The miner role with major consequences
To what extent should investors respond to the world's climate challenge through engagement and the mobilisation of capital to the areas that need it most?
The penny has finally dropped. With the stirring rhetoric of COP26 still ringing in the ears of investors, the need to come to grips rapidly with the complex challenges of portfolio decarbonisation and ‘net zero’ alignment is being realised.
But there’s a stark difference between positive intent and a practical framework through which such ambitious targets can be met. The path to net zero looks as complex and uncertain as ever, with no two climate experts able to agree upon the same path.
Refining the arguments
There are, however, points on which most experts can agree; investors need to start actively engaging on this common ground.
Firstly, it is generally accepted that the battle will be won or lost primarily in emerging markets. A successful energy transition depends heavily on softening the striking inequality of energy poverty.
Secondly, action is needed NOW; the longer the world holds off from putting land and energy systems onto a sustainable pathway, the more challenging and expensive net zero will become. Best estimates suggest we have 10 years before we have fully exhausted our remaining 1.5°C carbon budget. And a core ingredient of any effective policy framework is ensuring that comprehensive and transparent carbon pricing is calibrated to the end goal of ‘net zero’ by around 2050.
And thirdly, that to achieve net zero we can’t just rely upon the low emitters; we need the high emitters too. The natural resources industry is vital – it is no exaggeration to say that without the critical minerals used in key low-carbon technologies, there will be no transition.
Putting the pedal to the metal
Natural resources are integral to modern everyday life and they are equally important to the life we want to lead tomorrow, as the critical building blocks of the energy transition. Our houses, cars, smartphones, televisions, fridges, washing machines, computers, shopping centres and transport systems all rely on metals: not to mention the delivery of electricity and water into our homes.
Given the essential role that metals play in furnishing the hardware of decarbonisation, the energy transition needs a very large increase in the production of critical minerals.
What is often misunderstood is the urgency required; capital needs to be mobilised today to ensure metals remain the affordable backbone of the energy transition. The discovery, appraisal and development of new metal deposits is a time and capital-intensive process, where a decade from start to finish would be regarded as incredibly swift.
Investors have two key roles to play: engage with the sector to drive down operational emissions – needless to say, the extraction of minerals can itself be an emission-intensive process – and help mobilise the capital that will be required to ensure affordable metal supply does not become a bottleneck in the race to net zero.
To learn more about the role of the mining industry as we face the challenges ahead, read LGIM and BHP’s* upcoming white paper that explores these uncertainties and lays out some of our key conclusions.
*For illustrative purposes only. The above information does not constitute a recommendation to buy or sell any security.