Note: This article was extracted from https://www.businesstimes.com.sg/opinion/minings-impact-on-biodiversity-a-rising-risk.
As the global economy expands, will biodiversity losses become the next crisis facing humanity, possibly surpassing climate change? The World Economic Forum estimates that more than 50 per cent of global gross domestic product (US$44 trillion) “is moderately or highly dependent on nature and its services”, and therefore exposed to biodiversity loss. For investors, growing scrutiny on biodiversity risks could have implications for industries that threaten biodiversity or environments of high conservation value.
Modern mining enterprises are a leading source of heavy industrial operations that enter remote and undeveloped areas, potentially damaging habitats and degrading local environments. Mines pitted against fragile and pristine environments face increased risks of operational roadblocks, stakeholder resistance and investor concerns.
IDENTIFYING MINES LOCATED IN BIODIVERSITY HOTSPOTS
Mining operations could have troublesome impacts on ecosystems in areas identified as biodiversity hotspots, which meet two criteria: 1) have at least 1,500 endemic, native vascular-plant species and 2) have lost 70 per cent of primary vegetation.
Over 20 per cent of global mines (641 out of 3,146) owned by MSCI ACWI IMI constituents as at Oct 30, 2020, were located in regions identified as biodiversity hotspots. The majority of companies (61 per cent) had at least one mine located in a biodiversity hotspot; 16 per cent of companies had a majority of their mines in such locations. The biodiversity hotspots with the most mines were in the Tropical Andes (162 mines), Madrean Pine-Oak Woodlands (79), Atlantic Forests (66), Sundaland (50) and the Chilean Valdivian Forests (43).
MINING VS PRISTINE ENVIRONMENTS
Protection of pristine environments is another critical component of biodiversity conservation. In contrast to the threatened status of biodiversity hotspots, pristine environments have highly intact ecosystems. Encroachment on these intact areas could degrade some of the last remaining wild areas on Earth. We approximated pristine areas as those that have at least 97 per cent of their biodiversity intact, based on the Biodiversity Intactness Index, which measures changes in local biodiversity at a spatial resolution of roughly one square kilometre due to land use and related pressures. We identified 13 per cent of mines owned or operated by constituents within the MSCI ACWI IMI as operating or with proposed operations on these intact lands.
MINING IN BIODIVERSITY HOTSPOTS AND INTACT ENVIRONMENTS
Areas that are both highly intact and in regions of biodiversity hotspots represent some of the last vestiges of pristine environments within these threatened ecosystems. However, some mining companies operate in these areas of high conservation value.
Litigation, increased regulation, protest or reputational damage due to adverse impact or threats to biodiversity could decrease company value and increase their cost of capital. These risks may escalate as investment firms begin to measure and report their impacts on biodiversity. Several large investment firms have shown interest in two new financial frameworks on biodiversity loss: the Task Force on Nature-related Financial Disclosures (TNFD) and the Partnership for Biodiversity Accounting Financials (PBAF). The TNFD in particular has the support of 49 different financial institutions and firms from various parts of the globe such as AXA, BNP Paribas, Citi, Credit Suisse, Danske Bank, Lloyds Banking, Manulife, Mirova, PIMCO, Robeco and Wells Fargo Asset Management.
The EU’s Sustainable Finance Disclosure Regulation (SFDR) may also require EU financial-market professionals to disclose the share of their investments exposed to areas of high biodiversity and provide metrics on the biodiversity impacts of their investments.
Metal mining is expected to increase over the coming decades due to demand for new energy infrastructure and continued development in emerging markets. Future demand for minerals may increase the likelihood that metal-mining companies develop mines in lands of high biodiversity value. However, an increased focus by regulators and people around the world on the loss of biodiversity may heighten risks to those invested in these projects.