Russian mining giant PJSC Norilsk Nickel Co. was found responsible in 2020 for one of the largest oil spills in human history and was ordered to pay almost $2 billion in damages, exposing a significant risk for miners operating in a warming Arctic.

However, it is unclear how much investors cared. After a large dip amid the initial spread of COVID-19, the stock barely budged after the spill and has been performing far above pre-pandemic levels in recent weeks, an analysis by S&P Global Market Intelligence found. The share price also surged in November 2020 amid broader hopes for a rebound in economic activity and green spending by mature governments.

Despite a public campaign by Indigenous Russian activists and environmentalists asking companies to stop purchasing from Norilsk Nickel, also known as Nornickel, it is not yet apparent whether any of the miner's customers walked away after the spill. And at least one major consumer has rebuffed activists' efforts, according to documents obtained by Market Intelligence.

As a result, the industry and market response to the spill could speak volumes about how investors and consumers will weigh the future environmental risks of large mining companies against the rising demand for metals in a greening world economy.

'Right kind of metals'

The May 2020 fuel tank leak outside the Siberian city of Norilsk resulted in about 21,000 tonnes of oil contaminating nearby rivers and subsoil, leading Russian President Vladimir Putin to declare a state of emergency. Greenpeace has compared the spill to the 1989 Exxon Valdez oil leak off the coast of Alaska.

Interviews with analysts painted a complicated portrait of the spill's impact on a company already penalized by a negative public reputation but buoyed even more by positive fundamentals. The market was "apprehensive when the oil disaster happened" but it is "logical to assume" investors have bought in to the company narrative of contrition and accountability after the spill, Varun Sikka, an analyst with AlphaValue, told Market Intelligence in an interview.

Nornickel took responsibility for the spill and has restructured management and committed to a clean-up effort. The company outlined plans to monitor permafrost conditions in the Russian Arctic, formed a risk committee and committed to reducing its environmental footprint. It also said it would close its Kola smelting plant to cut sulfur dioxide emissions in half.

"In terms of how their business propositions are concerned, the markets are more pricing in the virtues of their green commodities that can help play a bigger role in the green transition than the [environmental, social and governance] concerns," Sikka said.

Nornickel has benefited from being the largest nickel producer on the planet at a time when supplies are low, prices are high and demand is expected to ramp up considerably from the rapid expansion of the electric vehicle market. The need for nickel in the mass production of cathodes for EV batteries is so high that Tesla Inc. CEO Elon Musk has publicly asked mining companies to drastically increase global nickel production and has put out a call for battery-grade nickel.

Sikka said investors are presuming Nornickel's environmental risks will be addressed under public capital improvement plans. The fact that Nornickel also produces copper and palladium places it in a "really unique position" to benefit from a broader belief in persevering demand for greener metals, Sikka said.

"They've been exposed to the right kind of metals," Sikka said. "The share price has gone through the roof and even past pre-pandemic levels primarily because their commodity mix as of today is a lot more dependent on nickel, copper and palladium."

Credit Suisse analyst Conor Rowley said in an interview that it is not true to say investors "don't seem to care" about the environmental risks linked to Nornickel operations, noting that the company has traded at a far higher price in past years. There is an "ESG discount implicitly" in the shares, and some of the equity movement may also be attributable to investors trying to take advantage of a possible change in Norilsk's dividend policy, Rowley said.

Still, Rowley acknowledged it is a good time to be Nornickel, given the high demand from vehicle manufacturers. "From an earnings perspective, things couldn't be better for the company," the analyst said. Nornickel reported a 15% increase in revenue to $15.55 billion in 2020, while net profit fell 39% to $3.63 billion compared to the prior year.

A battery giant shrugs

Within the constrained supply market, at least one major Nornickel customer has also taken the miner at its word.

In November 2020, Russian Indigenous activists asked German battery manufacturer BASF SE to cease purchases of nickel, copper or other products from Nornickel until more action was taken to account for the fallout from the oil spill, including compensation for affected Indigenous communities.

BASF told the activists that Nornickel had acted sufficiently on the issue of sustainability and human rights. In a letter obtained by Market Intelligence, BASF Senior Vice President Matthias Dohrn said the mining company had demonstrated a commitment to work toward sustainability.

To make this claim, Dohrn cited a study and internal investigation commissioned by Nornickel, an investment plan to substantially reduce the company's sulfur oxide emissions, and past engagement by Nornickel with Indigenous communities.

The activists were not pleased. Pavel Sulyandziga, a Russian human rights advocate involved with the campaign against Nornickel, said in an interview that the reply was overly formal and "does not reflect reality."

"They just responded with, 'Oh, look at this document from Nornickel,' or, 'Look at this statement from Nornickel.' But they didn't provide anything else," Sulyandziga said. "We can provide a million examples where Nornickel says they're doing this or doing that, but we can provide two million or more examples of how that's not true."

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Asked for comment on the statements made by Sulyandziga, BASF spokesperson Katharina Meischen said in a Feb. 23 email that the company is in "regular contact" with Nornickel on sustainability matters and expects its suppliers "to fully comply with applicable laws and to follow internationally recognized environmental, social and corporate governance standards."

"We will stay in continuous engagement with Nornickel to support and assess their work to improve sustainability performance," Meischen said.

Nornickel did not respond to an emailed request for comment.