ARTICLE • 5 min

Ignoring ESG is a key risk for mining companies

Action on Environmental, Social and Governance (ESG) issues is essential for companies seeking investor dollars, regulatory approvals, and the social license to operate.

This is especially true when it comes to the mining and metals sector. 

ESG matters are not new to the sector — miners have long grappled with sustainability issues. Alongside issues such as ecological damage and carbon emissions, incidents like the fatal tailings dam collapse in Brazil and the destruction of ancient sacred aboriginal sites in Australia, don’t leave the mining sector in the best light. 

Yet ESG and sustainability considerations are as important in mining, arguably, as in any other sector. 

Mining companies themselves are increasingly naming ESG issues, including environmental risks, community relations, and their social license to operate, as among their most important challenges. 

Moreover, ESG issues have been identified as the key risk facing the mining and metals sector. 

While on the other hand, the global shift to renewable energy relies heavily on mining. The energy transition requires a massive lift in production of energy transition materials including lithium, rare earth, copper, and cobalt. Essentially, to save the planet we need new mines and more mining, but this must be balanced with sustainable mining practices with ESG considerations.

A report from White & Case* revealed that 45% of mining decision makers in 2021 identified ESG issues as the biggest risk to the metals and mining sector. This finding was backed up by EY**, which also named ESG as the number one risk facing resource companies in 2022.

That’s because ESG factors are being prioritized by investors, financiers, and other stakeholders.

The days of mining investors and financiers focussing on financial statements alone are long gone. Miners are facing harsh scrutiny on issues ranging from emissions of miners and of mine products, to environmental and local community impacts, tailings management, biodiversity and water usage, and human rights. 

Addressing ESG issues is now central in attracting investment dollars and securing project financing at a lower cost, as well as gaining required permits and approvals and holding a social license to operate. 

Higher ESG ratings can enable access to a larger pool of attractively priced capital, and in many cases are integral in securing mining finance.

To be bankable, mine development projects must take into account ESG and sustainability best practices at every stage of the supply chain — from inception, to mine decommissioning, and everything in between.  

Mining companies must consider any ESG risks that may affect their ability to not only raise capital, but obtain permits, work with communities, regulators and NGOs, attract and retain staff, and protect their assets from impairments. There may also be opportunities to reduce energy and water bills or carbon emissions, improve operational performance, and enhance community and regulatory relationships. 

Furthermore, consideration of ESG factors are increasingly being mandated by investors, or via government legislation. 

Consider that in March, the US Securities and Exchange Commission proposed new rules requiring public companies to disclose their risks related to climate change and their greenhouse gas emissions. Should the SEC’s proposal become law, it will further push the move to increased transparency for investors on ESG issues.

In response, miners are seeking to better integrate ESG into corporate strategies, decision making and stakeholder reporting. 

Yet despite the widespread recognition of the growing importance of ESG issues, many mining companies lack a suitable ESG framework to measure their ESG impact accurately. 

How can ESG credentials be improved, if not accurately measured or activities transparently reported? 

Fortunately, standardized ESG frameworks have been established and implementing a well-recognized ESG framework ensures that mining companies are not at a disadvantage.

The World Economic Forum’s Stakeholder Capitalism Metrics provides a universal standard for ESG reporting. This widely adopted framework, developed in conjunction with Deloitte, EY, KPMG and PwC, is an industry-agnostic ESG Framework with 21 core, and 34 expanded, metrics.

Socialsuite helps companies report on their progress against this framework, which is a comprehensive system of corporate ESG disclosures on governance, planet, people, and prosperity. 

Mining companies that have implemented Socialsuite’s ESG solution have found it to help establish corporate ESG reporting and demonstrate ongoing disclosure of their ESG progress. 

*https://www.whitecase.com/publications/insight/mining-metals-2021-esg-momentum-reaching-crescendo-resilient-market

**https://www.ey.com/en_au/mining-metals/top-10-business-risks-and-opportunities-for-mining-and-metals-in-2022

Tim Siegenbeek van Heukelom
Global Head of ESG @ Socialsuite
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