IGO SUSTAINABILITY REPORT 2022— 73 72 —IGO SUSTAINABILITY REPORT 2022 Our Response to Climate Change Topic Description of Risk/Opportunity Management Actions and Plans Risks – Medium to Long-Term As the clean energy transition progresses in the longer-term, technological developments may favour options other than nickel dominant batteries, such as hydrogen fuel cells or other options. We closely monitor global energy technology trends as a core component of our strategy so that we can respond to changes in a timely and effective way. We also continue using scenario analysis and internal carbon pricing mechanisms as a tool to stress test current strategies and financial plans on a regular basis. We continue to diversify our suite of products aligned to clean energy to de-risk our exposure to one product. Reputation Opportunity IGO has an opportunity to be a preferred investment if credentials and performance exceed average sectoral performance. Risks – Short, Medium and Long-Term As an ASX 100 listed company, investors and other stakeholders (including local communities) take an active interest in the climate changerelated risks relevant to the Company, shared risks (particularly those related to host communities in respect of fire and water), climate change-related opportunities and IGO’s management response to these matters. Company reputation could be negatively impacted if these expectations are not met or perceived as greenwashing, affecting the ability to attract capital, deliver investor returns and continue future growth. IGO takes pride in the positive contribution our Company makes to the clean energy transition. Although our operations are not at significant scale, we proactively disclose our approach and progress on climate change-related matters and work closely with our investors and other stakeholders to ensure we understand and meet expectations. We take considerable efforts to reduce our emissions footprint. We consider climate change-related reputational risk associated with both exploration and growth through mergers and acquisitions. Physical (acute and chronic) Risks – Short-Term IGO’s operations are located in Western Australia and reliant on road access to and from each of the sites. Both the Nova and Forrestania Operations are located in the Great Western Woodlands, while the Greenbushes Operation is located in the Greenbushes State Forrest. Average annual temperatures in this area have increased over the last century, with higher associated fire danger risk. Heavier rainfall events may also impact on production continuity and supply chain logistics due to restrictions to site access by heavy vehicles. Water stress impacts are not anticipated within the expected operating life of our Nova Operation; however, they may become relevant with significant expansion activities. IGO and our joint venture partners maintain a detailed Emergency Preparedness and Business Continuity Planning Standard to ensure situations with the potential to disrupt operations are actively identified and plans put in place to minimise impacts. Crisis and Emergency Response Teams were recently involved in the response to a number of bushfires with no harm to our people or operations. IGO sites are required to comply with the company’s Water Management Standard, including maintenance of a site-specific water balance and water management plan. A risk assessment has also been completed on Nova’s complete life-of-mine water supply to ensure controls are adequate for the level of exposure. Risks – Medium to Long-Term Given the expansion and life-of-mine at the Greenbushes Operation, this risk profile is considered medium to long-term. There is the potential for disruption to operations associated with water stress impacts given the current water source is from water catchments. As our growth and exploration plans are executed, longer-term physical risks will be relevant for any new developments, acquisitions or expansions. This may include increased insurance premiums and potentially reduced insurance availability in locations identified as “high risk”. A scenario-based analysis of climate risk will be completed on our lithium joint venture assets. Scenario Analysis The pace and shape of global decarbonisation remains highly uncertain, which is why we consider a range of scenarios capturing potential transition pathways. We have furthered our risk and opportunity assessment by testing the resilience of our portfolio, strategies and financial planning approach under fitfor-purpose, forward-looking climate change scenarios. Publicly available scenarios, including those published by the International Energy Agency (IEA) and IPCC, generally indicate transition related impacts diverging between scenarios from 2030 onwards, and physical impacts diverging from 2040 onwards. These are longer timeframes than the estimated remaining mine life for our Nova Operation, notwithstanding the potential for additional regional discoveries, IGO joint venture assets and our recently acquired Western Areas assets. In light of these practical considerations, we focused our scenario analysis largely on planned strategic exploration and acquisition activities in the medium to longterm. Near term impacts for our Nova Operation are considered in our base case risk and opportunity management activities as listed in the previous table, with the exception of carbon price impacts as