Mining and Water Risk: Diagnosis, Benchmarking, and Quantitative Analysis of Financial Impacts
A Columbia Water Center Project Sponsored by Norges Bank Investment Management
Blanchet, J., Bonnafous, L., Dolan, C., Fonseca, F., Iyengar, G., Lall, U., Maennling, N., Nielsen, D., Siegel, J., Thomashausen, S., Vempati, A.
As populations, economies and global per capita consumption continue to grow, so does the need for raw materials. Mining activity—including both primary production and recycling and recovery—will need to increase as well to meet these growing demands and facilitate economic growth. At the same time, water scarcity and water quality are increasingly emerging as global risks for many industries, especially in arid and densely populated regions, and the mining industry is no exception. Because of the long-term and potentially irreversible impacts of mineral extraction on land and water resources, the mining industry faces increasing scrutiny from citizens, local and national governments, and NGOs. Water re-use can reduce the water footprint of mining; re-use, however, is generally more energy-intensive and therefore costly, in effect transferring risks and impacts from water to energy.
Water management costs have been increasing rapidly for mining companies and are expected to continue to do so. This trend has led to growing interest from various stakeholders for better assessments of the financial risks posed by water-scarcity, the development of general “water risk” reporting tools, better disclosure of water use and related factors, and the creation of more reliable water footprint and accounting frameworks to assess efficiency.
While existing tools may be useful for a general comparison of companies and locations and for raising public awareness, they are inadequate for asset level and quantitative analysis of short- and long-term risks related to water. They are therefore inadequate for any valuation of mining assets that seeks to account for water risks, and fall short when it comes to informing regulatory process or debates related to development and restoration of mining assets and the implementation of best water-risk mitigation practices, financial risk analysis or scenario analysis.
The Columbia Water Center’s current research aims to develop and benchmark a modeling platform for quantitatively assessing environmental risks associated with mining and their financial implications, as part of a rigorous analysis of investment for sustainable development. The initial models consider water-related risks for selected mining activities, and will subsequently be extended to a more comprehensive analysis of other possible factors such as land, energy and other resources. The intended users are financial analysts, mining companies, government regulators and NGOs, and academics.
The papers that follow represent a first step in this analysis by investigating three interconnected themes: water risks associated with mining, the causality between environmental factors and the financial performance of companies, and perspectives on legal and regulatory risks. Beginning with a literature review, each of the three research teams assess and present an overview of current understanding and lines of potential future inquiry.
Blanchet, J., Dolan, C., Iyengar, G., and Lall, U. Towards a Robust Top-Down Model for Valuation of Mining Assets
Fonseca, F., Bonnafous, L. and Lall, U. Asset-level Analysis and Modeling of Water Risks Associated with Mining
Maennling, N., Thomashausen, S., Nielsen, D.. and Vempati, A.R. Mining and Water: A Perspective on Legal and Regulatory Risks
Find out more about the Columbia Water Center’s Water and Mining Project