Climate change
and energy
efficiency

Climate change

Our approach to climate change

Climate change is one of the top items on the UN 2030 Agenda for Sustainable Development. Nornickel recognises the need for a response to the threat of climate change across all areas of society and the economy, for supporting the goals of the Paris Agreement to limit the increase in the global average temperature to below 2°C, and for efforts to limit the increase to 1.5°C.

It is our absolute priority to adapt to climate change by using a comprehensive approach and facilitating large-scale implementation of innovations in technology, organisation and management. We contribute to the global climate change agenda by:

• implementing our own strategy to increase the output of metals needed for the global energy transition, as well as boost their supply to the domestic and international markets;
• upgrading production facilities using best available technologies and advanced environmental solutions;
• keeping CO₂ emissions at one of the lowest levels among global diversified metals and mining players;
• developing renewable energy;
• ensuring resilience to climate risks, including by providing climate risk monitoring support and investing in housing and social infrastructure across the Company’s footprint.

As its operations are largely concentrated in the Arctic, Nornickel focuses on cooperating with government authorities and the scientific community, supporting and promoting climate studies in the region, creating and expanding the climate monitoring system, and developing and implementing measures to reduce GHG emissions and adapt to climate change.

On top of that, we are actively involved as an expert in creating and promoting federal laws and provide expert and methodological assistance to other industry players in order to share experience and develop the best solutions to achieve the Paris Agreement’s goals.

To that end, Andrey Bougrov, Senior Vice President for Sustainable Development at Nornickel, became an actively involved member of the Climate Policy and Carbon Regulation Committee of the Russian Union of Industrialists and Entrepreneurs. The Committee acts as an intermediary between the business community and federal regulators, articulates recommendations and proposals on the nation’s climate policy, and is deeply involved in GHG emissions and absorption matters, including reporting, guidelines, standardisation, certification, verification, and green finance.

Climate change management

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Climate change management goals and principles are embedded in a number of Nornickel’s strategic documents and policies approved by the Company’s Board of Directors. For instance, the key principles and responsibilities in this field are set out in PJSC MMC Norilsk Nickel’s Climate Change Policy^*. Our climate targets and key initiatives are regulated by the Environmental and Climate Change Strategy^*. Other by-laws related to the topic include the Environmental Policy and the Renewable Energy Sources Policy^*.

Responsibilities

The Board of Directors is responsible for overseeing climate management, including the approval of the climate change policy, strategy^*, and risk appetite, as well as monitoring climate risk management. In order to ensure a deeper focus on climate change, in 2021 the Board created the Sustainable Development and Climate Change Committee led by the Chairman of the Board of Directors^*.

At the management level, climate change matters are reviewed and overseen by the Risk Management Committee of the Management Board led by the Company’s President. Information on key risks, including those related to climate change, is reviewed on a quarterly basis.

Senior Vice President Sustainable Development is in charge of the Company’s sustainable development policy, including climate change. Dedicated units of the Head Office, branches and Group companies are responsible for certain aspects of the climate change policy and strategy within their scope^*.

Nornickel’s roadmap to comply with the TCFD recommendations

In 2021, Nornickel approved, based on an order of the Senior Vice President for Sustainable Development, the Roadmap to Fulfil TCFD Recommendations for 2022 – Q2 2023. The document includes Responsibilities The Board of Directors is responsible for overseeing climate management, including the approval of the climate change policy, strategy4, and risk appetite, as well as monitoring climate risk management. In order to ensure a deeper focus on climate change, in 2021 the Board created the Sustainable Development and Climate Change Committee led by the Chairman of the Board of Directors5. At the management level, climate change matters are reviewed and overseen by the Risk Management Committee of the Management Board led by the Company’s President. Information on key risks, including those related to climate change, is reviewed on a quarterly basis. Senior Vice President Sustainable Development is in charge of the Company’s sustainable development policy, including climate change. Dedicated units of the Head Office, branches and Group companies are responsible for certain aspects of the climate change policy and strategy within their scope6. over 50 measures aimed at bringing the Company’s climate risk management, strategic and operational management of climate change matters, and targets, indicators and reporting in line with the TCFD recommendations and relevant global best practices.

