Sustainable finance and its role in responsible mining

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Sustainable finance and its role in RESPONSIBLE MINING

Many aspects contribute to a sustainable mining industry. Among those are sustainable financing solutions that play a crucial role in enabling mines to meet and maintain their sustainability targets across operations. In an interview with Dineo Phoshoko, Vusi Mpofu, sector lead: Mining & Chemicals at Nedbank CIB, discusses sustainable finance and its contribution to responsible mining.

What is meant by sustainable financing in the context of mining?

VM Sustainability is an important principle in mining because mining must be done in a sustainable manner that gives due consideration to communities and the environment. Sustainable finance is put in place to support a company’s journey to net zero. We look to support green projects in renewable energy, water conservation and projects that enhance the operational efficiency of a particular enterprise. Sustainable finance is a funding option for miners that are on a glide path towards a cleaner and more environmentally aware world going forward.

What are some of the global trends in terms of sustainable financing solutions in the mining industry?

The top global companies have all made public commitments on how to reduce emissions and approach carbon neutrality, with the key dates being 2030 and 2050. Reporting on key environmental initiatives has improved over time; the sustainability reports that are now being published have become more standardised and, in some instances, carry independent assurance.

Vusi has 19 years’ post-articles experience in financial services, specialising in the oil and gas as well as mining and chemicals sectors, among others

Stakeholders – be it investors, regulators or lenders – increasingly require operations to be very clear on what their sustainability agendas are. Sustainable financing becomes an enabler and facilitator in this decarbonisation journey that most global corporates are embracing and taking forward.

Entities that are not willing to subscribe to this way of thinking will struggle to access capital. Similarly, in time, they will face difficulties in accessing

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broader markets because of their non-compliance with what are becoming generally accepted global standards and best practices in how to mine in a way that respects the environment, communities and is progressive in delivering a cleaner environment for generations to come.

Can you provide a few examples of sustainable financing solutions offered by Nedbank CIB for the mining industry?

Our sustainable finance solutions fall within the three broad pillars of lending, arranging and advisory.

One part is the debt that we provide to entities that qualify for sustainable finance. From a lending perspective, we’d be looking at green loans, sustainability-linked transition loans, or even sustainability-linked acquisition funding, which would all fall within the lending element. In the middle, we’d have an arranging element, where Nedbank plays the role of a sustainability structure or coordinator. All the arrangements would be in line with the solutions offered from green bonds, sustainability-linked notes and transition sustainable bonds.

The third part is the advisory element, which is probably one of the most important ones – because when we talk about sustainable finance, it’s a partnership. A successful funding solution requires close collaboration between the bank and clients, hence the importance of a partnership approach. In working with the client, we are able to come up with an ESG framework for the entity in its entirety.

What are the qualifying criteria for an organisation to be considered for sustainable financing?

The best way to answer that is with reference to the two broad categories of sustainable finance solutions: • Use of proceeds: This would be in the case where a mine is able to evidence that they require finance for a green project. If a company is developing a renewable energy project, we can directly say that the loan that has been extended is to fund a green project. That would be the qualifying criteria to access sustainable finance in that instance. A use of proceeds solution is exclusively applied to finance or refinance eligible projects such as renewable energy, water conservation, emissions reduction and the like. • Sustainability-linked note or loan: This solution is applied to an entity – in this case a mine – with a recognisable ESG framework. What would be core to that framework are the sustainability performance targets committed to by that particular entity. For instance, a mine will commit to more efficient water usage or reducing their carbon footprint. The sustainability-linked note would then align the financial terms of the funding extended to the company to the achievement of those sustainability performance targets.

How are small, local businesses involved in the mining value and supply chain accommodated when it comes to sustainable financing?

At this point, the sustainable financing solution would really apply to projects of scale. There are solutions that would be offered to support smallscale renewable projects but, from a corporate and investment perspective, we are looking at the megaprojects where there is greater impact in terms of decarbonisation or the water efficiency that is achieved by a project.

Part of the funding that we do provide would then be applied by the miners themselves to have some enterprise development solutions in place for their smaller suppliers and the communities in which they operate.

In your view, what are some of the top sustainability-related projects most likely to be considered for sustainable financing in the mining industry?

Given where South Africa is, the embedded energy projects are obviously the buzz. They solve for a couple of issues. The greenhouse gas emissions reduction is part of the overall ESG framework that a mining company would be looking to achieve, which helps them reduce their carbon footprint. There are a number of projects in the renewable energy space currently attracting sustainable finance solutions. The second element of those renewable energy projects is that they help the miners secure stability of supply. We must appreciate that the generated capacity of the embedded-generation energy projects is not at a level that can sustain your mega-scale operations, but plays an important role in South Africa’s overall energy mix.

The next set of projects entails those that talk to water conservation. South Africa is a water-scarce country and a significant component of responsible mining is the efficient use of water through conservation measures, recycling and minimising levels of pollution. Projects that are applied to these endeavours within the mining space would attract sustainable finance solutions.

Also in the reckoning are projects that look at waste reduction. All this again fits into the environment and conservation element, which

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would be attractive for sustainable finance solutions. This talks to the proceeds elements of sustainable financing solutions that we would offer. When talking about sustainability-linked loans, we’d be looking at other metrics, such as the gender equality evolution within that particular entity, encompassing the company’s commitment to making the workplace more diverse and representative of local communities and South African society as a whole. We look at socio-economic advancement and empowerment in general. These come in as sustainability performance targets that are measured in the assessment of whether we are going to put some sustainable finance into a particular entity.

Is there anything you would like to add?

Sustainable finance is one of the key enablers and facilitators of the evolution of how we do business. As the Green Bank, we are very proud to support entities that can evidence that they conduct their business in a responsible fashion. The sustainable finance solutions we offer are an example of how the bank is keenly aware of prevailing global imperatives as related to climate change. It is important that – in aligning with companies on progressive decarbonisation glide paths – we evolve in tune with our customers and provide them with solutions that can better their businesses.