Hungary’s toxic ‘red sludge’ is a stark reminder of why mining companies need to better disclose their water-related risks.
On October 4th, the wall of a wastewater reservoir for the Ajka alumina processing plant broke, sending 35 million cubic feet of corrosive ‘red sludge’ downhill into nearby villages and ultimately the Danube River. This ecological disaster has claimed eight lives and devastated many more by destroying homes, livestock, and crops. Meanwhile workers are rushing to build emergency dams to stem a second flood that is expected to occur should another wastewater reservoir wall collapse.
For investors and financial institutions, water risks in the mining sector are difficult to track.
This summer, while Americans focused on the BP oil spill, disaster struck at a copper mine in southeastern China. The mine, owned by China’s largest gold producer, Zijin Mining Group, leaked 2.4 million gallons of waste water laced with acidic copper into the Ting River, killing 2,000 metric tons of fish – enough to feed 72,000 residents for a full year.
Just as the Deepwater Horizon disaster reminds us of the underlying risks of offshore oil drilling, the Zijin disaster demonstrates the environmental risks associated with the thousands of hardrock mineral mines in operation around the world. And, as a new paper from WRI concludes, current reporting practices mean that investors and financial institutions may not be fully aware of these risks, even though they may suffer the consequences.
Financial analysts need tools to make better decisions about investments that depend on water.
As the world observes Water Day this year, a new and rather unlikely group is starting to pay more attention to issues of water risk and water quality: financial analysts. They must take into account a myriad number of factors when making decisions, adding up tiny details to look for hints of future performance. But something as basic as water can also have a huge impact on companies’ performance, and even today, water risk is missing from many investors’ calculations.
A new project will help identify and measure the water-related risks facing companies and their investors, and lead to better environmental decisions.
Water scarcity, water pollution and water competition are various risks that could significantly harm a company’s operations. Even so, they are often overlooked by investors, financial analysts and businesses. Piet Klop, Senior Fellow in WRI’s Markets and Enterprise program, answers questions about why water matters to companies.