Corporate climate agenda: key results and plans in 2021–2023

Climate change impact on Nornickel’s strategy

Resilience of Nornickel’s strategy against climate change risks

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Based on TCFD recommendations, the Company defines two main categories of climate change risks:

Physical risks
Their impact may manifest in the form of weather anomalies or irreversible changes of climatic conditions. Physical climate change effects may include permafrost thawing, changes of water levels in water bodies, precipitation volumes, wind loads, and other climate risk factors, which may have a material adverse impact on operations.

Transition risks
Associated with the transition to a low-carbon economy. The Company categorises as transition risks the respective political, regulatory, technological, market, and reputational risks.

Project to assess physical climate change risks

In 2021, Nornickel launched a large-scale project to assess physical risks related to climate change.

In 2021, climate change was modelled in the Norilsk Industrial District until 2050, based on three global climate scenarios of the Intergovernmental Panel on Climate Change.

The analysis covered three baseline scenarios: SSP5-8.5, SSP2-4.5, SSP1-2.6 (compliance with the Paris Agreement scenario).

To this end, we engaged climate scientists from the Obukhov Institute of Atmospheric Physics of the Russian Academy of Sciences, who conducted a pilot assessment and formed a register of physical climate change risks for a number of facilities in the Norilsk Division, and drafted a methodology for quantitative risk assessment.To this end, we engaged climate scientists from the Obukhov Institute of Atmospheric Physics of the Russian Academy of Sciences, who conducted a pilot assessment and formed a register of physical climate change risks for a number of facilities in the Norilsk Division, and drafted a methodology for quantitative risk assessment.

In 2022, we plan to carry out a qualitative and quantitative (including the possible impact on the Company’s financial performance) physical risk assessment for other assets of the Norilsk, Kola and Zabaykalsky divisions.

Registers of relevant risks will be compiled to further develop mitigation and adaptation measures.

Nornickel opportunity: impact of decarbonisation on the growth of demand for the Company’s metals

Nornickel’s strategic development is largely geared towards facilitating global transition to green transport, promoting renewables, and ensuring long-term competitiveness of the Company’s products through keeping GHG emission intensity relatively low, increasing energy efficiency, and mitigating physical risks with due account for climate factors.

According to an International Energy Agency forecast, the total market size of critical minerals will grow almost sevenfold between 2020 and 2030 in the net zero pathway, which creates substantial new opportunities globally for mining companies^*. The Agency’s sustainable development scenario projects substantial evolution of the car market structure by 2030: electric vehicles (EVs) — 14%, internal combustion engine vehicles (including hybrids) — 86%, while by 2040, this breakdown may stand at 31% and 69%, respectively. CO₂ emission targets for passenger vehicles are forecast to go down from 3.6 bt in 2019 to 2.9 bt in 2030 and 1.4 bt in 2040.

According to Nornickel estimates, which take into account LMC Automotive and Bloomberg projections, the share of EVs and hybrids in car manufacturing may reach 36% as early as 2025.

If the strategic target is achieved, by 2030 Nornickel may supply enough PGMs to the global market to produce 25–40 mln catalysts for cars. Increased production of high-quality nickel may enable the manufacturing of 3.5‒5.5 mln EV battery packs, which could translate into a 50‒100 mt reduction of global СО₂ emissions.^*

Key drivers of the demand for Nornickel’s products. International CO₂ reduction agenda

Potential for entry into new sales sectors

The growing demand for batteries and the increased need of European battery manufacturers to have a supply of feedstocks with a low carbon footprint open up opportunities for Nornickel to integrate deeper into new value chains. To embed itself into the European battery sector, Nornickel plans the following:

• analysing the demands of potential customers in the context of establishing a foothold in the battery feedstocks market;
• increasing the output of nickel that is fit for use in Finland’s growing ecosystem that produces battery feedstocks;
• looking to widen capabilities through research and partnerships to promote integrated solutions for a future battery supply chain.

