Mining industry leaders have been quick to frame themselves within the green transition, frequently highlighting their role in extracting the critical minerals and materials needed for new, clean energy sources.

At the same time, the industry is coming under increasing scrutiny of its own scope 1, 2 and 3 greenhouse gas emissions, with the focus on scope 3 leading miners to consider how to take responsibility for their supply chain footprints.

With the explosion of interest in Environmental, Social and Governance (ESG) issues during the COVID-19 pandemic, it is time to take a holistic look at what the mining industry is doing to bridge the “E” and “S” and at how interdependence between these two important considerations can be integrated into strategic development of sector best practices.

This article will explore the importance of accounting for local economic risks and opportunities during the green transition, and how scope 3 emissions calculation and reporting must consider the upstream economic implications for host countries.

Firstly, policymakers in developing countries, social licence risks assessments within the industry, and civil society transparency discussions are showing increasing interest in the subject of local procurement opportunities.

Since 2018 alone, the Democratic Republic of the Congo, Tanzania, Ghana, and the Argentinian province of Salta have implemented new regulations requiring the mining sector to give preference to host country suppliers of goods and services. Several more countries around the world are currently finalising new laws.

These expectations are also becoming the status quo where there are no formal laws around local procurement. In Canada, for example, Impact Benefit Agreements between mining companies and host Indigenous communities are common practice, in which procurement opportunities are almost always explicitly addressed.

Regardless of where mining takes place, companies are being pushed to create local economic benefits to obtain and maintain their social licence to operate. In the absence of local procurement and the economic linkages it forms, risk is evident. Community opposition and conflict is not only a risk to investors who are increasingly accounting for community dynamics in investment decisions, but also puts at risk the market’s access to the minerals needed for the energy transition.

Along with this unceasing pressure to purchase more goods and services in host countries, the mining industry is now playing catch-up one missions calculation, reporting and reduction. This includes scope 3 emissions, defined as all indirect emissions aside from those emitted in power generation. Rightfully, the current focus of the mining sector lies downstream where emissions are far more sizable, such as in smelting, refining and other forms of processing. However, scope3 emissions upstream of mines – which include the suppliers of goods and services - must also receive proper consideration. Perhaps most obviously, mining companies may be able to reduce their scope 3 emissions through localising the sourcing of goods and services, though further research is needed to check such assumptions. This route is already being explored by some, including Codelco, which has committed to a 70 percent cut in carbon emissions by 2030, including through increasing local procurement by 30 percent.

However, beyond emissions reduction via local procurement, we see a clear risk:if scope 3 reduction efforts fail to account for upstream economic linkages, the mining sector could undo significant local economic participation, fortifying the resource curse and putting mining investments at risk of community resistance.  

As industry players like the International Council on Mining and Metals announce commitments to set scope 3 emissions targets, how can we ensure local suppliers of goods and services can meet new “green supply chain” expectations? Small, locally owned businesses in many host countries simply do not have the capital for large green technology investments to lower their own emissions, or the resources to measure and report emissions of their operations. Without consideration for these small suppliers, mine site procurement systems with scope 3 emission objectives will likely favour larger–often international–well-resourced suppliers who can adapt to scope 3 demands.

Local suppliers will therefore need support to meet “green” supply chain criteria that mining companies will increasingly implement. The prioritisation of local procurement, and accompanying accommodations and support for local suppliers, should always be designed with a business’s long-term viability in mind. Scope 3 reporting could become a component of competitive advantage for small businesses, if the rollout of such expectations can be executed effectively. If host country suppliers can be supported in measuring their own emissions and working to reduce them, they will be better positioned to supply non-mining sector buyers with matching expectations. Host-country policy, industry, business development programs, and best practice guidance must explore further how scope3 reporting will change local economic opportunities to leverage mining for diversification, and ensure it is centered in evolving scope 3 work.

Given the state of the climate emergency, mining supply chains must quickly reduce their environmental footprint. However, the design of “green” behaviour change interventions, including scope 3 measurement and reporting, must consider the effects upstream of mining activity, where the most substantial host-country economic opportunities and losses lie. If the mining sector can get this right, “Just Transition” principles can pave the way for local economic diversification and decreased dependency on the mining sector.  If we get it wrong, we risk a re-internationalisation of mining sector procurement, contributing to resistance from host country businesses, citizens and governments and risking access to the very materials needed for the energy transition.