Metals & Mining: a Sector Under Water Pressure Analysis for Institutional
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1 Metals & Mining: a sector under water pressure Analysis for institutional investors of critical issues facing the industry July 2013 Thanks to the support of 2 Contents 033 4 Foreword CDP has pioneered the only global 6 Introduction system that collects information 8 Water is a material issue for institutional investors about corporate behaviour on water 8 Financial impacts are already being felt security, climate change and forest 9 Water risks risk commodities on behalf of market 10 Mitigation strategies forces, including shareholders and 10 Carbon and water trade offs and linkages – addressing one issue to the detriment of the other? purchasing corporations. 12 The importance of effective water governance Paul Simpson CEO CDP 13 Water and profitability 14 Factoring water challenges in cash flow analysis 15 Conclusion 16 Appendix Important Notice The contents of this report may be used by anyone providing acknowledgement is given to CDP. 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Cover image: Dietmar Down Under, Flickr Creative Commons under licence: http://creativecommons.org/licenses/by/3.0/ 404 Foreword 055 Metals and Mining It is critical for metals and mining companies to integrate Response Rate5 water into their current and future business strategies in order to develop more resilient business models that offer a 63% (36/57) long lasting business case to their investors. Sector Response Rate Breakdown Aluminum: 3/3 Diversified Metals & Mining: 12/22 Fresh water scarcity is threatening the stability of the global economy. Gold: 4/6 With greater competition, the world’s finite freshwater resources are a Precious Metals & Minerals: 9/10 vital strategic concern for governments, investors and corporations. A Steel: 8/16 cavalier approach toward water and taking its availability for granted is no longer an option. Nowhere is this being felt more acutely than by KEY FINDINGS the metals and mining sector – a sector under water pressure. Over one third of companies targeted to disclose 1 According to United Nations research , more than half polluting nature of its waste water makes metals and by CDP, failed to do so. To encourage greater of the global population will be exposed to severe water mining one of the sectors most exposed to water-related scarcity within the next four decades. Further, “business risks. Furthermore, many of the markets that these disclosure please see appendix. as usual” water management practices will put companies are targeting for growth are water-stressed approximately US$63 trillion – 45% of projected global countries, such as Chile, China, and the Middle East, Detrimental impacts are already being felt and over GDP – at risk in 20502. where corporate water practices receive intense public 90% of respondents report exposure to substantive and government scrutiny. water risks that have the potential to impact their The pressing questions are not whether we face water scarcity but how severe it will be, how soon and how Smart investors and companies know how damaging business now or within 5 years. frequently it will strike our society and production systems. inaction or delaying interventions can be. Flooding and droughts can severely reduce profits in a number of Water poses a significant constraint to growth Eurizon Capital is one of 530 investor signatories ways, including delays in securing licenses to operate, and threatens the future value of companies in the with a total holding of US$57 trillion in assets holding infrastructure damage and halts in production – reported mining and metals sector. companies accountable for the economic, environmental losses were as high as 6.5% of EBITDA (FY 2011)3. It and human consequences of their water use and is therefore critical for metals and mining companies to management. Through CDP’s water program, Eurizon integrate water into in their current and future business Respondents to CDP’s questionnaire financially Capital and the other investor signatories are calling strategies in order to develop more resilient business models outperform non respondents. for businesses to increase their resilience to water that offer a long lasting business case to their investors. 5 in 2012, CDP sent the water request for information to 57 companies challenges. At the same time, CDP is promoting in the metals and mining sector amongst which 36 responded corporate transparency on the topic and is driving more Accounting for and valuing the world’s natural capital companies to disclose business critical water-related is fundamental to building economic stability and information to the markets. prosperity. The global economy will favor businesses that take a pro-active approach to water stewardship. The long-term investment horizons of pension funds and Companies that transform their business and work to other large institutional investors ensure their investment safeguard valuable water resources have the potential decisions result in sustained long-term economic growth. for both short and long term cost savings, sustainable Such investors are consequently increasingly concerned revenue generation and a more resilient future. with and involved in the sustainability of their portfolio companies. This makes them crucial in catalyzing more Gianluca Manca 1 UNESCO, IMechE, IFPRI, Veolia responsible behavior in their investment decision process. Head of Sustainability 2 Finding the blue path to Eurizon Capital a sustainable economy, March 2011, a report by Investors expect a concerted effort from the metals and Veolia Water and IFPRI 3 See table 1 mining sector to adopt sustainable practices to mitigate Prof. Giulio Alessandro De Leo 4 Chairman 2006 - 2012 of and adapt to fast growing water needs. The sectors Woods Institute for the Environment Eurizon Capital’s Sustain- 4 ability Committee requirement for large quantities of water and the high Stanford University 606 Introduction About the authors 077 As we move towards an increasingly resource-constrained world, together with mounting pressure to reduce global carbon emissions, the metals and mining sector is already faced with substantial reputational, operational, regulatory and financial risks associated with water. Mining corporations and their investors have significant now realise that a company’s social licence to operate responsibility to treat water with the strategic importance rests largely on good environmental stewardship and About CDP Eurizon Capital offers a wide range of products, under it deserves, to consider the role they should play in stakeholder engagement. CDP is an independent non-profit organization, which both Italian and Luxembourg law, differentiated by tackling water challenges, and to provide the leadership leverages the power of 530 investors with US$57 management philosophy, style, and risk/return profile. required to build a more resilient future. These corporations and their investors therefore have trillion in assets to catalyse action on corporate water This enables Eurizon Capital to offer investment solutions significant responsibility to treat water with the strategic stewardship. 352 of the world’s largest corporations to meet the different needs of its customers: For these companies, no water means no business. importance it deserves, to consider the role they should responded to CDP’s 2012 water information request, Water management is emerging as one of the pre- play in tackling water challenges, and to provide the 36 of them from the metals and mining sector. Multi-asset, multi-style, and multi-product portfolios; eminent sustainability issues within the metals and leadership required to build a more resilient future. mining sector and the reason is straight forward.