The Evolving Landscape Of ESG and How Mining Can Prepare

ESG In Mining

Shifting from Strategy to Implementation: Accelerating the Impact of ESG in Mining

About 4 years ago I recall sitting in a board meeting with some very senior board members from various mining industry related and METS sector companies. 

We were discussing some of the industries most pressing issues and the key topics that the mining industry needs to be prepared for.

Before the discussion really got underway one of the more senior persons in the room said “don’t anyone is this room even start with Social Licence to operate, it’s not a thing it is a load of BS and it won’t be something we discuss today we have more fundamental issues to focus on”

It really took me back and as it turned out that day and the rest of the conference did not touch on the topic.

ESG IS Your Social And Could Soon Be Your ACTUAL Licence To Operate

This really does make in imperative the the mining and metals sector prioritise their ESG action plan as their ESG performance will be their social licence to operate

The mining industry is well aware of the need to improve its environmental, social and governance (ESG) performance and reputation.

How the mining sector accomplishes this, as well as how quickly it acts on the change, will distinguish the fast ESG transformers from their sluggish counterparts.

With stakeholders increasing the pressure and scrutiny on their investments, how can mining firms manage ESG into their operations model, expand change, improve ESG governance, and measure and communicate impact?

Environment Social Governance

An Introduction To The ESG Landscape In The Mining Industry

As the climate change debate rages on, numerous mining firms have established ambitious corporate sustainability targets, and several aim to achieve net-zero emissions by 2050. However, the speed at which a mining company reach their targets and the degree of curvature in their path for attaining ESG objectives will have a significant impact on their effectiveness.

There wouldn’t be an astute mining company that isn’t striving for quicker and more apparent change in response to recent environmental and social horrors.

Not only have numerous mining houses appointed new board members and mining executives with significant ESG and sustainability expertise, but the mining sector is increasingly linking executive pay to measurable environmental benefits.

A rapid increase in the proportion of CEOs receiving a portion of their compensation based on ESG criteria is evident today,

At the same time, we see that decarbonization goals are not yet fully represented by specific executive emissions incentives.

It is believed that less than half of the mining and minerals sector has done anything meaningful to incentivise their mining leaders to apply ESG principles that move the needle.

ESG for Mining

Despite this push from the top to achieve ESG results, the UNEP’s report on sustainability suggests that the Mining Sector still highlights “the lack of a global common vision for the sector in terms of what constitutes sustainable operations for mining, including Key Performance Indicators at the mine-site level.”

Most major mining organizations, it claims, have not made reporting a priority. “from the global corporate level to a more granular, mine-site level”.

According to a 2020 report from the Responsible Mining Index, environmental responsibility effectiveness lags approximately 50% behind declared commitment.

Furthermore, recent “greenwashing” issues will likely increase the level of scrutiny and demand for more rigid requirements for meaningful ESG performance and impact. So how can mines transition from adopting ESG initiatives to successful implementation while still delivering measurable ESG impact in greater detail?

Mining Sector ESG Performance And Expectations Are Increasing!

One of the biggest challenges and opportunities facing the mining sector is ESG and it’s implementation and reporting there of. However, it is not new to the sector, which has long addressed numerous ESG concerns.

The intersection of environmental and social responsibility on the one hand, with the ever-increasing demands for sustainability in a globalized economy on the other has placed ESG at the forefront of corporate governance concerns.

The greater attention from the financial community, as well as higher expectations, has resulted in more possibilities for proactive metals and mining firms to stand out by creating value sustainably and lowering business risks while still delivering their raw materials to there supply chain.

We’ve been seeing a shift in emphasis from ESG compliance and reporting to bolder commitments with measurable objectives, as well as increased transparency in reporting progress.

Mining projects are starting to view ESG as a way of doing business rather than a functional need, for example by adopting clearer objectives and resolutely re-aligning decision-making and capital allocation with new goals.

The importance of being able to show and achieve impact in ESG performance has reached across all disciplines, not simply finance or project start up.

Bank loans may, for example, be linked to emission reduction goals in the more nuanced diversification of financial instruments.

This may lead to it getting more difficult for businesses without a clear and methodical strategy to closing material ESG deficits, or those who can’t demonstrate direct impact on key ESG issues, to secure financing, obtain permits or insurance coverage, attract talent, and keep their social license to operate.

In today’s world, it is no longer enough to set long-term goals and disclose a wide range of metrics.

What will prove to investors and other stakeholders that there are clear plans and measurement systems in place, is, in fact an ability to demonstrate down to the mine-site level concrete results.

