As climate change increases scrutiny on companies around the world, the mining sector is beginning to grapple with the substantial risk its operations present to global water supplies.

Global stakeholder organizations released new standards for tailings dams, which are engineered, massive earthen structures containing mining waste, in early August. While the new standards are a step toward derisking tailings dam infrastructure, many still worry about the environmental and human risks the sector presents as climate change raises new threats to global water supplies.

"Climate change is expected to cause more frequent droughts and floods, altering the supply of water to mining sites and disrupting operations," said Cate Lamb, global director of water security at CDP, an organization dedicated to the global disclosure of corporate environmental concerns. "Further, climate change will likely impact workforce availability, economic growth and social development in local communities, and this can, in turn, jeopardize mining and metals companies' operations and reputations in areas that are sensitive to a changing climate."

The new standard followed the January 2019 dam collapse at Vale SA's Corrego do Feijao iron ore mine in Brumadinho, Brazil, that killed 270 people. The disaster has proven costly to Vale.

"So far, we have invested 11.5 billion Brazilian reais in the reparation of Brumadinho and actions with dams," Vale CEO Eduardo Bartolomeo said on a July 30 earnings call. "That is to say that we have already done a lot, and we will continue to do so, aware of our commitment to the reparation."

Other big players in the industry such as BHP Group have also been supportive of the standard, with the mining major welcoming the international guidelines on a website dedicated to its dams and tailings management.

The United Nations Environment Programme, Principles for Responsible Investment and the International Council on Mining and Metals developed the new global standard. It includes provisions on enhancing resilience to climate change and assessing changes to potential impacts due to the effects of rising temperatures.

"Basically, the problem is that you've got this highly toxic residue. It's highly voluminous, and then you've got to put it somewhere," said Stephen Edwards, deputy director of the University College London Hazard Centre. "The big problem is that we're mining more and more material every single year, so the volume of tailings is increasing year on year."

Large dams can be built to be structurally sound, Edwards said. For example, water retention dams have a "very, very low" failure rate. However, this type of dam is often expensive, and some miners hesitate to spend a lot of capital on what is essentially a waste stream, Edwards added.

"If you're looking at water risk, you've got two ends of the spectrum," Edwards said. "One is catastrophic [tailings dam] failure, which obviously is what most of the media actually focuses on, but every day, every minute, you've got tailings facilities causing contamination of air, water and soil just by the passive release of the tailings into the environment."

In 2018, 91% of mining sector respondents to a CDP survey reported exposure to water-related risks, with the financial impact estimated at US$24.9 billion. In early 2020, consultants with McKinsey & Co. wrote that 30% to 50% of the production of copper, gold, iron ore and zinc is concentrated in areas where water stress is already high.

Water-stress hot spots identified by McKinsey include Central Asia, the Chilean coast, eastern Australia, the Middle East, southern Africa, Western Australia, and a large zone in the North American West. In one extreme example, the analysis found that 80% of Chilean copper production is in arid areas and other places with extremely high water stress. That figure is expected to climb to 100% by 2040.

READ MORE: Sign up for our weekly ESG newsletter here, read our latest coverage of environmental, social and governance issues here and listen to our ESG podcast on SoundCloud, Spotify and Apple podcasts.

"By 2040, 5 percent of current gold production will likely shift from low–medium water stress to medium-high, 7 percent of zinc production could move from medium-high to high water stress, and 6 percent of copper production could shift from high to extremely high water stress," the McKinsey consultants concluded.

Too much water at once, another potential impact of a changing climate, can cause problems in other areas. Mine sites in northern Australia, South America, Africa, India, Southeast Asia and Indonesia are particularly susceptible to more extreme precipitation during certain parts of the year, McKinsey wrote.

"The mining industry is no stranger to harsh climates — much of the industry already operates in inhospitable conditions," McKinsey partner Oliver Ramsbottom said in a recent interview. "Mining executives should work to improve the resiliency of mining assets to certain physical effects. Climate science tells us that further warming and risk increase can only be stopped by achieving zero net greenhouse gas emissions."

Lamb noted that 87% of mining companies that responded to requests for climate data said their own operations were exposed to "substantive climate-related risks." However, just seven of the 66 responding companies had committed to setting a science-based target to reduce greenhouse gas emissions. Similarly, a recent S&P Global Market Intelligence survey of the top 30 mining companies found that only a few had set a target for reaching net-zero emissions by 2050 to align with goals of the Paris Agreement on climate change.

Lamb said the CDP's 2019 report on water and mining found that while mining companies had plans to manage and mitigate risks to human health or ecosystems from potential dam failures, only 26% of the procedures required approval from a C-suite officer.

"Whilst flooding dominates the risk perception of the sector, and indeed, has been the water-related issue that has resulted in most financial losses to date, it is noteworthy that tailings dam failures, tightening of water regulations and loss of social licenses to operate fail to register as dominant risk drivers," Lamb said.

The intersection of climate, water and mining is particularly poignant as the transition to a low-carbon economy is likely to drive higher demand for mined materials that go into many applications, including renewable energy technologies. The world is experiencing a growing level of risks from climate change, Deanna Kemp, professor and director of the Centre for Social Responsibility in Mining at the University of Queensland's Sustainable Minerals Institute, wrote in a paper accompanying the release of the new tailings dam standard.

"We have seen the burgeoning use of tailings facilities over the past decade, a trend which is likely to be maintained as demand grows, the mining industry expands, and grades continue to decline," Kemp wrote. "We are also seeing an expansion of mining into remote and often sensitive locations, meaning that tailings facilities will increasingly be situated in complex landscapes that are characterized by a high co-occurrence of risk factors."

Brumadinho is far from the only tailings incident the sector has dealt with in recent years, and the risk the facilities present to the industry's social license have been at the forefront of recent industry conferences. The 2015 collapse of the tailings dam at the Samarco iron ore joint venture between Vale and BHP polluted water resources in Brazil as mud, iron ore and toxic waste flowed hundreds of miles to the South Atlantic Ocean. Earlier this year, Vale raised the emergency level for the Sul Superior dam at its Gongo Soco mine due to heavy rainfall.

Glencore PLC, a large multinational mining company, identified 17 tailings storage facilities with potential stability issues during extreme weather or seismic events as of early March, during a catastrophic hazard assurance process. The company said in its 2019 annual report that it is focused on the "significant risks" facing the industry from potential operational catastrophes and it factors in climate change-related risks to its operations. The company called dam failure the greatest risk facing its tailing storage facilities.

New disclosures required by the tailings standard are "certainly a step in the right direction," Lamb said, but without substantive changes to legal frameworks, regulatory policies and industry practices, tailings dams failures may remain inevitable. Lamb said the industry had a chance to self-regulate, but the result was catastrophic tailings dam failures that continue at an "alarming rate."

Future iterations of the standard should include requirements that miners take out insurance against tailings dam failures and plan for the eventual removal of the dams when mining operations cease, according to Lamb.

Environmental group Earthworks also criticized parts of the standard, saying it falls short of addressing critical issues. The group called for additions including higher standards for financial assurance and insurance, high-level executive accountability, a ban on riskier dam types, and improved community consent and public participation measures.

"There are still thousands of risky dams out there that are susceptible to climate change, earthquakes and other types of failure," warned Jan Morrill, an international mining campaigner with Earthworks. "So, we're probably going to see more failures."

As of Sept. 1, US$1 was equivalent to 5.37 Brazilian reais.