According to LGIM, greater investment in mining is needed to meet climate targets

The decarbonisation of the global economy is at risk unless larger amounts of capital flow into the mining industry, the UK’s largest fund manager has warned.

At current levels of investment, Legal & General Investment Management believes the world will not be able to achieve the “huge increase” in supply of industrial metals needed to reach net-zero emissions by 2050.

A report prepared by LGIM in partnership with mining company BHP estimates that cumulative demand for copper must double over the next 30 years and quadruple for nickel to meet the Paris Agreement to limit global warming to 1.5C above pre-industrial levels to reach level.

“The challenge is simple: there will be no energy transition without a growing, responsibly managed mining industry,” said Nick Stansbury, head of climate solutions at LGIM and co-author of the report. “Investors must engage with, and not exclude, the mining industry if the industry is to deliver the critical resources the world desperately needs.”

The comments represent a rare vote of confidence in the sector from a major investor, and follow warnings from analysts and bodies like the International Energy Agency that the world could run out of copper, nickel, cobalt and other metals if investment in new and existing mines doesn’t increase .

LGIM has a small 0.7 percent stake in BHP. It reduced its stake after the miner ended its dual-listed share structure earlier this year.

Even though the mining industry will play a crucial role in the energy transition through the use of metals in renewable energy and electric vehicles, many large institutional investors prefer to invest in loss-making clean-tech or electric vehicle companies.

This is partly because mining – from discovery to extraction and production – is very carbon intensive. It also reflects the local environmental impact of its activities and incidents, e.g. B. the fatal ones Dam disaster in a Brazilian mine 2019 has given investors another reason to stay away from this sector.

This is reflected in the sector’s low equity rating. BHP, the world’s largest miner, is worth just 3.6 times its forecast earnings before interest, taxes, depreciation and amortization this year, including net debt, according to JPMorgan estimates. This compares to the FTSE All-Share Index average of 7.75x.

LGIM posits that investors can play two roles in the mining sector. One is to help mobilize the capital needed to ensure metals supply does not become an obstacle to meeting the goals of the Paris Climate Agreement. In a recent report, commodities advisor Wood Mackenzie said $2 trillion would need to be invested in metals to achieve a 1.5C outcome.

The second is to reduce operational emissions across the mining industry, where there is a big difference between the best and the worst companies.

The report highlights the example of nickel, a key material in the batteries that power electric vehicles, where there is a huge gap between an Indonesian nickel operation that runs on coal and one in Canada that uses hydropower.

“The new mining projects the world needs should be built and operated by the companies that deliver them with the lowest possible environmental and carbon footprint,” Stansbury said.

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Adam Bradshaw

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