New analysis from environmental NGO WWF reports that the extractives sector suffered water-related financial losses of over $20 Billion USD in 2018, measuring operational risk (too much and too little water), regulatory and reputational risk to highlight companies, commodities, river basins and countries that face the highest overall water risks.
Using its own risk assessment tool, the Water Risk Filter, WWF drilled down to examine 3,174 mining sites and their exposure to water risk. Most of the sites are located in regions facing high overall water risk.
WWF reports that, according to information from the Carbon Disclusure Project (CDP), the most exposed large public mining companies are Coal India followed by Grupo Mexico and China Shenhua Energy. Commodities with the highest exposure are chromite, coal, palladium, platinum, bauxite and lead.
Mining activities in river basins in India, China, South Africa, Mexico and Peru face particularly high risk.
“Mining companies face substantial water risks from the reputational threat of potential disasters to the direct financial impact of extreme floods and water scarcity on their operations – physical risks that will be exacerbated by climate change,” said Alexis Morgan, WWF Global Water Stewardship Lead and author of the report.
“Investors can no longer turn a blind eye to these water risks: they must start demanding rigorous assessments of water risks – accounting for basin and operational water risk and water stewardship responses – before investing in mining operations.”
The analysis was conducted through WWF’s Water Risk Filter, a leading tool for companies and investors to explore, assess, value and respond to water risk. It also used S&P’s “SNL Metals & Mining” database that, in turn, is tied to S&P’s Global Market Intelligence Platform.
The research has found that metal and mineral commodities are exposed to moderately high levels of water risk, and this includes high levels of reputational risk and increasing physical risks.
India Coal, Anglo American and Glencore are relatively highly exposed to flood risks, in particular due to the possibility that floods could lead to the failure of tailings dams. The report points out to recent disasters in Brazil and Canada.
The analysis shows that the world’s two largest mining companies, BHP Billiton and Rio Tinto, are exposed to lower than average physical and regulatory water risks, but higher than average reputational water risks.
“Some mining companies have taken significant steps to assess and address their specific water risks but the sector has not done nearly enough to collectively respond to water risks,” said Morgan. “Our analysis underlines the scale of the risks posed by water to mining operations: the industry needs to transform its approach to mitigate them.”
This new analysis represents a first step towards a future in which asset-level data contributes to more sophisticated and accurate environmental, social and governance (ESG) assessment for investors and companies reliant upon metals and mining.