Nature-related financial risk opens new can of worms for miners

Aerial view of deforested area of the Amazon rainforest caused by illegal mining activities in Brazil. (Image: Imago Photo | Adobe Stock.)

Global miners, already under pressure to reduce carbon emission and report climate change-related risks, will now have cover a whole new spectrum of issues related to corporate environmental performance, with the launch today of the Taskforce on Nature-related Financial Disclosures, or TNFD.

The goal of the initiative is to deliver, in 2023, a framework for companies to measure, report, and eventually address threats to wildlife and ecosystems delivered from their businesses.

According to risk consultancy Verisk Maplecroft, the imminent new set of definitions, benchmarks and indicators will unleash a wave of calls from the investment community for corporates to account for biodiversity risk, especially across assets such as mines, oil operations and pipelines.

Just as miners are getting used to the idea of having to report their climate change risks, investors are demanding they now cover their so-called natural capital risks

“What’s more, if world leaders are able to secure a Paris-style worldwide biodiversity deal in China later this year, it would drive momentum for the introduction of hard regulations addressing biodiversity risk,” Verisk Maplecroft’s Will Nichols and Rory Clisby say in a report released Thursday.

The analysts believe that, in the same way as carbon restrictions threaten emissions-heavy investments, so more stringent biodiversity laws will affect activities impacting nature.

One estimate suggests the world’s largest investment banks provided around $2.6 trillion in loans and underwriting services linked to the ‘destruction of nature’ in 2019.

“With huge sums under threat and pressure from legislators and civil society growing, investors – and operators – need to find a way to manage this risk,” Verisk Maplecroft warns.

Finance ministers from the group of seven (G7) of the largest economies endorsed the TNFD last week, ahead of its official launch. The Bank of France, the World Bank, AXA SA, BNP Paribas SA, Credit Suisse Group AG, Wells Fargo & Co., KPMG International and clothing retailer H&M Hennes & Mauritz AB (publ), have also backed the plan.

Biodiversity price tag

The idea of putting a price tag on nature, whether it’s to calculate the costs of plastic pollution on fish stocks or logging areas of the Amazon forest to expand mining activities, is not without controversy.

Proponents argue that failing to value biodiversity effectively is a key driver in accelerating rates of loss.

“Without a dollar value to consider, companies can make short-term decisions that fail to account for the harms that large-scale investments in sectors such as agri-business or extractives can reap,” says Verisk Maplecroft.

The consultancy expects biodiversity disclosures to follow the same pattern as climate risk, where investors are put under pressure to publish information so that, in turn, they demand more granular and material data from their portfolio companies.

Nature-related financial risk opens new can of worms for miners
Source: Verisk Maplecroft.

Environmental groups, who have tended to target the energy industry, are now turning their attention to big energy-consuming industries, especially mining, which is responsible for about 4% to 7% of global greenhouse gas emissions.

Climate advocates are also looking at likely impacts of mining the metals used in digital and other devices, spreading attention from the resources sector to technology groups. 

Carbon transition is the biggest environmental risk for thermal coal companies, especially in the US, which is driven by growing global demand and policy support for less carbon-intensive and cleaner energy. Such trend has impacted banks’ willingness to back companies in fossil fuels.

Verisk Maplecroft believes that funds and international creditors have an opportunity to drive conservation improvements by tying finance to environmental, social and governance (ESG) milestones.

Direct investments in countries will also play a crucial role in addressing natural capital risk, the consultancy says. Innovative private funds looking to fast-track investment into the world’s stocks of natural assets already attract support from sovereign wealth funds, pension funds and insurers, particularly for investments in emerging markets.

The report comes on the heels of ratings agency Moody’s release of new ESG issuer profile and credit impact scores for the global metals and mining sector, which could negatively impact companies lagging behind.

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