Transitioning Exxaro into a resilient, diversified resources company and decarbonising our portfolio are direct responses to the threat of climate change. Our transition from a coal base to a minerals and energy solutions business will ensure we thrive in a low‑carbon future and enhance our social impact.
Our goal is to be carbon neutral by 2050. To achieve this, we deliver on our Sustainable Growth and Impact strategy while leveraging opportunities, managing risks, adapting and responsibly operating in a carbon-constrained economy. Responding to the energy and just transitions is a critical factor of our strategy.
Our commitment to climate change and decarbonisation is embedded in our ESG approach and impacts all our business activities. Transitioning our business is guided, informed and executed by:
Detailed disclosure
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Climate change adaptation and resilience |
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Integrated report: Our strategy, Our risks and opportunities |
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2020 Climate Change Response strategy report (investor tab under integrated reports 2020) and 2020 climate change position statement (sustainability tab) |
Climate change is one of the forces that shaped our strategy. We conducted a detailed scenario analysis that considered various parameters, assumptions and the resilience of our strategy to climate-related risks and opportunities in line with the TCFD recommendations. These included the transition to a lower-carbon economy consistent with a 2°C or lower scenario, impact of carbon pricing and increased physical climate-related risk management to ensure business resilience under these scenarios.
We published our Climate Change Response strategy and assessment on our alignment with the TCFD recommendations in our 2020 Climate Change Response strategy report. The TCFD provides a strategic framework for guiding our Climate Change Response strategy. This supports our overarching Sustainable Growth and Impact strategy through three of the five objectives:
Our board and its committees are ultimately accountable and responsible for responding to climate change. Therefore, to ensure management addresses climate change, among other material ESG matters, and ensures integrated business processes and responses, the board's responsibilities and activities include:
Our board and management monitor our performance against climate change goals as part of the regular internal reporting process. Additional sessions inform our board and management of emerging trends, risks and opportunities. Climate change matters that relate to committees' terms of reference are reported as part of each committee's annual work plan.
The board has delegated responsibilities for ongoing management of risks and opportunities to the RBR committee and oversight of the manner in which we have an impact on the planet, including climate change, to the SERC. These committees meet quarterly and review progress in mitigation, adaptation, leveraging of opportunities and community engagements.
The ESG steering committee aims to enhance our effectiveness as we gear up for our transition, and coordinates our internal and external responses. To ensure alignment with our carbon emissions reduction goals, the ESG steering committee monitors initiatives based on our ESG strategies. This helps us understand risks and opportunities so that our operations can focus on managing energy consumption, carbon emissions and other climate-related matters. In addition, our multi-functional decarbonisation and ESG technical committees support the ESG steering committee.
Our board and management are committed to understanding and embracing the science behind climate change.
CASE STUDY:
As a business that places sustainability at the core of what we do and the realisation that collective action and collaborations are crucial for climate mitigation and adaptation, we signed a landmark memorandum of understanding (MoU) with the Agricultural Research Council, a science institution that conducts research with partners, develops human capital and fosters innovation to support the agricultural sector. This partnership is key, especially given the negative impacts of climate change on food, water security and sustainable livelihoods and will address the following issues:
It is envisaged that these initiatives will not only have economic benefits for communities and South Africa, but will also contribute to increasing the adaptive capacity and resilience of communities in the face of climate change.
The signing of this MoU with the Agricultural Research Council reflects our commitment to contribute to the just transition in South Africa and beyond, and contribution to global climate adaptation efforts, especially given the focus on agriculture and food systems during COP28, which culminated in a COP28 Declaration on Sustainable Agriculture, Resilient Food Systems and Climate Action. This declaration indicates, among other issues, that the unprecedented adverse impacts of climate change are increasingly threatening the resilience of agriculture and food systems as well as the ability of many, especially the most vulnerable, to produce and access food. The declaration also recognises the profound potential of agriculture and food systems to drive powerful and innovative responses to climate change and to unlock shared prosperity.
Our objective is to continue prioritising strategic partnerships as we navigate towards the achievement of our business, climate change response and ESG strategies. We will also leverage the expertise of our partners to create impact and sustainable livelihoods for our communities.
To achieve this, we will need to actively reduce our scope 1 and 2 emissions by at least 40% by 2026. The commissioning of our first self-generation project (the LSP) will contribute to a 27% reduction in our scope 2 emissions and an 18% reduction in our total scdecarbonisation-arrow-contope 1 and 2 emissions. The implementation of additional renewable energy projects at our Mpumalanga operations and energy efficiency projects will also contribute to the achievement of our short-term target.
