KPMG report shows industry optimism around ‘green’ metals, but flags ESG risks

As the world transitions to clean energy, rising demand for “green” metals is contributing to renewed optimism in the growth prospects for Canada’s mining industry, according to a KPMG in Canada report released on July 8, Risk and Opportunities for Canadian miners.

Minerals like lithium, cobalt and nickel are critical to the green and digital transition now underway to achieve a below 2°C future. The production of metals needed to deploy wind, solar and geothermal power, as well as energy storage, is predicted to increase by nearly 500% by 2050, according to the World Bank. Demand for lithium used in batteries including in electric vehicles, for example, is expected to expand by a factor of 30 by 2030, according to the International Energy Agency.

“The outlook for the mining industry is extremely positive,” says Heather Cheeseman, partner and Toronto mining leader, KPMG in Canada. She warns, however, that their growth prospects could be dimmed by many factors, not least of which include how companies respond to environmental, social and governance (ESG) risks, and technological transformation.

The report, which is based on a survey of 225 global mining companies including 89 headquartered in Canada, reveals that Canadian miners are far more concerned than their global peers about the ‘S’ in ESG criteria by which investors evaluate sustainable, long-term financial returns. The key findings include:

• 42% of Canadian miners ranked community relations and social licence to operate as the top ESG risk (24% globally).
• Only 19% included environmental risk as a top risk (27% globally).
• 90% agreed they need a clear, measurable ESG strategy (79% globally).

The pandemic is accelerating the focus on ESG, particularly on how credible, reliable and accepted mining companies and projects are in the local communities where they operate, says Cheeseman.

KPMG research also shows that miners are focused on innovation and technology to help control costs and grow sustainably. About a third of Canadian and global miners believe innovation and technological transformation will drive future growth, and nearly half expect major technology disruption in the next three years, with four in five viewing it as an opportunity instead of a threat. Yet, only a third of Canadian miners say their organization is actively disrupting the industry through digital innovation, compared to half of global respondents.

“There is a distinct need to find ways to better manage costs and mitigate risks whether that’s through consolidation or embracing innovation,” says Cheeseman.

While access to capital had previously been a top risk, more Canadian miners now say their ability to access equity financing has improved over the past year, largely due to investor interest in the green economy transition.