- Mining companies increasingly secure capital through green loans tied to greenhouse gas reductions and ESG targets, driving their shift toward renewable energy.
- Nedbank Corporate and Investment Banking (CIB) is crucial in financing sustainable mining projects, including a significant R4 billion solar PV installation for Tronox’s South African operations.
Mining companies increasingly use green loans tied to greenhouse gas (GHG) reductions and Environmental, Social, and Governance (ESG) targets to secure capital. This shift toward renewable energy goes beyond concerns like load-shedding and rising electricity costs.
The mining sector’s enormous carbon footprint, accounting for 4% to 7% of global GHG emissions, drives this change. Investors and lenders demand that companies address climate change. In response, many mining companies set ambitious climate goals, such as achieving net-zero operational emissions by 2050. Transitioning to renewable energy becomes a crucial step in reaching these targets.
Beyond GHG emissions, the industry faces increasing scrutiny for its environmental and social impacts. Issues like land use, biodiversity, water management, waste production, worker and community health and safety, gender diversity, and human rights come under the spotlight.
The need for sustainability stems from mining’s crucial role in the global shift to a low-carbon economy. The sector supplies essential materials like lithium, cobalt, copper, and rare earth elements for clean energy technologies. Demand for these “green” metals and minerals rises sharply as the world shifts to renewable energy.
Sustainable Financing as a Strategic Tool
These pressures reshape how mining companies approach financing. Companies that manage ESG risks effectively attract more capital, appealing to traditional and ESG-focused investors.
Sustainable financing allows mining companies to adopt environmentally responsible practices while securing favourable terms. Green loans, for instance, often feature lower interest rates, more extended repayment periods, and reduced fees. These incentives encourage investment in environmentally beneficial projects.
Mining companies can choose from three main types of sustainable finance products:
1. Use-of-Proceeds Loans: These loans fund eligible green and social projects, such as wind or solar farms and renewable energy installations.
2. Sustainability-Linked Financing: This financing ties financial benefits to achieving predefined ESG targets. Unlike use-of-proceeds loans, this option allows companies to use the funds for any purpose as long as they meet their ESG goals.
3. Transition Financing: Designed for hard-to-decarbonize industries like mining, this option significantly supports long-term projects to reduce GHG emissions.
Tronox Solar Project: A Case Study
Nedbank Corporate and Investment Banking (CIB) leads the way in sustainable financing for the mining industry. A recent example involves the R4 billion solar PV installation powering Tronox’s South African operations. This project is one of South Africa’s most significant solar initiatives under a corporate power purchase agreement.
CIB was the joint lead mandate arranger, financing two 100-megawatt solar farms in Lichtenburg, North West. These farms generate about 580 gigawatt-hours of electricity annually to power over 40,000 households. Tronox expects the project to cut its global Scope 1 and Scope 2 carbon emissions by about 13% from 2019 levels.
The total investment for the project reaches around R4 billion, with debt financing of about R3 billion. CIB committed roughly R827 million to the debt, reinforcing its leadership in renewable energy finance across Africa and its expertise in the sector.
Mining companies increasingly rely on Nedbank CIB’s experience and sustainability expertise to navigate the evolving landscape of sustainable finance.