A mid-sized mining company, listed on the stock exchange, operates several mines in a developing country. The mining company publishes an annual report which includes its environmental, social and governance (ESG) data. The company has an excellent record in working with local communities, providing vocational training and sourcing local goods and services where possible.
The country is exposed to multiple weather-related hazards and suffers from periodic cyclones, droughts, floods, and related epidemics. In 2015 a cyclone caused major flooding in the region, disrupting power supply and shutting down the plant for two months. The mining company subsequently worked with the local utility company to improve the reliability of the power lines. Without naming it as such, the company was now engaged in climate adaptation by working with the local utility and funding the strengthening utility poles near major rivers.
Investors are pressing companies for more transparency on their climate risk. In 2017, regulators proposed a new framework to assess and report on climate risk, through the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD). Existing reporting services such as the CDP (formerly the Carbon Disclosure Project) are now being brought in line with the TCFD. Climate risk goes beyond just CO2 emissions.
As this case study shows, physical climate risk can have a material impact on company’s earnings. Most risk models look backward and then extrapolate. The mindset that is required to appreciate climate risk is that the past is not representative of the future.
The mining company is now increasing its efforts to collect and report climate related data. By becoming more transparent about its climate risk, the mining company is meeting the requests of investors who aim to ensure that their investment portfolio does not contain unknown risks for which they are not compensated.
As a next step the company aims to incorporate climate risk into its broader risk management strategy. It will perform a more thorough analysis of the physical climate risk of their mines using satellite generated climate data, concentrating not only on the mining site itself but also on its supply chain.