Rio Tinto: The Impact of Climate Change on a Leader in the Mining Industry
Climate change poses significant questions about the viability of Rio Tinto’s current operations. In the face of these challenges, Rio Tinto is working to adapt their operations and processes to assist in the process of stemming climate change.
Rio Tinto (“Rio”) is one of the three largest players in the mining industry. Rio operates four business units that focus on finding, mining, processing and marketing: (i) Aluminum; (ii) Iron Ore; (iii) Copper & Diamonds; and (iv) Energy & Minerals. Rio is at the crossroads of the climate change crisis: it consumes a significant amount of energy in its operations and it also produces energy.
Rio is threatened by climate change in numerous ways and it is working to mitigate these threats through changes in operations.
Severe weather and water management. From exploration through closure of a mine, water is required in each stage of Rio’s business. Unfortunately, climate change has created conflict over the allocation of water. All geographies require water for consumption and food production and severe weather conditions have created long periods of drought as well as the melting of glaciers. These conditions are pushing the global population down a path where the overall demand for water is expected to outstrip supply by 40% in 2030 1.
Rio’s reliance on water puts it at risk from tightening water regulations and/or lack of supply. As a result, Rio has created a water strategy to manage water risk and water performance via key performance indicators (KPIs) through 2018. As of 2015, 60% of Rio’s water performance targets were on track to meet their 2018 goal.2 Further Rio is using hydropower wherever possible and at this point, the majority of electricity Rio uses in aluminum production is from hydropower (~55%).3
Greenhouse gas emission. Carbon dioxide, nitrous oxide, oxides of sulphur, and fluoride gas are all types of greenhouse gases (“GHG”) that Rio emits via its operations. Given GHG emissions critical role in warming the Earth, companies that emit vast quantities of GHG have come under scrutiny from governments, regulators and the public over the past 10-20 years. Most recently, the Paris Agreement, which was reached in December 2016 between 195 countries and goes into legal effect on Friday, November 4, 2016, has the goal of bringing the world’s warming to below 2 degrees Celsius above pre-industrial levels by 2030 while striving for a 1.5 degree limit.4 To achieve this goal, the countries party to the Paris Agreement will agree to a reduction in annual GHG emissions.
Since Rio’s business is energy intensive it is at risk for regulations of GHG emission. Rio is tackling this issue head on and in 2008 set a target of ten percent reduction in total GHG emissions intensity to be achieved by 2015. Rio not only outperformed that goal (achieved a 21.1% reduction) but also significantly reduced total carbon dioxide equivalent emissions by 37% in that same period (from 49.4 million tons to 31.3 million tons).2 In addition, Rio has recently taken two steps to cement its commitment to action on climate change. First, Rio developed a Climate Change Position Statement in 2012 that lays out the company-wide goal of substantial decarbonization of the business by 2050. Rio plans to achieve this by leveraging new technologies, working with suppliers and engaging in policy debates.5 Most recently, in 2015, Rio signed the Paris Pledge for Action which is the non-government party stakeholders support for the Paris Agreement on climate change.3
Conclusion
Despite the significant threats to its business, Rio seems to be handling the issues well by implementing the right restrictions and metrics and working with the right parties to make progress. Their focus on water management and GHG emissions is aligned with the broader effort to stem climate change. Further, there are opportunities for Rio to further help the mitigation process and benefit financially by selling product that emit less carbon for use in everyday life such as aluminum for production of lighter vehicles that uses less gas and copper for smart technologies, renewable energies and electronic cars.3 Ultimately Rio has taken significant steps to align its operations with the goal of reducing climate change and it will continue to do so in the future through changing operations as well as selling more energy efficient products.
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Sources:
[1] Source: Giulio Boccaletti, Sudeep Maitra, and Martin Stuchtey, “Transforming Water Economies,” McKinsey & Company, 2012, p. 1 https://www.mckinsey.com/~/media/McKinsey/dotcom/client_service/Sustainability/PDFs/McK%20on%20SRP/SRP_09 _Water.ashx, accessed November 2016.
[2] Source: company website: http://www.riotinto.com/documents/RT_SD2015_Environment.pdf, accessed November 2016.
[3] Source: company website: http://www.riotinto.com/ourcommitment/spotlight-18130_18280.aspx, accessed November 2016.
[4] Source: https://www.washingtonpost.com/news/energy-environment/wp/2016/11/03/the-world-is-racing-to-stop-climate-change-but-the-math-still-doesnt-add-up/?utm_term=.0bee3596ee9d, accessed November 2016.
[5] Source: company website: http://www.riotinto.com/documents/ReportsPublications/corpPub_ClimatePosition.pdf, accessed November 2016.
While I certainly agree that mining companies have a huge role to play in reducing their water and carbon footprints, I am curious as to how effectively they can or will stick to these targets given the cost pressures from the prolonged industry downturn. Several sales of assets in the past years (reduction in the total number of mines owned) will likely impact final consumption numbers; how is Rio Tinto dealing with these changes and are they being incorporated into their sustainability targets?
In terms of water management, does the reduced water consumption introduce any types of risks in the operational model? For example, tailings ponds require a certain degree of wastewater to contain the potentially acidic/toxic material that is contained. How does Rio balance this risk with its water reduction targets?
Overall I think that the company is moving in the right direction to contain its impact on the environment. It would also be interesting to see what requirements Rio demands from its suppliers – as a market leader, they would have the leverage to nudge other companies in the right direction as well.
Matt – this is a very interesting post, and I had not thought much about the huge impact that mining companies have on overall climate change, from their GHG emissions and use of hydropower in operations to the end-impact of the mined commodities on overall energy efficiency (i.e. with the aluminum used to make lighter cars). One thing that will be interesting for mining companies to consider in the future is the impact of ever-more efficient scrap and recycling for metals and other resources. If commodity prices stay low, capital-intensive processes like mining may be at a competitive disadvantage vs. comparatively non-intensive recycling.
As someone with limited knowledge about the mining industry, I think this article does a great job at providing valuable info on the impact that mining has on Global Warming. An other angle to look at the impact of the mining industry on climate is the fact that the industry heavily relies on transportation. Mining activities are more and more focused in some areas, as some Western markets have divested in their own mines due to higher labor costs.
Matty- Very interesting post. To build on Will, I have also not thought very much about the role that minerals and mining play in global climate change.
It feels that much of the next generation of natural resource battles will happen around precious resources like water. Do you feel that mining will increasingly come under the microscope? Tesla seems to be battling this now with the environmental degradation caused by mining all of the necessary materials for the batteries it uses. Do you think this public fight will continue to other businesses? Apple could be susceptible here.
A few minor formatting changes I would recommend but will take that off-line.
Very interesting post on a sector I had not really thought about. As I read through your post, I can’t help but think whether this industry would truly be regulated by governments. Given the current state of the industry, I can’t imagine it can handle the added costs it would take on if it spent the money to reduce its footprint. That being said, most of the elements you mention above are key staples in society so I can’t imagine governments allowing for a sharp decline in production due to the effects this would have on the economy as a whole.
I do find it admirable the Rio Tinto is being proactive to reduce climate change I am left wondering whether there are certain industries that are so vital to certain economies and the world that they may be able to get by without much change.