Mining of oil, coal and minerals risks $1.9 trillion of exposure to natural resources

Major industrial sectors that depend on natural capital can also adversely affect natural resources. Environmental risks are an increasing focus for investors as biodiversity loss increases globally. As a result, nine sectors — including metals mining, coal mining, and the oil and gas industry — have nearly $1.9 trillion in rated debt with either high or very high exposure to natural capital, Moody’s Investor Service said in a recent report. . Report. The credit rating agency said that natural capital, which Moody’s describes as nature-provided assets essential to human habitation and economic activity, can pose credit risks for issuers.

In its report, Moody’s considers two interrelated paths. One is the impact that companies, governments and other entities can have on the environment, resulting in direct and indirect loss of revenue. The second path is corporate dependence on the ecosystem, such as goods and materials derived from natural capital.

Credit risk for exporters

“Investors and policy makers are becoming increasingly focused on nature-related risks as biodiversity loss increases, in part as a result of global climate change,” Moody’s says.

The credit rating agency notes that “companies in high-risk sectors face the prospect of increased regulatory and investor scrutiny”.

High-risk sectors include mineral mining — a key industry at the start of electric car and solar battery supply chains — as well as coal mining, independent oil and gas exploration and production companies, oil field services, and integrated oil and gas companies, according to Moody’s. Analytics.

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Of these, mining of minerals and other materials has $253 billion of Moody’s rated debt with very high natural capital exposure. Mining also has the largest impact on ecosystems, according to the report. The sector with the second largest impact on natural resources is coal mining and coal plants, but its exposure to debt is estimated at only $10 billion. Independent oil and gas exploration and production companies are also among the sectors with the greatest impact, with high exposure, at $365 billion, followed by the oilfield services industry, with $141 billion in exposure, and integrated oil and gas companies. These have the largest exposure to credit risk at a total of $799 billion, and they have an impact on and depend on ecosystems.

Moody’s analysis showed that protein, agriculture, steel, environmental services and waste management are the sectors most dependent on natural resources.

ESG credit risk will only grow

As investors and policy makers focus more and more on sustainability and environmental, social and corporate governance, companies – regardless of sector – that do not have reliable ESG management strategies can experience serious financial losses in addition to their tarnished reputations, according to Moody’s.

“Risks such as ecosystem health, biodiversity loss and natural resource management are increasingly on the policy and investor agenda,” said Rahul Ghosh, managing director of environmental, social and governance issues at Moody’s. Bloomberg.

“ESG considerations for companies are becoming a factor widely considered by investors, other market participants, consumers and stakeholders,” Moody’s Analytics said in one of its articles. Report earlier this year.

Moody’s Analytics said in a June white paper detailing key findings from two new research studies.

“Environmental, social and corporate governance controversies can damage reputation with significant financial and legal ramifications. Companies that manage these risks effectively do a better job of enhancing shareholder value,” He said Doug Dwyer, managing director of Moody’s Analytics, who led the research.

“Together, the results of these research studies demonstrate the importance of ESG controversies to a company’s financial performance and, most importantly, that companies can influence ESG cultures, while benefiting shareholders and other stakeholders,” Dwyer added.

Energy transmission needs metal mining

Wood Mackenzie said the industry of so-called energy transition minerals — lithium, cobalt, graphite and rare earths — which according to Moody’s have the greatest impact on natural capital, needs to address a “significant” challenge around the environment, society and governance. Report in July.

The ESG dilemma for an industry that provides key minerals for clean energy generation is clear. “Can critical energy transition metals markets increase production fast enough to meet demand, while revolutionizing supply chains to meet ever more stringent ESG requirements?” WoodMac researchers and analysts ask.

Analysts say the decarbonization of operations will be critical for producers of mineral commodities.

For example, natural graphite, mined mainly in China, and increasingly in Mozambique and Madagascar, is subject to traditional environmental mining and environmental and social governance concerns, such as water use, equipment and transportation emissions. WoodMac said the final refining process, which is currently only taking place in China, has much deeper environmental, environmental and social governance concerns toward corrosive materials and their disposal.

In lithium mining and processing, high water consumption in lithium brine processes is an ESG concern, while refining of the lithium metallic concentrate has very high carbon emissions, the advisory noted.

“Lithium, cobalt, graphite and rare earths are in increasing demand — but meeting them requires ESG quality as well as quantity,” WoodMac says.

By Tsvetana Paraskova for

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