Climate change is the source of various challenges to operations
For mining companies, climate change is the source of various challenges to operations that call for immediate action.
Polyus, operator of five gold mines in eastern Russia, has been steadily reducing its specific greenhouse (GHG) emissions for several years. However, we felt a more comprehensive approach was needed to get to net zero.
In 2021 we launched risk assessment at all our business units and the Polyus group as a whole. We also set reduction targets for Scope 1 and 2 emissions, and devised our own methodology for calculating Scope 3 emissions. This led us to design Polyus’ first climate strategy in which we stated our decarbonisation priorities.
Let me share our vision of the indispensable ingredients that make up a good climate strategy.
1. Base it on global standards and industry experience
We have used UN sustainable development goals (SDGs), Task Force on Climate-Related Financial Disclosures (TCFD) and Intergovernmental Panel on Climate Change (IPCC) recommendations to formulate our goals and plans, and Shared Socioeconomic Pathways (SSP) scenarios for climate risk assessment. Benchmarking and trends analysis helped us identify the industry's best practices.
2. Ensure the involvement of management and functional departments
To make the Climate Strategy an integral part of the company-wide business strategy, ensure the board of directors and/or CEO’s supervision and engage as many functions as you can to guarantee their input and future adherence. This is the way we worked on it:
• A working group comprised of representatives of all functional departments is responsible for streamlining the climate strategy and setting climate-related targets.
• It closely interacts with our steering committee on climate change, which is in charge of adaptation to climate change and reports to the senior vice president, operations.
• The senior vice president reports to CEO.
Thus not only the climate strategy design but the management of all climate-related issues is embedded into the corporate governance system.
3. Set mid-term targets and be realistic
Net-zero commitments are easy to make but difficult to meet, mostly because they are long-term and give you the illusion that there is still much time to act. To avoid this we set a mid-term target of reducing Scope 1 and 2 specific emissions to 40-50% in 2032 rebased to the levels of 2020.
We also see both achievements and challenges on our way to achieving net zero in 2050. We have tackled the issue of our indirect emissions by switching to grid connectivity from hydropower and compensating for the rest by purchasing green I-REC certificates. Thus 100% of our electricity consumption is from renewables.
On the other hand commissioning of Sukhoi Log, one of the world’s largest greenfield gold projects - in 2027, will impose significant limitations on our direct emissions reduction targets.
The severely cold climate conditions where we operate are another limitation, because heat supply is critical and difficult to decarbonise.
4. Outline the priorities
Knowing your strengths and weaknesses helps you identify the areas of effort. For Polyus, the biggest challenge will be to decarbonize the heat supply and the vehicle fleet.
The former will require serious heat and energy efficiency boost through innovation materials use and loss reduction, as well as shifting of heat and energy generation to low carbon (such as gas) and carbon-free solutions.
For decarbonising the vehicle fleet a number of intermediate low-carbon solutions are possible, such as shifting to liquefied or synthetic natural gas and then to hydrogen engines and electric and full-cell vehicles.
We will also look into building our own renewable energy generating facilities and investing in R&D of carbon-free and carbon-offsetting technologies.
5. Identify the risks and the ways to mitigate them
To investigate potential climate change impacts, we used scenario-based approach and the following Shared Socioeconomic Pathways (SSPs):
• SSP1–2.6°С – scenario targeted by the Paris Agreement;
• SSP2–4.5°С – an intermediate scenario;
• SSP5–8.5°С – severe physical risk scenario.
We identified and assessed 15 risk factors relevant for our operations in each of the three scenarios.
The greatest material risk for us is the change in the number of days with extremely low temperatures. More of them increases the likelihood of operations disruption and equipment deterioration. Fewer frosty days means more rapid climate change in Siberia due to permafrost thawing. Polyus has no buildings nor any constructions on permafrost, but we use monitoring sensors on pit walls to track any movement of the rock mass.
The energy transition also carries risks of soaring costs for electricity, energy resources, emissions compensation, and possible regulatory fines. The emergence of additional expenses driven by decarbonisation is a key transition risk for Polyus and other miners.
We have also identified adaptation solutions that will help increase our long-term resilience against the effects of physical and transition risks.
6. See opportunities as well as risks
Mitigating risks is an opportunity to increase efficiency of operations, create backup facilities, better monitor technical conditions, increase control over resource use and ensure compliance with reporting standards. This leads to increased competitiveness of business, better access to financing, investments, customers and potentially to additional profit from carbon market. We used TCFD recommendations to identify and assess climate opportunities.
7. Assess company-specific Scope 3 emissions
We elaborated a methodology for calculating Scope 3 GHG emissions and disclosed Scope 3 emissions calculation for the first time. We aggregated data, created profiles of all the group's suppliers and identified nine emission categories from the GHG Protocol relevant to our value chain.
To reduce Scope 3 emissions we plan to work closely with manufacturers to develop low-carbon or carbon neutral products.
8. Engage and stay engaged
Climate strategy is a guideline for interaction with different stakeholders that includes:
• Communication and transparency. Not only mandatory, but voluntary climate disclosure is welcomed by all parties - from local communities to investors and regulators.
• Sharing expertise. Participating in conferences and collaborating with industry peers to design and share best practices contributes to a more viable climate legislation.
9. Set an internal carbon price (ICP).
Setting an internal carbon price is crucial for investment project assessment.
We had to use both national legislation and industry benchmarking to define ICP range of $15-35 per tonne of CO2 equivalent. As there is currently no fixed carbon price in Russia, we referred to draft legislation, but eventually intend to the stick to the carbon price that will be officially established at the national level.
10. Update the strategy
Climate regulation, industry best practices and disclosure standards are developing rapidly. New risks emerge or can be better identified. Thus the strategy might need an update sooner or later.
In the near future we will need to:
• Update the ICP as soon as it is fixed at the national level.
• Improve calculation and disclosure methodology for Scopes 1, 2, and 3 through automating emissions measurement and updating our assessment of Scope 3 emissions, as the ongoing global supply chain problems are causing uncertainty.
• Update and publish a quantitative financial risk assessment as soon as global supply chain problems are cleared up.
A climate strategy is the way to identify potential climate hazards and outline decarbonisation pathways – and the first step to taking action and ensuring undisrupted operations in the future.