That being said, it’s not an easy task because there are so many different elements to ESG. However, it makes the need for a clear and appropriate strategy toward objectives even more essential. Additionally, it is critical to establish and put in place the right approach toward goals, ensure timely achievement, and have an impact as quickly as possible.

Mining and ESG

What Is ESG in mining

ESG is not a new thing in the mining sector, in fact for a couple of generations now mining businesses have been actively monitoring, assessing, and managing a variety of environmental sustainability issues such as health & safety, water & wastewater, waste, atmospheric emissions, community relations, labor practices, and supply chain policies to mention a few for decades. Not forgetting corporate governance, diversity and inclusion.

However, the strategic significance of specific ESG factors has grown rapidly in recent years, with executives and boards taking notice. These are just a few examples:

Decarbonization, Climate change and Greenhouse Gas emissions What does it mean to Mining

The majority of mining firms have established greenhouse gas emissions reduction goals with long-term durations out to 2050 as well as shorter terms to 2030.

In recent years, the emphasis has moved away from greenhouse gas emissions reporting and setting goals, to defining and executing viable and accelerated pathways to Net Zero in line with global climate change scenarios and anticipated trends.

Reducing energy consumption, switching to renewable sources of energy, electrifying mining equipment, offsetting and increasing integration of circular economy principles are all on the agenda. At the same time, the industry is pivotal to the clean energy transition.

World Bank Group recently highlighted the resources required for a green energy transition “Over 3 billion tons of minerals and metals will be needed to deploy wind, solar and geothermal power, as well as energy storage, if we are to achieve a below 2°C future.”

The International Council on Metal & Mining has called on the mining sector to take further action to address climate change and the energy transition required.

Operations and Communities have and will become more resilient as a result of these measures enabling them to deal with severe weather events.

ESG What is ESG

How Mining Manages Water Maters

Creating a sustainable mining mining future hinges upon a mine sites ability to electively manage their water resources.

The impact of climate change on water scarcity or flooding and the potential pollution of shallow and underground water quality from inadequately run mining operations is not only visible but called out by local communities. With the advent of social media the messages are getting out to the world.

Requiring companies to re-think their management of natural resources like water.

Droughts and floods are two of the most significant threats to operations continuity.

Large pollution of water bodies or flooding of underground shafts or open pits have had the most significant consequences in the past.

Water management costs, which may reach 10-15% of overall mining expenditures, are anticipated to increase considerably.

At the same time, the pressure for limited fresh water supplies puts important constraints on future mining operations’ viability and sustainability.

ESG

Mining It Role In Biodiversity and land stewardship

Biodiversity loss has become increasingly concerning in recent years, with many professionals becoming sensitive to it.

The majority of mining firms (just over 50%) publish data on biodiversity-related hazards and tier 1 businesses have set more specific improvement goals and initiatives, with more visible information on commitments and progress achieved.

Community and broad social and cultural heritage aspects

The many-sided social aspects – from appreciating diversity, having a deep understanding of community groups’ values and demands, social gaps and wealth divisions, broader neighbourhood well-being and long-term health, to name a few – are more important than ever before. Some businesses have already moved from “obtaining the social license to operate” to “actively contributing to social development”.

The World Health Organization has classified air pollution as a carcinogen. A growing body of epidemiological evidence associates noise exposure with cardiovascular disease. These health hazards disproportionately affect people living in mining communities.

The recent blunder by mining giant Rio Tinto at Brockman 4 has created an unprecedented demand by community and social groups for better stakeholder engagement.

Environment Social and Governance

The Future of work and social implications for Mining

Digital and technology transformation will have major consequences for the nature and accessibility of employment over the next decade, with associated social effects in fragile nations and economies that have yet to be properly addressed.

This not only represents a risk but also an opportunity for mining and metal companies to step into the global leader role of embracing the digital transformation enabled by digital innovation. This will potentially put many metals companies in the box seat when it comes to human rights and human resources risk mitigation.

Governance In The Mining Sector

There is a further need to improve corporate governance underpinning the above. If mining firms want to improve their environmental social and governance reputation, they will require a strong governance framework in place to guarantee that decision-making matches sustainability and ESG goals.

Today, corporate governance must focus on more than just productivity and efficiency in order to ensure transparency and accountability around mining activities that impact environmental, social, and governance (ESG) issues.

While the aforementioned environmental, social, and governance (ESG) factors have received more attention, other aspects such as health and safety and environmental protection continue to be essential to mining operations, attracting resources and investments to reduce risk and close the gap toward best-in-class performance.

Clean Energy Transition

ESG Implementation What Will Bring It All Undone

Senior executives of major mining firms describe a long list of difficulties in implementing aggressive ESG goals, according to interviews with experts.

