ESG Investing

Copper Boom Highlights the Necessity of Advancing ESG Issues in Mining

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Amid environmental damage and questionable labor conditions, mining has gained a reputation as one of the least ESG-friendly industries. Nevertheless, the metals it digs up are essential for realizing certain aspects of the ESG agenda—especially when factoring in their prominent role in the production of electric cars and associated infrastructure.

The current copper boom underscores this issue: electric and hybrid vehicles (EVs) require much more copper than their conventional gasoline counterparts. Thanks to increasing demand for these EVs, copper is now trading at record highs. The COVID-19 pandemic also raised the profile of copper, whose antimicrobial qualities were recognized by the Environmental Protection Agency in 2008.

This presents a conundrum. Mining so often represents the antithesis of ESG goals, but it plays a major role in transferring energy out of oil and gas. Here is what impact investors can consider when walking that fine line.

Weighing Mining against ESG Concerns

Brazil’s 2019 Brumadinho disaster highlighted many of the failings of large-scale mining, both from a social perspective and an environmental one. The collapse of a tailings dam, which stored toxic mining byproducts, caused the deaths of 270 people and dumped 12 million cubic meters of toxic mud into the river sediments. This followed the Mariana dam collapse of 2015, perhaps Brazil’s worst environmental disaster. Along with the deaths of 19 people, the Mariana collapse poured pollutants into more than 415 miles of waterways.

Mining is also linked to deforestation, damage to water drainage, and water pollution. In Brazil’s Amazon basin, acres upon acres of trees are cut down to open mines and fuel pig iron plants. One study led by the University of Vermont shows that mining accounted for 9% of the total Amazon forest loss between 2005 and 2015. As such, it is worth noting that the Amazon has one of the world’s largest copper reserves, adding greater environmental stress in response to the current boom.

Poor labor practices in the global mining industry also remain a central concern for ESG investors. Disputes between workers and mining companies are common, with mine workers complaining of low and exploitive wages. Some mines also employ child labor.

Tentative signs indicate that some of the world’s biggest miners are becoming more ESG aware amid growing pressure from investors and other stakeholders.

Meeting ESG Thirst for Copper

Meanwhile, metals such as copper are more important than ever if the world is to successfully make a net-zero carbon transition—EVs use about four times the amount of copper compared with conventional internal combustion engine vehicles. Most of that additional copper finds its way into the electric motors, where the copper coil converts electric energy into mechanical energy. These vehicles also require substantial copper wiring to connect the battery packs and electronics.

Copper is not only essential to the production of EVs themselves but also acts as a key ingredient in EV infrastructure. Second only to silver, copper’s high conductivity opens up the potential for insatiable demand for copper wiring as the green transition unfolds globally. For instance, President Joe Biden hopes to add at least 500,000 more charging stations for EVs in the United States. With each charging point estimated to need about 20 kg of copper, this copper boom could have a very long run.

Tracking Encouraging Signs

Tentative signs indicate that some of the world’s biggest miners are becoming more ESG aware amid growing pressure from investors and other stakeholders. UK-headquartered mining giant Anglo American has acknowledged an opportunity for the industry to generally align more with ESG principles and improve its practices.

In April, Anglo American announced that it had delivered on a commitment to source 100% renewable energy for all its operations in Brazil, Chile, and Peru. Anglo American signed an agreement with Engie Energía Perú to provide 100% renewable energy for its Quellaveco copper mine in that country, which is scheduled to begin production in 2022. The mining group had earlier secured renewable energy for all of its power needs in Brazil from 2022 and Chile from 2021.

Separately, Anglo American has also cosponsored the Zero Emissions project in Australia with fellow copper miner Sandfire Resources, International Copper Association Australia, and the Copper Alliance. The project aims to make mining more sustainable, greener, and cleaner by focusing on baseline water balance, dewatering of mine sites, desalination, operational water use, tailings, and recycling.

Meanwhile, some evidence shows that the current copper boom is putting mine workers in a stronger bargaining position. Workers at Chile’s Escondida facility, the largest copper mine in the world, successfully negotiated an enhanced benefits package in August that includes a bonus equivalent to 1% of dividends paid to shareholders.

Increasing ESG Scrutiny

Industry figures have additionally pointed to increasing ESG scrutiny from policymakers on new mining projects. For example, mining groups Rio Tinto and BHP appear to have been thwarted in their attempts to mine copper in Arizona through their Resolution Copper joint venture due to opposition from the San Carlos Apache Tribe. Rio Tinto is also currently experiencing hurdles to developing a lithium project in Serbia due to local protests.

The trend is pushing the industry to come up with new ways of accessing metals supply that take greater account of ESG issues while also being more inclusive of local stakeholders. For instance, global commodity trader Trafigura has partnered with a community group in New Caledonia to operate the Goro mine. Brazil’s Vale gave up on operating the mine after facing persistent opposition to environmental and social grievances from New Caledonia’s indigenous communities. The model has helped assuage concerns over a lack of local involvement in running the territory’s mining assets.

Mining continues to have a poor track record on ESG and get low weightings in ESG portfolios. However, there are some promising signs in the industry as key players move toward taking ESG more seriously. Given the role of metals such as copper in the accelerating transition to a greener global economy, there is every reason for ESG investors to take more interest in the sector—and perhaps apply more positive screening to support the most responsible actors and help shape a better path forward.

Any company, security, fund or other investment identified herein is provided solely for illustrative purposes and should not be construed as a recommendation or solicitation for the purchase or sale of any such investment.

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