Miners make many ESG promises to their stakeholders when securing mineral rights and obtaining approvals to proceed with mining. Further ESG promises are now being made in sustainability reports, annual reports, climate action reports and other communications with investors. These commitments are relevant to project evaluation as they are often material and failure to meet promises can become liabilities. In addition, risks of legal action for ESG misstatements are on the rise.
Numerous material ESG promises are captured in agreements with governments, as well as in conditions of mining and environmental permits. There is now more pressure to meet these, driven by disclosure and transparency initiatives and the corresponding new opportunities for public scrutiny.
The trend for public disclosure of conditions of mineral rights agreements and mining licences is reflected in the commitment made by ICMM members to disclose their contracts with governments. Variously named ‘mining conventions’, ‘minerals agreement’ or ‘state-investor agreements’, these contracts will reveal substantial ESG obligations, particularly related to value addition in the host country.
Increased ESG disclosure requirements are also emerging under the Extractive Industry Transparency Initiative (EITI). Some EITI member countries have expanded the scope of information disclosed under this initiative beyond taxes and royalties to include various contributions to socio-economic development and provisions for closure. This is in addition to the relatively new requirement for all 55 countries implementing the EITI Standard to publish new and amended contracts, licences and agreements concluded with extractive companies from 1 January 2021. Countries are also encouraged to publish contracts concluded before that date.
Published net-zero targets and climate strategies are clear examples of sustainability commitments made to a wider stakeholder audience that need attention in project evaluation. Decarbonisation of mines can require substantial capital allocation, as can addressing physical risks from climate change.
Standards aiming to strengthen the financially material element of sustainability reporting include the SASB standards and the recommendations of its Task Force on Climate-related Financial Disclosures (TCFD). New IFRS sustainability disclosure standards are to be developed in 2022 by an International Sustainability Standards Board (ISSB). These will be compatible with the IFRS Accounting Standards and are expected to have global reach; the IFRS standards already have a direct effect on securities regulations in over 140 countries.
Stock exchanges are already promoting improved ESG disclosures. According to
the Sustainable Stock Exchange (SSE) Initiative, 27 stock exchanges have ESG listing requirements and 63 have written ESG guidance. Guidance published by the UK Financial Conduct Authority (FCA) in December 2020 reminds issuers to take care that there is no omission of material ESG information in disclosures to investors or presentation of misleading ESG information. Existing consumer, contract, competition and/or market-abuse laws generally provide for legal action to address false promises.
1) https://www.icmm.com/en-gb/news/2021/newcommitment-
contract-transparency
2) https://eiti.org/news/contract-transparency-requirement-totake-
effect-in-january
3) https://www.ifrs.org/news-and-events/news/2021/11/
ifrs-foundation-announces-issb-consolidation-with-cdsb-vrfpublication-
of-prototypes/
4) https://www.ceres.org/sites/default/files/6-10-21%20
Ceres%20Letter%20to%20SEC%20-%20Final.pdf
5) https://sseinitiative.org/
