Modern Mining July 2024

GREEN MINING

Green loans tied to greenhouse gas reductions and ESG targets can increase access to capital, writes Nivaash Singh, Co-head of Mining and Resources at Nedbank CIB. and surrounding communities, gender diversity, and human rights. Finally, the sustainability focus is being driven by the crucial role that mining plays in the transition to a low-carbon economy. It is the source of Sustainable financing unlocks the energy transition for mining companies

M ining companies are leading the charge towards renewable energy, and while load shedding and rising electricity tariffs form part of the backdrop, the drivers for this change are far more fundamental. The first is the energy-intensive industry’s sizeable carbon footprint: mining accounts for between 4% and 7% of global greenhouse gases (GHGs). This is becoming an existential issue as investors and lenders increase the pressure on mining companies to tackle climate change more proactively. In response, companies are setting ambitious climate targets such as net-zero operational commitments by 2050, and one of the first steps they take is to make the shift towards renewable energy. The second driver is increasing scrutiny of mining companies’ environmental and social impacts beyond greenhouse gas emissions. These include land use, impacts on biodiversity, water use and waste production and, on the social side, factors such as the health and safety of employees

Nivaash Singh, Co-head of Mining and Resources at Nedbank CIB.

lithium, cobalt, copper, aluminium, steel and rare earth elements that are integral to clean-energy technology such as lithium-ion batteries, electric vehicles, wind turbines and solar photovoltaic (PV) panels. As the energy transition accelerates, demand for metals and minerals, particularly those described as ‘green’, is expected to rise substantially. Sustainable financing All three drivers affect mining companies from a financing perspective. They speak to the material environmental, social and governance (ESG) risks that are impacting the industry and can affect companies’ access to capital. The way companies address these drivers is key and can increase their access to capital, not only by appealing to traditional investors seeking to meet their own ESG thresholds but also by pulling in impact investors and development finance institutions with more specific ESG mandates. This brings us to the concept of sustainable financing, a lever that mining companies can use to adopt sustainable business practices to preserve and grow their operations, as well as mitigate the environmental and social risks of these operations and promote good governance. ‘Green loans’ are often structured to incentivise and support environmentally responsible practices and may come with more favourable terms and conditions, such as lower interest rates, longer repayment periods and reduced fees, when compared with traditional financing options. These incentives are designed to encourage mining companies to invest in environmentally beneficial projects and facilitate the transition to more sustainable practices. There are three key types of sustainable finance products that are available to mining companies, starting with use-of-proceeds loans, where the funds raised are deployed in eligible green and social projects or initiatives. For example, the

‘Green loans’ are often structured to incentivise and support environmentally responsible practices.

30  MODERN MINING  www.modernminingmagazine.co.za | JULY 2024