Global mining giants are plowing the spoils of higher commodity prices into curbing carbon emissions, a move that will boost their future prospects, says Fitch Ratings.
In a new report, the rating agency said that some mining companies, which are enjoying increased financial flexibility thanks to the recent rise in commodity prices, are making greater investments in decarbonization and growth.
“Companies that are accelerating their carbon-abatement strategies will strengthen their business profiles by making their operations more resilient to future challenges,” Fitch said.
Global mining companies such as Rio Tinto plc, Anglo American plc and BHP Group plc, have all set targets for cutting their Scope 1, 2 and 3 emissions — amid growing investor demand plus expectations of tougher government demands, Fitch noted.
In particular, Rio Tinto and Anglo American set reduction targets for Scope 1 and 2 emissions that are “ambitious” compared to their rivals, the report noted.
At the same time, Rio Tinto and Alcoa are seeking to commercialize a technology by 2024 that would eliminate certain emissions from the aluminium smelting process, it said.
This technology “will allow for a tangible step-change for Rio Tinto’s Scope 1 and 3 carbon footprint and the wider aluminium value chain inside the 2020s — particularly compared to steelmaking decarbonisation initiatives across the mining sector,” the report said.
Yet, Fitch said that these more aggressive efforts won’t stretch companies’ balance sheets.
“We do not expect their climate change initiatives to materially affect their financial profiles over the next few years, particularly considering their substantial financial flexibility and very conservative debt levels,” the rating agency said.
If companies’ financial positions deteriorate due to lower commodity prices or rising climate-driven costs, Fitch expects they’ll sacrifice dividends and growth-driven capital spending in order to maintain strong balance sheets.
“This will strengthen their business profiles as such improvements make operations able to withstand future challenges and potential regulatory changes,” Fitch said.