Focus areas to meet our goal
Our decarbonisation workstreams
Grootegeluk
Energy management system established
Haul road management for fuel and carbon savings
Detailed opportunity review and implementation of proposed decarbonisation projects:
Short-term carbon and energy targets focused on diesel energy and carbon reduction
Delivery on short-term targets:
Site initiatives
Energy management system expansion
Energy efficiency project implementation and optimisation
All BUs
Implementation of additional energy efficiency initiatives
Investigate nature-based carbon offset projects
Replace fossil fuels
Replace fossil fuel-based electricity
High visibility projects: build up to being 100% carbon neutral
Recover carbon emissions
Building sustainability to 100% carbon neutral
Emissions absorption and removal strategies
Recover carbon emissions
Complete
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Our strategy to diversify through investments in our low‑carbon transition minerals and grow our energy business is key to addressing the impacts of climate change and reducing our scope 3 emissions. In addition, we have formed a strategic partnership with the Council for Geoscience on carbon capture, storage and utilisation technology to address our scope 3 emissions, of which over 98% are due to the use of our sold product during power generation. Despite the challenges, we continue to work with our value chain partners to provide carbon‑neutral goods and services through our green procurement programme (energy efficiency and resource sourcing, environmental preferable sourcing and reverse logistics).
Climate-related risks and opportunities are considered as part of our ERM processes, which strive to embed risk management into existing processes to support informed decision making. We conducted a detailed climate change scenario analysis in 2019 and 2020 to identify these risks and determine their relative significance. These risks remain relevant to our context. However, we aim to leverage opportunities such as resource efficiency at our operations, growing our energy business, self-generation projects, investments in low‑carbon transition minerals and developing adaptive capacity to respond to climate change at our operations and host communities.
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Our response to these risks are unpacked in the 2020 Climate Change Response strategy report (investor tab under integrated reports 2020) and in the 2020 climate change position statement (sustainability tab). |
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Credit and insurance risk
To manage this risk, the Sustainable Growth and Impact strategy is focused mainly on new renewable generation and minerals that can facilitate a cleaner future. This strategy was presented at our Capital Markets Day in 2021 and many financiers indicated their interest in this new business direction, mitigating some of the financial lending risk.
Over the past five years we have noted a significant increase in our insurance premiums against our assets. This scenario is likely to increase as climate action intensifies.
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Carbon pricing risk
The South African government is implementing policy measures to reduce its GHG emissions to meet its Paris Agreement commitments. The government implemented the carbon tax in June 2019 to encourage corporate behaviour to direct investments and expenditure towards low‑carbon alternatives.
The nominal tax rate is R159/tCO2e. However, government allows specific‑free allowances to facilitate a smooth transition to a low‑carbon economy and mitigate competition among affected industries, reducing the rate to between R8 and R64/tCO2e. The carbon tax is based on fossil fuel inputs (such as coal, oil and gas use), and applies to entities with a total minimum installed thermal capacity of 10MW.
The first phase of the carbon tax (up to 2025) is not designed to affect the electricity price but to address concerns raised by the mining sector. National Treasury has been reviewing the impact of the carbon tax, its rates and tax‑free threshold levels on business.
Our scenario analysis predicts an increase, in line with an international trend, in the South African carbon price. We expect the South African government to increase efforts to meet its Paris Agreement commitments (nationally determined contribution (NDC)) to transition the South African economy. Our calculations indicate that Exxaro's carbon tax liability will increase going forward, with liability figures of R38.6 million for 2026, R43.5 million for 2027 and R58 million for 2030, assuming that the current tax‑free allowances will fall away from 2026 going forward.
Our scenario analysis also identified increased carbon pricing and operating costs (such as higher compliance costs) as examples of climate-related policy risk. Carbon prices associated with emissions trading schemes, carbon taxes, fuel taxes and other policies are expected to rise as government reduces GHG emissions in line with the Paris Agreement.
The speed and rate of carbon price increases are uncertain and likely to vary across countries and regions. Our scenario analysis of carbon price risk exposure below shows the expected outcome based on the stated policies and sustainable development scenarios. The impacts of carbon pricing on exports to regions such as the EU, which is planning to implement the Carbon Border Adjustment Mechanism, will depend on Exxaro's export strategy, carbon intensity of exported goods and the EU carbon price for 2026 going forward.
Carbon pricing risk exposure (US$m)
Projected increase in operating expenditure due to carbon pricing risk (% change)
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Market risk
One of the major ways in which markets can be affected by climate change is through shifts in supply and demand for certain commodities, products and services as climate-related risks and opportunities are increasingly taken into account.
The shift in fossil fuel and energy markets will have implications for our business portfolio resilience and transitioning process. Further, we also appreciate that climate change has created new markets, increased emissions reduction technology demand and supply, presented new financial instruments, and renewed efforts to mitigate fossil fuels and potential financial impacts on the business.
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Reputation risk
Climate change has been identified as a potential source of reputational risk tied to changing stakeholder perceptions (investors, customers, communities, non-governmental organisations (NGOs) and government) of an organisation's contribution to or detraction from the transition to a lower-carbon economy.