Strategic emphasis on low-carbon products

Already in the mid-term, the integration of responsible practices into production and the need to decrease the carbon footprint will materially boost the competitiveness of Nornickel’s products in target markets.

The Company already boasts a pole position in terms of absolute and specific GHG emissions, which are some of the lowest among international metals and mining peers.

In 2021, Nornickel conducted its first assessment of the per-unit carbon footprint for the entire metals basket, based on the calculation methodology developed in accordance with life cycle– based international standards (LCA ISO 14040/14044). The methodology had been certified by a recognised international LCA expert in metals and mining — Sphera Solutions GmbH, and 2020 carbon emissions per unit of product were calculated and certified by Ernst & Young (EY).

The carbon footprint of refined nickel produced by the Company amounted to 8.1 t of СО₂ equivalent per tonne — far below the industry average.

Transformation of Nornickel’s product basket

Production of carbon-neutral nickel

In 2021, Nornickel started producing carbon-neutral nickel. The first batch of carbon-neutral products was put out by the Group’s Kola Division and totalled 5 kt of nickel cathodes.

Replacement of hydro turbines and thermal power generation units, upgrade of heating systems and power equipment, and improvement of insulation allowed Nornickel to reduce GHG emissions by 48 kt of CO₂ equivalent in 2019–2020, which has been independently verified by EY.

Further initiatives to reduce GHG emissions that are slated for 2021–2025 will make it possible to produce over 40 kt of carbon-neutral nickel until 2025.

Energy infrastructure modernisation

To contribute to the climate change agenda, mitigate physical risks related to permafrost thawing, which had been moved to the front burner, and meet the newly set strategic targets to reduce specific GHG emissions, Nornickel included in its updated Strategy 2030 a large-scale RUB 600 bn investment programme focused around a comprehensive upgrade of the Norilsk Industrial District energy infrastructure and renewables development.

The programme provides for, among other things, the replacement of equipment at heat and hydro power stations (including increasing installed hydropower capacity), upgrade of heat transmission, power transmission lines and gas pipeline systems, and modernisation of fuel storage tanks.

Plan for energy infrastructure modernisation

Climate change risk management

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Nornickel recognises the need to maintain resilience to climate change risks by taking measures to adapt, managing GHG emissions in line with the announced targets, and harnessing innovations to brace for future challenges.

Our risk management practices include measures to track climate changes and limit their impact on the Company’s targets indicators. The Company’s governance bodies receive quarterly reports on key risks, including those related to climate change.

Risk of permafrost thawing

Soil thawing is the key climate change risk faced by the Company as it causes loss of bearing capacity, which may subsequently lead to the destruction of buildings and structures.

The 2020 fuel spill at HPP-3 exposed the climate change–induced geocryological factor as one of the two main causes that with a high likelihood led to the incident.

Nornickel is faced with a unique and complex challenge of managing conventional climate risks while also having to study the Arctic Zone’s distinctive climate change processes and their consequences for permafrost soils, as well as project future developments and incorporate these risks into management decision-making.

In 2021, the Company’s risk management initiatives and achievements included:

