We have seen an exponential rise in the number of environment, social and governance (ESG) related standards and assurance frameworks applicable to the mining and metals industries in the last couple of years, with more expected. Webinars on different aspects of ESG are coming out on a daily basis, and mining journalists gleefully highlight the new trends. The stated aim is to achieve responsible mining as the norm but there are plenty of mining companies that would argue they are already responsible. Will these demands for ESG data make mining more responsible? Only time will tell.
Many of these new ESG requirements relate to improved disclosure and assurance, rather than a step change in operational practice. The demand is for increased transparency and confidence, with the drivers for change being the wider financial markets (investors), insurance industry and supply chain. All of these are in turn being pressured by the wider public who want confidence that their mobile phones do not contain conflict minerals, their energy is green and biodiversity is being preserved for future generations.
Increased pressure to improve environmental and social practices are not new for mining companies; this current ESG disclosure wave is just the latest in a series of growing pains for the industry. Mining companies have spent years trying to understand and put into effect ‘Good international industry practice’ or ‘best practice’. The initial growth spurt dates back to the Rio Declaration in 1992 and the UN’s Global Compact in 2000. These in turn gave rise to initiatives including:
- The International Council on Mining Metals (ICMM), through which industry leaders voluntarily recognised the need for change and agreed to work together to establish what the future of good ESG practice in the mining industry should look like.
- UN’s Sustainable Development Goals aiming to defeat poverty, fight inequality and injustice, and protect our planet.
- UN’s Framework Convention on Climate Change (1994) and the Paris Agreement (2016) aiming to curb our greenhouse gas emissions and improve our energy efficiency.
- The Equator Principles and IFC’s Performance Standards, which have helped to spur responsible environmental and social management investment practices in the financial sector and banking industry.
These, and many other initiatives, have been imposed on companies through changing legislation, industry initiatives and corporate will. They established many of the fundamental concepts that we see being teased out in the new tranche of disclosure standards. With each of these, mining companies have had to adapt and change their ESG paradigms. Let’s take the Equator Principles and IFC Performance Standards as an example. When these were first released in the 2000s, it took mining companies and their stakeholders (staff, surrounding communities, government and bankers), along with consultants and industry organisations, working together over time to figure out how they should be applied in practice to influence informed decision making. Through trial, error and learning, a level of consensus was reached and, in most cases, significant improvements in ESG performance were achieved.
As the lines between financial and non-financial reporting blur, traditional environmental and social consultancies, big accounting firms, management consultants and analysts are all becoming involved in the collection and interpretation of ESG data. With so many different perspectives involved there are bound to be differences in interpretation. For example, what constitutes a material risk to a corporate decision maker may be perceived completely differently by the pension fund manager, the insurer or a car manufacturer, yet all want to understand material ESG risks. Interpretation of ESG data is also influenced by service providers. For example, the depth of investigation needed to assure annual non-financial reporting by a major accounting firm is very different to that by a mining consultancy undertaking a due diligence for a competent persons report, yet both involve ESG professionals and both have the potential to inform investment decisions.
In the past, we often noted that corporate ideals did not always result in operational implementation. Now with an interest in ESG performance all the way through the supply chain there is even greater risk of loss of meaning as simple metrics collected at site are consolidated and passed on through corporate head office and beyond. To make it easier on mining companies, there is wide recognition that alignment between the standards is needed. There is also greater acknowledgement that simple reporting of key performance indicators on climate change or water consumption do not tell the whole picture. As a result we are seeing moves across the industry to better show the role of mining in meeting the Sustainable Development Goals1,2 and an increasing recognition that the transparency of data and descriptions of salient issues needs to extend to the site level.
So what does all of this mean for the mining companies? As the saying goes - we live in interesting times! The next decade will be one of establishing precedents as these new standards are tried and tested in the real world. Not everyone will be satisfied and expectations may be unrealistic but it is only through all the players constructively working to achieve maturity in ESG performance that we can hope to achieve the ultimate goal of being able to say responsible mining is the norm across the whole industry.
1. Gold and gold mining's contribution to sustainable development goals (World Gold Council)
2. Renewed, recharged and reinforced: Urgent actions to harmonize and scale sustainable finance (UN and GISD)
