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- Aditi Bhatia, Regional Sales Manager, Corporate Solutions
- Nicholas Gandolfo, Director, Corporate Solutions
- Nishant Bhagchandani, Sales Manager, Corporate Solutions
- Vanessa Tang, Sales Associate, Corporate Solutions
In this special episode, we focus our lens on sustainable and transition finance opportunities within the metals, mining and commodities sector, amid growing interest from companies and investors. The sector is incredibly important because of its crucial role in the global transition to a low-carbon economy. The demand for minerals used in clean energy technologies is expected to increase four-fold by 2040 to meet climate goals.1 However, mining is also resource intensive, contributing to between four and seven percent of global greenhouse gas emissions,2 and affecting water resources. The various social challenges the sector faces greatly impact local communities, even after mines are closed. As with other harder-to-abate sectors, maintaining access to capital amid a long list of environmental, social and governance risks can be a challenge.
Overview of Sustainalytics’ approach to sustainable finance
Sustainalytics offers second-party opinions for use of proceeds and sustainability-linked transactions. Companies can also receive an ESG Risk Rating license, which they can leverage for a sustainability-linked transaction, an investor roadshow, to benchmark their ESG performance against peers, or to examine their company’s areas of unmanaged ESG risk.
Exploring the growing interest in sustainable finance for the mining sector
The panel elaborates on three areas driving interest in sustainable finance opportunities for the mining sector: the sector’s sizable environmental footprint, the related environmental and social risks, and the sector’s key role in the global transition to a low-carbon economy.
Use of proceeds or linked finance? Considerations for mining companies and banks
With growing scrutiny of the impacts of mining operations, issuers and their banking partners need to better understand their most material issues, how they plan to allocate funds, and how they want to structure their financing framework. For example, when addressing greenhouse gas (GHG) emissions, some activities are eligible for financing under a use of proceed structure (e.g., electrification and fuel switching), while others are better addressed using linked finance.
Applying the Climate Transition Finance Handbook
The Climate Transition Finance Handbook, introduced in 2020, provides additional guidance for issuers using labeled use of proceed or sustainability-linked bonds as part of their climate transition strategy. The panel explains how Sustainalytics uses the handbook in assessing the frameworks, targets and key performance indicators of issuers in harder-to-abate sectors.
External reviewer landscape – how does Sustainalytics compare?
Delving deeper into Sustainalytics’ approach, the panel provides details on how Sustainalytics differs from other reviewers when assessing challenging sectors like metals and mining.
The benefits of labeling transactions from the mining sector
Despite being carbon intensive, a growing number of investors recognize the critical role the mining sector must play in transitioning to lower carbon technologies. Issuing stable debt instruments, such as labeled bonds, can attract capital from a broader base of investors. Sustainability-linked debt also provides companies with an external commitment mechanism, which can offer some reassurance to stakeholders that the company will improve its sustainability performance.
How Sustainalytics supports banks’ sustainable finance activities
The panel provides an overview of how banks globally work with Sustainalytics to build sustainable financing frameworks, bring labeled bonds to market, and assess the sustainability performance targets and key performance indicators for sustainability-linked transactions.
Sustainable finance questions from banks
The panel discusses some of the questions they receive from banks about sustainable financing for the mining sector. For instance, how does Sustainalytics classify the process of mining critical minerals or metals? Can the entire process be considered eligible? Is mining typically considered a hard-to-abate sector? When looking at a mining company, what are some other considerations used to determine the credibility of their transition journey? They also discuss how banks are using the work of external reviewers, like Sustainalytics, in their processes.
A look at transaction trends and market developments
For issuers from the metals and mining sector, particularly in the Asia-Pacific region, market activity has seen a mix of linked and use of proceeds instruments. As the sector focuses on its role in supporting clean energy technologies and decarbonization, more transition-labeled transactions are expected. Given the sector’s social impacts and climate change-related risks, the panel anticipates more social and biodiversity targets and KPIs to be included in transactions. Other trends noted: a focus on water, sustainable supply chains, new financing structures and products, particularly focused on scope 3 emissions, trade finance, company collaboration, and cross-sector initiatives.
Green Bond Impact Reporting – The next frontier in sustainable finance
There is growing interest among investors in knowing the impact of the projects being funded by labeled bonds and loans. However, getting that information can be challenging due to the lack of data from issuers, consistent baseline measures and benchmark methodologies. Here the panel shares details on Sustainalytics’ recently launched Bond Impact Reporting service, which estimates the impact of financed projects by calculating the amount of carbon emissions avoided. They also discuss special considerations around impact reporting for metal and mining companies and their suppliers.
Outlook for sustainable finance in the metals and mining sector
To close out this comprehensive episode, the panel discusses their sustainable finance predictions and expectations for the metals, mining and commodities sector.
Links to Select Resources
- International Energy Agency (IEA) – The Role of Critical Minerals in Clean Energy Transitions
- International Capital Market Association (ICMA) – Climate Transition Finance Handbook
- World Bank – Minerals for Climate Action: The Mineral Intensity of the Clean Energy Transition
- ICMA – Registry of key performance indicators for sustainability-linked bonds
- ICMA – Principles, Guidelines and Handbooks
- Loan Syndications and Trading Association (LSTA) – Sustainability-Linked Loan Principles
- Task Force for Climate-Related Financial Disclosures (TCFD)
- Taskforce for Nature-Related Financial Disclosures (TNFD)
- Global Reporting Initiative (GRI) – Sector standard project for mining
- Sustainalytics Bond Impact Reporting
- Sustainalytics Corporate Impact Reporting
- Sustainalytics Supply Chain Solutions – ESG Assessment Platform
1 IEA. 2021. “The Role of Critical Minerals in Clean Energy Transitions.” May 2021. https://www.iea.org/reports/the-role-of-critical-minerals-in-clean-energy-transitions.
2 Delevingne, L., Glazener, W., Grégoir, L., and Henderson, K. 2020. “Climate Risk and Decarbonization: What Every Mining CEO Needs to Know.” McKinsey Sustainability. January 28, 2020. https://www.mckinsey.com/capabilities/sustainability/our-insights/climate-risk-and-decarbonization-what-every-mining-ceo-needs-to-know.
ESG in Conversation: ISSB Sets New Standards for Sustainability Reporting
In this episode, learn about the upcoming greenhouse gas reporting requirements for North American companies, EU's Fit for 55 package and the implication for companies in the region, and what the newly published ISSB standards mean for companies and investors.