Robert G Eccles (Forbes, 2021) asks us to imagine a world in which there were
no standards for financial accounting. He compares what happened before the
establishment of the US Securities and Exchange Commission (SEC) in 1934 as the
Wild West! Well, the same can now be said for sustainability reporting.
There are accusations of ‘greenwashing’ and, with a historical lack of standards, it is no wonder investors are demanding relevant, reliable and comparable information on both accounting and sustainability matters.
SRK’s Environmental, Social and Governance (ESG) teams are working with mine project evaluation teams to ensure increased expectations from investors and market-driven responsible sourcing initiatives are considered when valuing a project. For climate change, this includes understanding clients’ decarbonisation
strategies and climate change adaptation plans. Discussions around carbon pricing are key and sensitivity tests may be needed.
The financial market is keen to de-risk investment decisions and 2022 will be pivotal when it comes to improving sustainability disclosure, particularly that associated with climate change.
There are many factors driving this, including:
• The International Financial Reporting Standards Foundation Trustees announced at Climate Change Conference of the Parties (COP26) that the Climate Disclosure
Standards Board and the Value Reporting Foundations (formed by the Integrated Reporting Framework and the Sustainability Accounting Standards Board) would be
consolidated into a new International Sustainability Standards Board (ISSB). One of its first actions was to issue two proposed standards for consultation on general sustainability related disclosure and climate-related disclosure. The latter builds on work with the Task Force on Climate related Financial Disclosures (TCFD).
• Worldwide, green taxonomies are being established (including in the EU, UK, China, South Africa and Malaysia). These will define what constitutes environmentally sustainable economic activities with the aim of stopping ‘greenwashing’.
• Consultations are ongoing for several reporting standards to clarify ESG expectations such as the US SEC and Australasia’s Joint Ore Reserves Committee (JORC); and the Canadian Institute of Mining, Metallurgy and Petroleum recently issued a consultation paper on its proposed ESG Guidelines to support NI 43-101
reporting.
Although current investor focus is on climate change, the new taxonomy laws also highlight the need to accurately account for and disclose material risks associated with pollution prevention and the protection of biodiversity. These are relevant to
mining projects as they have the potential to result in material costs. Management plans for these challenges need to be reflected in development studies and costs included in the associated financial models. Social aspects are less well covered by the taxonomy laws. However, they are strongly picked up in the expectations of responsible sourcing and industry specific sustainability standards. They must be handled in a similar way when it comes to transparently evaluating risks, opportunities and material costs.
Addressing sustainability is not just a matter of doing an environmental impact assessment or preparing an annual report, it is about integration of ESG into every business decision from initial exploration through to post mining.
Related articles in this issue: Material ESG promises must feature in project evaluation and Mining project evaluation for supply-chain clients.