• Nornickel is developing a multi-level geotechnical monitoring system that would include, among other things, satellite remote sensing;
• satellite imaging (optical and interferometry) of the Norilsk Industrial District performed, with the images interpreted and data on vertical and horizontal displacement of structures obtained;
• the Company retrofitted the Buildings and Structures Monitoring Centre in Norilsk, and increased and reinforced its staff. In 2019, the Centre was responsible for geotechnical monitoring and inspection of 223 foundations and piles of structures, and in 2021 this number almost doubled. The Company introduces new methods of soil study, nondestructive testing and measuring, including georadiolocation, electromagnetic soil surveys, seismoacoustic surveys of buildings and structures, 3D laser scanning of buildings, etc.;
• the Company made significant progress in the dialogue with the professional and academic communities. As part of its first and second stages in 2020–2021, the Great Norilsk Expedition did a wide range of engineering, geocryological, soil, hydrobiological, and other studies. The expedition’s primary goals were to investigate the causes of the diesel fuel spill and provide an evidence-based picture of the actual contamination and environmental damage. The research yielded new data that will help mitigate the risk of incidents caused by geocryological factors and processes;
• Nornickel is working to design and build new diesel fuel tanks to replace those at NTEC’s HPP-3 that had been decommissioned and dismantled. Simultaneously, the Company is engaged in a large-scale, in-depth engineering and geological survey of the area’s geocryological properties taking into account climate risks. We are also considering foregoing the use of diesel fuel as HPP backup fuel to fully eliminate the spill risk;
• the Company is planning to develop a digital twin of Norilsk to create short-, medium-, and long-term models for managing risks under various climate scenarios.

Insufficient water resources is another significant risk related to climate change. For more details on the assessment and management of these risks, please see the Risk Management section.

Assessment of climate change impact on tailing dumps

To minimise the Company’s risks and ensure that the necessary timely measures are taken to respond to possible changes in the condition of the Company’s tailing dumps, the first stage of work was performed seeking to look into the impact of more frequent extreme weather events and degradation of permafrost rocks due to climate change on the Company’s hydraulic engineering facilities (tailing dumps). This resulted in the development of climate change models for the period through 2050 in the Norilsk Industrial District.

The forecast until the middle of the 21st century is based on the ensemble averaging of calculations by using 40 CMIP5 generation climate models for two greenhouse gas emission scenarios, RCP8.5 and RCP4.5. The forecast is for an increase in air temperature, snow cover depth, and summer precipitation by the middle of the 21st century versus the baseline period of 1981–2005. For quantitative prediction of climate-driven changes in factors affecting the safety of tailing dumps, calculations will be carried out by using a non-stationary permafrost soil model.

Greenhouse gas emissions and energy efficiency

The Company has established a regular practice of assessing emissions (Scope 1 and 2) in accordance with the GHG Protocol methodology. The calculation of GHG emissions for the Group takes into account the following greenhouse gases: carbon oxide (CO₂), nitrous oxide (N₂O), methane (CH₄), with no or insignificant emissions of other greenhouse gases. The quantitative assessment of Scope 1 GHG emissions also includes the Company’s estimated prospective GHG emissions associated with the implementation of Sulphur Programme 2.0.

Based on the results of 2021, direct and indirect GHG emissions (Scope 1 and 2) increased by 0.6 mt of CO₂-eq. y-o-y to total 10.3 mt. At the same time, the Company’s production emissions amounted to 9.1 mt of CO₂-eq., with 1.22 mt of CO₂-eq. of GHG emissions resulting from providing local communities with heat and electricity. The growth dynamics was caused primarily by weather factors, i.e. the need to provide businesses and households with heat and energy in cold winter conditions. Diesel reserves were used for heat and power generation and are subject to replacement. In addition, data from the non-production sector were added to the calculations in 2021. The intensity of GHG emissions (Scope 1 and 2) was 7.82 t of CO₂ equivalent per million roubles of consolidated IFRS revenue.

In 2021, the Company proposed a quantitative assessment of indirect GHG emissions (Scope 3 downstream) to the extent relating to product sales. According to the GHG Protocol, such emissions as regards the Company include emissions associated with product transportation from the Company’s production facilities to the customer and the first stage of product processing.

In 2021, Norilsk Nickel Group’s volume of such emissions amounted to 3.1 mt of CO₂-eq., up 18% y-o-y. The main growth driver was an increase in iron ore concentrate sales, with its processing, i.e. steel making, being a highly carbonintensive process. It accounts for 83% of Scope 3 downstream emissions. The further processing of the Company’s finished metal products is much less carbon-intensive. Due to the structure and size of its product portfolio, Nornickel’s Scope 3 downstream emissions are lower than those of its global metals and mining peers.

