
• Is our internal carbon price increasing over time as our abatement opportunities are addressed and as the market matures?

3. Nature as an asset 

Finally, hand in hand with your carbon and decarbonisation strategies, is the concept of nature (or natural capital) as an asset class. This requires something of a mindset shift. No longer is nature viewed solely as a cost; it’s also an opportunity.

Recent research by PwC Australia found that a biodiversity market has the potential to unlock $137 billion in financial flows to advance Australian biodiversity outcomes by 2050, with more than half of this activity ($78 billion) to be driven by biodiversity, conservation, and natural capital-themed bonds, loans, debt and equity.

MT50 companies are particularly well versed in biodiversity thanks to their exploration, development, restoration, and operational activities. Biodiversity forms part of their license to operate from both a social (community and First Nations) perspective, and a regulatory perspective. 

Now, however, mining organisations need to see nature as an asset, and incorporate this thinking into their climate strategy, embracing the chance to preserve nature and use nature itself to offset carbon.

Overall, there’s an enormous opportunity to unlock value by placing sustainability at the core of organisational strategy. It all comes down to how we approach climate reporting requirements and, on that front, organisations face a critical choice.

_Sources

^{1 Department of Industry, Science and Resources and PwC, The economic potential of Australia’s critical minerals and energy transition minerals, June 2023. Available at: www.industry.gov.au/sites/default/files/2023-06/economic-potential-of-australias-critical-minerals-and-energy-transition-minerals.pdf}