By Dana Krechowicz
Agriculture and mining are on the front lines of climate change. Why?
First, they depend on predictable climatic conditions to ensure stable outputs and operations. Climate change is making it harder for farmers and mining companies to predict operating conditions, which adds additional risks and costs to their businesses. More powerful storms, rising temperatures, droughts and floods and higher risk of fire and pests can damage both their natural and hard assets.
Second, agriculture and mining companies are both making their businesses more resilient to climate change and they are investing in carbon-intensity-reducing technologies. At the same time, we’re also starting to see abandoned mining pits be repurposed for renewable energy generation in the forms of solar farms and, in some cases, for hydroelectric pumped storage.
Third, these sectors are an important part of the solution. The agricultural sector can make a tremendous contribution to combatting climate change by sequestering carbon in healthy soils. Meanwhile mining provides the metals and minerals that are necessary inputs for low-carbon technologies, such as solar panels and electric vehicles.
Onsite energy and electrification
In particular, two low-carbon technologies are starting to take root in agriculture and mining, as well as in other resource sectors. These are onsite renewable energy production and equipment electrification. None of this is new: farmers have historically relied on wind power to pump wells, while mines have used electric trains to transport materials and workers, particularly underground. But these methods have fallen out of use in favour of grid power and diesel-powered equipment.
“Agricultural producers are early adopters of new ideas and technology and as a result we expect to see more interest from agriculture sector clients. A good example of this is solar — not just as a power or backup power solution, it’s more than that — there are now solar powered sensors, fence chargers, drying, irrigation and ventilation equipment and greenhouse heating,” states Pete Molenaar, senior vice president and head of Commercial Banking, Western Region for HSBC Canada.
While some of these technologies may not be widely adopted yet, they are becoming accessible and affordable and can lead to substantial operational energy cost savings.
Whereas solar-powered or electric tractors are in their infancy, mining equipment electrification is again becoming a major trend. In an industry where on-site renewable energy generation is becoming increasingly mainstream, according to the Rocky Mountain Institute, its movement towards equipment electrification is equally impressive.
Newmont Goldcorp recently opened an all-electric mine in Ontario. This “mine of the future” features digital mining technologies and processes and electric rubber-tired vehicles. In the case of another mining company, HSBC Canada supported it in its acquisition of lithium-ion battery-powered scoops and trucks for its underground gold mines through leasing and equipment financing covering 100 percent of the cost of the assets.
Benefits and financing
Though current adoption rates of low-carbon technologies have been minimal, they are expected to grow in the future, as companies look for ways to cut costs and carbon emissions and as more technologies hit the market.
For example, while electric equipment may currently cost more up front, the investment results in substantial cost savings, such as by eliminating the need for new ventilation systems deep underground. It also improves employee health and safety — and staff recruitment and retention — by eliminating diesel fumes and particulate matter.
Even so, the initial cash outlay required to outright purchase some of these technologies (despite the money they will save) may be a barrier for some business owners. There also is the unfamiliarity with the equipment reliability, repair cycles and upkeep.
Financiers also need to get up to speed on low-carbon technology specs including their expected lifespans to gain comfort with these solutions. However, in the end, client demand is the key driver.
“Leasing and equipment finance has always brought inherent sustainability benefits as companies upgrade to more efficient equipment. But now companies are going one step further and are exploring which carbon reducing technologies are viable and commercially available in the market, and we’re keen to be at the forefront of this trend,” says Grant McFarlane, national head of Leasing and Equipment Finance, HSBC Canada.
The acquisition of these assets can soon even be financed with a “green lease”, which HSBC Canada plans to introduce to the Canadian market, and will be aligned with the Loan Market Association’s Green Loan Principles. Green-labelled financial products such as green leases (as well as green bonds and green loans) help companies tell their sustainability story to their stakeholders and the market in a more compelling way.
Climate change and increasing pressure on companies from their investors, customers and employees to green their operations will mean more and more companies exploring low-carbon technological solutions. Leasing and equipment financing will play an increasingly important role in helping businesses finance low-carbon solutions in a cost-effective manner.
Dana Krechowicz is senior sustainable finance manager, HSBC Bank Canada.