While the materials sector is integral to Australia’s shift to decarbonisation, it is also a major source of greenhouse gas emissions with mining alone contributing to nearly 10% of Australia’s greenhouse gas emissions.[1] The sector faces significant exposure to both physical climate risks – such as extreme weather events, water scarcity and supply chain disruptions – and transition risks arising from the global shift towards decarbonisation.
As a result, materials entities in the ASX50 have experience in navigating sustainability reporting and aligning with international frameworks.
However, challenges remain, especially in relation to decarbonising across the full materials value chain due to the high energy intensity of mining activities, heavy reliance on emissions intensive fuels and difficulties in meeting the thermal energy for processing from renewable energy generation.
Normalising sustainability reporting
The sector is experienced in ESG reporting, with some entities having reported on greenhouse gas emissions since the early 2010s. All are now reporting in separate sustainability reports, with some cross referring to their annual report or supplementing their existing reporting with ‘sustainability data suites’.
Additionally, we observed that all reports aligned with the TCFD framework, with many acknowledging that work is underway to meet the new mandatory AASB S2 climate-disclosure standard.
There continues to be progress with operational and broader emissions target setting, although in some cases significant acquisitions were impacting previous baselines.
Nature-related reporting is clearly gaining traction in an industry long experienced with environmental impact assessment and management, with some entities commencing work on TNFD reporting, others finalising biodiversity action plans and biodiversity strategies in 2024 and some setting biodiversity targets. For example, one mining entity had a 2030 healthy environment goal, seeking to create nature-positive outcomes by having at least 30% of the land and water they steward under conservation, restoration or regenerative practices by FY2030. Meanwhile, another had a published goal to achieve net positive impact on biodiversity and has entered a strategic three-year collaboration with the International Union for Conservation of Nature to develop a nature roadmap towards achieving nature positive impact.
Climate change brings risks, as well as opportunities
All ASX50 materials entities reported having undertaken scenario analysis, with many looking at three or even four temperature scenarios and both bottom-up (site specific level) and top-down (organisational or portfolio level) assessments. Some include quantitative analysis of impacts from physical climate change.
Key physical risks identified across the reporting cohort included heat stress to staff, increased extreme weather events such as cyclones, sea level rise and storm surge impacting on ports and shipping, drought leading to operational water shortages and increased risk of tailings dam failure from extreme rainfall.
Transition opportunities were widely reported and included increasing resilience to volatile energy pricing, improved social license to operate and supporting the energy transition (for example through the ongoing and expanded production of lithium).
Transition risks such as changing global demand, reduced revenue from decreased production capacity, inability to meet carbon targets due to difficulty decarbonising and altered demand patterns in the steel industry signal that the transition to a lower carbon economy also poses a range of risks to the materials sector.
Reducing and reporting on emissions
All entities in this sector had emissions reduction targets but only just over half were targeting net zero operational emissions (scope 1 and 2) by 2050.
Just under half had targets relating to scope 3 emissions, demonstrating the inherent difficulties associated with reducing carbon footprints across the value chain in the energy intensive materials sector. Many emissions targets were based on emissions intensity, and some singled-out steelmaking emissions intensity targets as its own category.
Technology challenges for longer term emissions abatement continue, adding to uncertainty for carbon reductions from about 2035. One entity succinctly summarised the contingencies on which its long term target depends as follows: ‘achieving our 2050 net zero goal is contingent on five key enablers: technology evolution, raw materials supply, firmed, affordable renewables, hydrogen and natural gas availability, and public policy’.
Some materials entities are also divesting from metallurgical coal and aiming to phase coal out of their value chain.
One entity also reported that it was wholly committed to absolute emissions reductions, targeting ‘real zero’ in its operations by 2030.
Collaboration is key for decarbonisation in the materials sector
Participation and policy advocacy are key for developing technologies for these enabling areas, as well as increasing renewable energy generation in this sector.
Cross-industry and government players are working together to explore opportunities for this sector to decarbonise and progress towards net zero carbon emissions by 2050, through initiatives such as the:
- Sustainable Shipping Initiative and Sea Cargo Charter;
- Future Energy Exports Cooperative Research Centre;
- Chamber of Minerals and Energy;
- Electric Mine Consortium and Climate; and
- Energy Reference Group.
Actions noted as being undertaken to reduce emissions in mining and production include transitioning heavy machinery to 100% renewable diesel, battery haul truck trials, commission or completion of solar or wind generation, piloting recycling plants and collaboration with the supply chain to reduce carbon footprint of materials.
Embedding sustainability into governance structures
Many of the entities reviewed have a chief sustainability officer (or similar) within the C-suite.
ESG considerations also feature in a number of board and committee charters, with several having dedicated board sustainability committees and associated charters.
In 2024, some entities also expressly link remuneration to ESG key performance indicators, or otherwise shared plans to implement sustainability-linked remuneration targets.
Global developments
Globally, we have observed several strategic acquisitions and investments from materials entities in the past year. Examples include US-based coal miner Peabody Energy’s acquisition plans for several major coal mines in Australia (although these are not without risk)[2] and Vale’s Novo Carajás Program in Brazil which aims to boost iron ore and copper production and includes significant investments in environmental protection and the development of innovative products to reduce emissions in the steel industry.[3]
Other notable investments included Rio Tinto’s $16 million investment in an anti-deforestation project in Madagascar[4] and BHP’s collaboration with Arca, a Canadian startup, to use mining tailings from its Mount Keith mine to absorb carbon dioxide from the atmosphere.[5]
What's next?
In 2025, we expect that a focus on further identifying physical climate risk, collaborating and investing in decarbonisation initiatives, and expanding business models to take advantage of increased demand for minerals will remain front of mind against a backdrop of shifting global politics and an increased focus on nature.
To learn more about climate governance and reporting trends in 2024 across other ASX50 sectors, click on the relevant sector below:
Otherwise, for further advice on navigating the Australian mandatory reporting regime, please contact a member of the King & Wood Mallesons or Owl Advisory team.
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