detailed under the 2°C scenario discussion. The following sections describe the scenarios considered and key insights and outcomes. It is important to note that the current scenario analysis does not capture the recent acquisition of Western Areas assets, however updated scenario analysis will be completed in FY23 to capture all IGO nickel operations (Nova and Forrestania, and the Cosmos Project) and our lithium joint venture (Greenbushes and Kwinana). Global Energy Transformation (2°C) Scenario Under this scenario, the world rapidly and collaboratively decarbonises to limit global temperature rises to well below 2°C and avoid the most extreme physical impacts of climate change. The global energy system is transformed through large-scale investment on both supply and demand-side infrastructure, including energy efficiency, electrification of transport and industrial sectors (both expected to substantially increase copper demand in wiring and motors), renewable power generation and battery storage. Higher uptake of EVs also leads to increased demand for battery materials (including nickel and lithium) more than doubling compared to current policy-based outlooks. Carbon pricing is widely applied, rising from $100/tonne in 2030 to $140/tonne from 2040 in advanced economies, while fossil fuel subsidies are gradually removed by 2050. Consumer preferences are strongly aligned with clean energy and lowcarbon technologies. References: International Energy Agency – World Energy Outlook, Sustainable Development Scenario (November 2019); Energy Technology Perspectives Scenario (2017) and Global EV Outlook 2020; Nickel Institute – Energy Transition: Nickel helping to combat climate change (2018); Copper Alliance - Copper’s contribution to a low-carbon future (2014) IGO Insights and Outcomes • our active prioritisation of clean energy products through exploration and discovery is expected to drive upside performance for the business under this scenario, noting that the timing and scale of results of exploration activities are inherently uncertain. Recent commercial agreements finalised for our Nova Operation were on materially improved terms compared to the preceding contracts, indicating early benefits from this demand growth • our transaction with Tianqi and recent acquisition of Western Areas is aligned with the global energy system transformation and demand for lithium and nickel in EVs and battery storage under this scenario • our growth strategy for the IGO portfolio is based on partnering, acquisition and divestment of advanced assets aligned with the Company strategy. This is supported by an internal process to evaluate and prioritise commodities aligned to clean energy (including nickel, copper, cobalt, lithium and rare earths). Our currently identified preferred target commodities were reviewed against the trends described by this scenario and found to be well-aligned for the timeframes under consideration • carbon pricing and other climate change-related legislation will form a material consideration in our future development and acquisition decisions, noting that the location and scale of our operating portfolio will be subject to the outcomes of IGO’s active exploration activities and growth plans. Our internal carbon pricing mechanism are incorporated into all aspects of decision making; and • to stress test financial margins at our Nova Operation should a disruptive regulatory shift take place at the federal or state level in the near-term, the following quantitative analysis was completed: – current diesel fuel tax credits applicable to heavy vehicle use were removed from cash flow models; and – an effective carbon price of approximately $16/tCO2-e was applied to Scope 1 emissions based on the most recent ACCU auction price, applied to 100% of Nova Operation emissions. This analysis found that impacts on operating margins, though notable, would remain below 5% for the Nova Operation, even in extreme cases. Extreme Climate Change (4°C) Scenario In this scenario, stalled policy development and reduced investment in renewable energy and low-carbon technologies result in extreme global temperature rises to 4°C by the end of the century and greatly increased physical impacts from climate change. This includes increased severity and frequency of extreme weather events as well as increases in surface temperature, sea level rise and other chronic impacts. References: International Energy Agency – World Energy Outlook, Stated Policies Scenario (November 2019); Intergovernmental Panel on Climate Change Representative Concentration Pathway 6.0 and 8.5 scenarios IGO Insights and Outcomes Resilience of our business under this scenario will depend on the specific locations of future operations, including local infrastructure and supply chains. As such, we are currently reviewing options to: • ensure stress testing against physical climate change risks is appropriately considered in our planning for potential expansions to existing operations; and • integrate physical climate change risks into our screening processes for potential new developments and acquisitions. We also note that our current focus on commodities critical to clean energy will not be aligned with this scenario, however this is not a priority for resilience planning at this time. IGO’SClimate Change-Related Risks andOpportunities Analysis
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