Governance and social issues are considered more challenging than environmental concerns such as carbon emissions reduction, water efficiency and their clean energy transition by some mining companies.

Internal governance, on the other hand, is difficult. Especially when you have a slew of business difficulties consuming your time, meaning ESG frequently goes unnoticed.

That is the problem that the majority of the resource sector is facing. Everyone is vying for a little bit of breathing room. How do you incorporate environmental, social, and governance issues into your business planning and core procedures?

Just take a look at the news and it is easy to see that the “S” in ESG is where mining houses probably need the most assistance.

The social dimension’s path ahead is less apparent than decarbonization, energy and water efficiency. What are society’s requirements?

What should mining and minerals companies be doing about it?

As a society we need to improve health and education, access to clean water and sanitation, build respect at work, combat bribery and corruption, avoid conflicts of interest.

There are a slew of social concerns to consider and problems to negotiate, from environmental impact to scope 3 emissions.

Then there’s biodiversity. One of the world’s largest mining firms underscores the criticality of managing biodiversity risks. However, according to the vice president of a major metals corporation, “People in this business are developing with a compartmentalized mentality. New talent isn’t necessarily aware of the bigger picture.””

Many executives are aware that single efforts will seldom be enough, and that the sector must work together to address major global concerns like species loss and climate change.

They believe that both the G20 and EU have muddled efforts to address these issues; however, they are concerned about a lack of worldwide coordination and the fact that populism is in control, which will only add to the complexity, variety, and tumult.

Many CEOs acknowledge that reaching the intended outcome at a single location is difficult. Despite all of the planning, there is still a lot of work to be done in operationalizing the strategy.

So where should mining companies focus to increase and demonstrate impact?

Increasing the speed of ESG impact and value creation

Change is a given. And to avoid being left behind, mining firms must quickly advance. We believe that by focusing on four key areas, mining firms may significantly enhance the impact of their ESG journey and attain a leading position in this area. “ESG to be like safety – part of our moral fiber,” as one mining executive
What is ESG

Our final Thoughts On The Mining Companies' Ability to Adapt to the ESG Landscape

At the board level, externally reported ESG goals and agreements are insufficient to cause action or just having a carbon disclosure project won’t cut it.

ESG initiatives, from biodiversity preservation to energy efficiency, cannot be accomplished with a single department or employee. In order to guarantee that goals can be met at the speed and scale needed, and that they are tracked and reported so that the company may better assess and communicate its ESG impact to stakeholders, all departments of an organisation must be mobilised and aligned.

Every department and all organisational levels, for example, must be engaged and pull in the same direction to drive an ambitious energy shift and decarbonisation agenda. While multidisciplinary corporate or business unit level teams (such as technical/engineering, HSE, sustainability, finance, supply chain, etc.) examine and assess breakthrough business models and technological innovations (including digital ones) that will enable a company to prosper in the new energy future, other more traditional functions such as exploration, geology, and asset management must also consider how they can contribute.

To implement new plant procedures and equipment designs while maintaining a high level of operational discipline, these departments must include mining crews, production/process engineers, maintenance personnel, contractors, OEMs, and service providers.

The company’s ESG goals and measurable objectives and plans should be clearly communicated to employees at the asset level, integrated into the company’s operations system, and enforced to ensure that intended influence is attained in scale. The synergies, interdependencies, and dependencies among a wide range of environmental initiatives necessitate robust program portfolio management and organisational alignment processes and tools.

Mining companies that fall behind in the energy transition may not only face reputational risks but also legal/regulatory risks as governments around the world are enacting climate policies, such as carbon taxes, that will increase costs and reduce demand for some commodities.

Historically, most mining organizations have developed significant capabilities and processes to manage HSE and operational improvement projects, as well as huge capital projects.

Although these are still applicable and transferable, they may require adaptation in light of the special challenges identified by some of today’s most pressing ESG issues.

The numerous stakeholders involved (e.g., technical partners, regulatory bodies, unions, universities, data providers, investors) and the complexity of the innovation needed to create significant impacts in the next few decades necessitate innovative solutions, talents, and mindsets that must be developed or enhanced rather than being deeply entrenched in an organization’s DNA and way of working

Mining companies will gradually be able to integrate ESG into their operating culture and achieve the necessary transition to have a long-term beneficial impact on the environment and society at large by making it part of HR processes, governance, and the operational model.

While the ESG environment is vast, changing, and inherently complicated, how effectively miners may cascade these ideas down to the work level will define whether they are successful in this journey.

This is vital to remember as we look at today’s environment from the perspective of those in the industry: Change happens incrementally, but it starts with a first step.

It is important for miners to understand that there is no single “end state” when it comes to ESG!