Energy efficiency improvement and use of renewable energy sources

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Nornickel Group’s key production facilities operate in the Far North, which is why the Company’s fuel and energy services are tasked with an important mission of ensuring a reliable and continuous power supply to production facilities and households across the footprint.

Nornickel takes a comprehensive approach to the development of energy infrastructure facilities, combining reliability improvement tasks with those of the reduction of GHG emissions. We make continuous efforts to reduce the consumption of such energy sources as diesel fuel and coal and to develop hydropower in order to provide our production operations with reliable and efficient energy sources in the long term.

Electrical power from renewable sources is generated at the Ust-Khantayskaya and Kureyskaya HPPs (part of NTEC). The use of other renewables such as solar, geothermal, and wind energy, is constrained by the length of the polar night and severe climatic conditions that cause wind power generation facilities to go out of service.

In 2021, the Company launched the Ust-Khantayskaya HPP after upgrading. Starting in 2012, seven hydroelectric units at the Ust-Khantayskaya HPP were replaced step by step. This refurbishment also included the following operations:

• revamping the main generator hall and the electrical shop;
• construction of a new compressor station;
• implementation of a new automated dispatch system.

Following the upgrade, the installed capacity of the plant increased from 441 MW to 511 MW. The new equipment has an efficiency factor of almost 95%.

In 2022‒2030, the Company is also planning to carry out a comprehensive upgrading project at the Kureyskaya HPP with a scheduled increase in installed capacity.

In 2021, the total share of electricity consumed by Nornickel’s production operations from renewable energy sources reached 47%, up 1 p.p. y-o-y.

In 2021, Bystrinsky GOK purchased 20,000 IREC certificates from Azov Wind Farm owned by Enel Russia, for the first time in the company’s history. The use of the certificates allowed the company to include 20,000 MWh of electricity from renewable sources in its energy consumption balance, which is equivalent to 5.8% of Bystrinsky GOK’s annual consumption.

“Trans-Baikal Division is progressing in accordance with the approved environmental strategy covering all major areas of environmental impact, in particular climate change. For instance, about 40 initiatives will be implemented under the strategy through 2031. Some of them deal with improving energy efficiency and reducing our carbon footprint. Buying certificates is the first, tentative step. Also, to reduce our carbon footprint and GHG emissions, we are considering the construction of a solar power plant that could cover up to 20% of Bystrinsky GOK’s energy consumption by 2031.”

Alexander Popov,
Nornickel Vice President, Trans-Baikal Division CEO

2021 saw a 7% increase in total fuel consumption y-o-y, driven by higher gas and diesel fuel consumption at NTEC’s facilities due to the flaring of separated fuel collected as part of HPP-3 clean-up efforts.

Fuel oil consumption of the Murmansk Transport Division also increased in 2021 as four additional ice-class vessels were engaged to cover the spike in cargo deliveries to the Norilsk Industrial District from December to May.

The decrease in the overall energy intensity of Nornickel Group is explained by revenue growth leapfrogging the increase in energy consumption.

The 7% decrease in electricity consumption y-o-y was associated with the closure of Kola MMC’s metallurgical shop in Monchegorsk and temporary operational restrictions at the Oktyabrsky and Taimyrsky mines and the Norilsk Concentrator.

The overall increase in the consumption of heat and steam (by 12% y-o-y) as well as natural gas consumption at NTEC’s facilities was due to lower outdoor temperatures in 2021 vs 2020

The Company’s divisions annually develop and implement initiatives to save fuel, energy, and water.

In 2021, the implementation of operational and technical energy efficiency measures to reduce energy consumption and improve energy efficiency resulted in actual savings of 546.8 TJ, with the operating and capital costs for those purposes totalling RUB 242.9 mln. The key measures were to install frequency-controlled drives, implement an automatic control system for energy-intensive heating equipment and an automated energy accounting system, switch from mercury and gasdischarge lamps to LED lighting, and restore thermal insulation in outdoor heating networks.