Water issues in the mining sector — from acid mine drainage, tailings dam failures and human rights violations — are a reality that faces not just mining companies, but investors, communities and nature. Understanding water risk exposure is beneficial to everyone and yet to date we’ve lacked a clear picture of what water risk exposure looks like in the mining sector. In today’s age of bigger databases and more powerful computing, that picture is beginning to change.
Last year, we began work to combine WWF’s Water Risk Filter and the S&P Mining & Metals database (tied to their Market Intelligence Platform) to explore the water risk facing the 3,174 operational mine sites (covering 31 commodities across some 67,000 basins globally). The resulting pivot table allowed us, for the first time, to ask questions about how exposed the mining sector is to different water risks — by commodity, country, river basin, and company.
So, what did this assessment unearth? Lots!
Just a few of the highlights that we mined from the data include:
- In general, all commodities have a moderate level of water risk exposure
- Several commodities, especially those with higher water risk scores, have spatial clustering
- Overall, chromite ranks highest followed by coal, palladium, and platinum
- Broadly speaking, reputational water risk is higher than the physical or regulatory water risks facing mining commodities
- Of the physical water risk exposure, generally, flood risks are the highest followed by water quality, ecosystem service loss and then water scarcity
- The most exposed large public mining companies from a basin water risk exposure perspective are Coal India, Grupo Mexico (Southern Copper) and China Shenhua Energy.
- Several major river basin mining clusters exist: Eastern Mississippi, North-Eastern and Central Mexico, the Andean regions of Peru and Chile (northern & central), North-eastern South Africa, much of India (but especially the West), North-eastern China, and Eastern Australia.
- The most at-risk river basins are dominated by basins in South Asia
- Several commodities are highly clustered in one basin, with the Limpopo being of particular note, along with the Yangtze
- As with basins, several commodities are highly clustered in one country, with China and South Africa once again being of particular note.
But the aim of this blog isn’t to re-hash the report (please, enjoy here!), but rather to go beyond. The assessment offers fascinating insights into water risk exposure, but it also begs the question: “how are companies responding to water risk exposure?”
So how does the mining sector respond to the insights of this assessment
For those unfamiliar with the Water Risk Filter, the tool contains a Respond section that dynamically links the water risk assessment results for any given site (or a portfolio of sites) to provide a customized set of mitigation response actions, spread across 10 categories. To curate a more accurate, customized, contextual set of mitigation responses, the tool requires (in addition to basin water risk) additional pieces of operational data about current actions and responses. While these data are not yet included in any data sets (e.g., S&P), databases such as those behind CDP Water Security can begin to paint a picture.
As an example, for all 856 operating mine sites involved in the mining of gold — and making generic assumptions about operational water risk and response (i.e., answers are the same for all mines & companies) — WWF was able to harness the results from the Water Risk Filter’s Respond section to give an initial snapshot of possible water risk mitigation actions that could be used by a given company (or a given mine) that is mining gold.
These initial insights allow investors to engage with a given company (or a given mine) and ask tailored and contextually appropriate questions of the company (and specifically a given mine) to better evaluate how well the company (or mine) is responding to its water risks given its exposure and current response strategies. The following figure illustrates these actions by category and breaks them down into initial actions all the way through more advanced responses (shown in blue to the right), as well current responses (shown in green to the left). Such tailored sets of response actions also enable a company (or mine) to develop the basis of a customized water stewardship plan for a site, or their whole company, at the click of a button.
Addressing residual water-related risks
There is a growing ability for those working to understand and assess water-related risks, especially investors and ESG data providers, to draw on other sources of data as a way to add more rigor to how water is handled within the ESG realm. Recently, WWF published a series of guidance documents for financial institutions that outlined the importance of including a focus on residual water risk (final figure below). To sum this figure up: water-related risks are not just a function of the exposure to inherent basin and operational water risks, but also the controls undertaken to avoid, mitigate, transfer or accept risks. This framing is important as many of the current approaches to assessing water risk only account for pieces of this framework.
We are on the edge of being able to combine databases to give us a better understanding of the water risk exposure and response linked to countries (sovereign risk), commodities, companies, sectors and (soon) climate scenarios. Indeed, coming in September 2020, the Water Risk Filter will be integrating a new section in the tool to support the Task Force for Climate-related Financial Disclosure (TCFD)’s scenario recommendations, and enabling users to harness scenario evaluation of water-related risk and responses for their portfolios.
Effective mitigation of water-related risks need to start harnessing big data to provide contextual approaches that account for residual water risk and thanks to new data, such as that of S&P and CDP Water Security, and platforms like the Water Risk Filter, we’re on the cusp of enabling those exposed to water risks to take responses to water risk to the next level.
The mining sector has long been on the bleeding edge of water risk exposure. Soon it will be enabled to lead on contextual response, and with these databases, investors can play a key role in driving that transition.
To download the Mining & Water Risk report, click here.