Mining companies in South Africa are actively starting to consider green energy technologies to help drive forward their sustainability agendas. It is a complex subject, with various factors in play such as cost, availability and government regulation.
AUTHORS: Laurie Hammond, partner at Hogan Lovells and Andrew Carey, partner at Hogan Lovells.
The recent annual Hogan Lovells “Future of Mining: Sustainability” report showed that almost one-third of mining companies in Africa have targets around renewable energy utilisation.
Other responses to our survey showed that mining companies in Africa believe that a priority for driving sustainability in the sector is increased renewable utilisation. Green energy is of critical importance on their agendas.
Respondents to the survey said increased utilisation of green energy brings various benefits, including net carbon reduction, greater adherence to voluntary Environmental, Social and Governance (ESG) standards and having an increased positive impact on communities, diversity and inclusion, employee wellbeing and increasing water recycling.
As we advise our clients, green energy is only one part of a sustainability plan to future-proof a business. Sustainability can mean different things for every company based on each company’s particular ESG considerations and conditions.
South Africa’s three largest mining companies are all members of the 27-company strong International Council on Mining and Metals (ICMM), an international organisation dedicated to a safe, fair and sustainable mining and metals industry. Every ICMM member company adheres to 10 Principles and eight Position Statements on issues relating to sustainable development.
The core business of mining is extracting minerals, not power generation. With power being highly regulated and given that it may not be practically viable for every mine to build their own wind or solar plant, a tailored assessment has to be carried out for every business as part of its overall sustainability goals.
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The South African government and Eskom have now decided to encourage mines to generate more of their own power, to take pressure off the grid. This programme has got off to a steady start. The first self-generation licences were issued at the end of last year and we expect the process will speed up this year. We are aware of several mines that are eager to generate their own power, but it requires a huge investment, which may be out of reach for smaller operators.
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Other renewable options are open to mines, other than building an onsite plant. For example, this could be investing in a renewable power plant offsite that can wheel power through the grid to feed its operations or working with the supply chain to use renewables where feasible.
Focusing exclusively on renewable power obscures the other important areas where mining companies are putting in considerable effort to become sustainable.
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The top reasons for focusing on sustainability – besides the fact that it brings environmental benefits and is the “right thing” to do – were cited by respondents as an improvement in commercial metrics (financials and productivity), access to more investors, increased brand equity and global climate restoration.
Mining companies correctly consider access to investors as a reason to focus on sustainability. Companies in all sectors are under pressure from investors to disclose more information about their performance across a range of ESG areas and activist investors are using their power and influence to force through more sustainable strategies at their investee companies.
Investors are increasingly looking holistically at the impact of the businesses in which they invest on the communities and locations in which they operate. For example, in the aftermath of the Brumadinho dam disaster in Brazil, the ICMM is working with the Church of England Pensions Board (with over US$3 billion of assets under management) and the United Nations Principles for Responsible Investment (UNPRI), among others, to establish an international standard on tailings storage facilities.
From 10 March this year, new EU regulations will require European fund managers and other regulated financial institutions to comply with new sustainability disclosure requirements. Similar regulation around the world is likely to dovetail with pressure from end-investors to divert capital flows towards projects, enterprises and assets that are managed in transparently sustainable ways.
The bottom line is that sustainability is good business. A company’s longer-term prospects depend on how it manages its water resources, uses sustainable energy sources, monitors its supply chain, pursues environmentally responsible policies, and commits to diversity, citizenship and wider social responsibility.
Hogan Lovells is well-placed to advise mining clients, not only on green energy projects, but also on all other aspects of sustainability, particularly through our dedicated Impact Financing & Investing team.
ABOUT THE AUTHORS
Hammond focuses on cross-border transactions in Africa. She has a broad range of experience advising clients across the commodity value chain, acting for lenders and borrowers in a variety of sectors from mining, energy and natural resources to logistics and infrastructure. She has worked in the London and South African markets and is both an admitted solicitor and an attorney.
As co-head of Impact Financing & Investing, Carey works with clients to future proof their businesses and attract capital in a growing ESG-focused investor market. He has worked on Social Impact Bonds and Development Impact Bonds and other environmental and social sustainable finance transactions. Carey has provided advice to the US Loan Syndications and Trading Association regarding the UK Green Loan Principles and Go Lab regarding Contracting Guides.