Rising to the ESG challenge

When I began working in the mining industry, environmental, social and governance (ESG) initiatives and the reporting of performance in this area seemed, to me, like an afterthought for many companies.

Some miners, mostly the majors, were doing good work, albeit on a small scale with projects to save a particular species of animal at a mine/reforesting or rehabilitating an area of their properties/supporting one or two small businesses in indigenous communities (delete as appropriate).

I’m not trying to diminish the importance of these efforts in any way; a big change is often the sum of lots of small projects. But rather than being seen as key work towards the sustainability of these businesses, it all felt… well, a bit tokenistic. A way of being ‘seen to be doing the right thing’ in certain geographies rather than part of a larger, really important agenda.

Fast forward ten years and things have changed dramatically.

Globally, there has been a collective awakening to the threats posed by climate change. This, coupled with enhanced media coverage of substandard mining practices (see tailings management), plus better accessibility of information driven by the now ubiquitous use of computers and smart phones, mean that people – end consumers – are expecting more of the companies that supply the raw materials for the production of everyday goods.

And this is not just about corporate image and how the public perceives a brand.

The way that mining companies implement ESG criteria and use them to manage risk is now fundamental to the performance of their businesses, and thus their appeal to the investment community. In a study carried out by Nordea Bank between 2012 and 2015, firms with the best ESG rankings financially outperformed the worst by up to 40%.

Responsible investment has become a huge movement over the past 12 months, one that I am excited to explore in more depth later this year. But for now, let’s look at one key area that feeds into ESG performance: water and environmental management.

Going forward, the fate of the mining industry is closely intertwined with its ability to tread lightly on the environment.

Did you know that…?

• Global demand for water is expected to exceed supply by 40% by 2030. The World Economic Forum states that two thirds of the world’s population, or 4 billion people, currently live without sufficient access to fresh water for at least one month of the year.
• Water-stress hot spots are expected to worsen over the coming decades. According to a study by McKinsey & Co, 30-50% of global gold, copper, iron ore and zinc production is concentrated in areas where water stress is already high.
• In Chile, the world’s biggest source of copper – a metal that is vital to future social and economic growth – 80% of production is already in extremely water-stressed and arid areas. By 2040, it will be 100%.
• The Chilean Copper Commission (COCHILCO) estimates that seawater will account for 43% of that used by Chile’s copper mining industry by 2029.
• Conversely, flooding is an issue in other jurisdictions. At one open-pit coal mine, McKinsey observed a 10% annual production loss from wet weather.
• The firm also stated that iron ore and zinc are the commodities most exposed to extremely high flood occurrence, at 50% and 40% of global volume, respectively.

And that’s just water.

In its 2019, Global Risks Report, the WEF said that biodiversity risks, many of which are driven by loss of environment and habitats, have a higher likelihood and potentially a greater detrimental impact on society than failures of national governance, food crises and the spread of infectious diseases (yes, I would imagine that even includes Coronavirus).

In a 2019 article for the International Council on Mining & Metals, manager, Hafren Williams, cited a report by The Nature Conservancy, WWF, The RSPB and BirdLife International which found that only 5% of countries were on track to meet their current biodiversity targets.

“Though roughly three-quarters of signatories were making some progress, it’s abundantly clear more needs to be done to hit these ambitious goals,” she said.  “Traditional models of biodiversity conservation are failing to stem the tide of biodiversity loss, so it is crucial to develop new ways of thinking and working for the benefit of our planet.”

This October, the Convention on Biological Diversity (CBD) Biodiversity Conference is being held in Kunming, China, where countries will propose a new set of global biodiversity targets for 2030. These offer the opportunity for governments and businesses, including mining companies, to rethink and improve their methods for promoting and preserving biodiversity.

2020 may mark the last year of the UN Decade on Biodiversity, but it also signals the start of a new decade, one which I hope will see better, more considered ESG practices within the mining sector.

As the saying goes: out with the old, in with the new.