The mining sector is exposed to the reputational risk of climate change – a threat to the credibility of its efforts to reposition itself as a more sustainable sector, and by extension to its licence to operate.
Our approach has been to genuinely commit to climate action, sustainability, accountability and transparency, as well as implementing adequate mitigation, adaptation, governance, risk and communications strategies to ensure a sustainable future for Exxaro and our stakeholders.
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Water security risk
Climate change physical impacts, such as increasing temperatures, rising sea levels, more frequent or intense droughts, and more frequent and more damaging floods and storms, are serious challenges for our facilities, supply chains, employees, current and potential customers, and our host communities.
Exxaro's flagship mine, Grootegeluk, is situated in the Waterberg region. It relies on the Mokolo and Crocodile River (West) Augmentation Project phase 1 water supply scheme for reliable water supply. Water from the Mokolo Dam is supplied via a 46km pipeline to the Lephalale area for the town, Eskom and Exxaro. The system can supply 30 million m3 of water per year.
Exxaro has one active tailings facility (slimes dam 1 and 2) located at Grootegeluk. The facility has appointed operators and an engineer of record who are responsible for the management of the facility. The dam is not registered as a dam with a safety risk with the dam safety office. To manage the facility and limit the deposition of slimes to the slimes dam, Exxaro has operational cyclic ponds which are currently used for the slimes management at Grootegeluk.
Water security is the backbone of Exxaro's water strategy which was revised in 2017 to reduce our risk. The fundamental principle of our water management approach is sustainable use of water resources. The risk of water security has increased significantly at our Waterberg operation due to lack of perennial water basins and high temperatures. Our Waterberg operation currently has a negative water balance as it relies on an external source for its operational water requirements.
We will conduct a study in 2024 to evaluate our water resources at the operations for security of supply.
As part of the risk management and continuous improvement in the operation of the tailings facility, Exxaro has made the decision to adopt the Global Industry Standard on Tailings Management. This is part of the journey to ensure that the operation and governance of the tailings facility in the organisation is aligned to not only to the SANS standard but also international standards. There is continuous risk management at the operations which include appointed operators for the tailings facility, an appointed engineer of record as well as internal processes that are utilised for the tailings management.
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Risk of heatwaves at our operations
Heatwaves are events where the maximum temperature at a given location exceeds the average maximum temperature of the year's warmest month by 5°C or more for at least three consecutive days. Downscaled climate models show that the Waterberg complex is predicted to experience a relatively higher number of average heatwave days than other Exxaro assets in Mpumalanga. The Waterberg operation will experience between 14 and 19 heatwave days from 2021 to 2040 (relative to 1961 to 1980). Our Mpumalanga operations are predicted to experience between eight and 13 heatwave days for the same period. This risk of heatwaves increases between 2041 and 2060 with Waterberg and Mpumalanga operations predicted to experience heatwave days of between 20 and 26, and 14 and 19 days respectively.
An increase in heatwaves could result in negative health and safety impacts for employees, create occupational health risks such as heat stroke, and restrict employees' physical functions and capabilities.
Our proposed actions will enable employees and the business to cope with heat stress and include improving our health and safety policies and emergency response plans. We plan to improve communication through instantly alerting and updating affected employees and host communities on sudden or rapidly changing weather conditions. We are also investigating the review of personal protective equipment to ensure specialised personal protective equipment for extremely high temperatures and heatwaves is available to employees. We have also made recommendations for an industry-wide approach to specialised personal protective equipment for extreme weather events to enhance employees' health and safety.
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Risk of drought
According to the Council of Scientific and Industrial Research Green Book – Detailed Projections of Future Climate Change over South Africa, there is a pronounced west-east rainfall gradient over the country. Over the eastern escarpment and east coast, for the period 2021 to 2050, relative to the period 1971 to 2000, under low mitigation, rainfall is projected to increase over the central interior and the east coast. The western interior, northeastern parts and the winter rainfall region of the southwestern Cape are projected to become generally drier.
The Grootegeluk complex is in an area predicted to experience a higher level of drought severity than Exxaro's other sites – a trend that will increase over time. The increasing frequency of drought, particularly in the Waterberg, will increase our water security risks.
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Risk of extreme rainfall days
On 13 March 2014, the Waterberg region received an unprecedented high rainfall in a 24-hour period, which led to operational interruption for five days.
Grootegeluk is in an area predicted to experience fewer average extreme rainfall days than Exxaro's other sites. The average number of extreme rainfall days is expected to increase across all sites towards 2060.
The flood event had a severe impact on our operations in terms of infrastructure damage, supply chain interruption, production stoppages, and employee and community safety. The frequency of extreme rainfall events is expected to increase in the Mpumalanga region.
Report Index
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