The environmental, social and governance (ESG) agenda is becoming increasingly important to investors and stakeholders. What does that mean for the mining sector?
Growing social and environmental and governance expectations and disclosure requirements are pushing mining companies into uncharted waters. Investors are seeing ESG management as the hallmark of a well-run mining business - ones with less risk and more upside opportunities. Valuations, debt terms and investor appetites are already being influenced by a business’ ability to prove good governance on environmental and social performance. In my 30-year career I have never seen expectations this high, and it is widely understood in the industry that pressure to demonstrate ESG performance will only intensify in the coming years. What this means for mining companies is ensuring they have the ability to understand their key issues and to credibly demonstrate how they are managing performance.
One idea, infinite actions
The big question facing mining execs isn’t whether ESG is important to their business, but rather how to make it real and measurable within their business. Part of the challenge is that ESG can mean different things to different businesses and stakeholders at different points in the lifecycle. While the main issues of concern tend to revolve around energy and greenhouse gas emissions, working conditions, human rights, tailings management and worker and community health and safety, the list of potential topics and measures is long.
ESG is being translated into specific practices and performance expectations that are coming from investors, development banks, civil society organizations, regulators and multilateral organizations like the United Nations and the Organization for Economic Co-operation and Development (OECD). Expectations are often aligned with one or more performance standards that mining companies are being asked to meet. The good news is that many companies already have considerable activity underway on key ESG performance categories (e.g., greenhouse gas emissions, human rights, health and safety) so in many situations it is about communicating performance to a new audience while identifying and filling any governance/performance gaps.
A major challenge facing mining companies is that there are now more than 50 different standards focused on ESG. Navigating this situation is made difficult as these standards are developed by organizations with different agendas, some focused on risk and others on long-term value creation. There is also a growing interest from governments in creating voluntary and regulatory mechanisms to drive ESG performance and reporting
When we examine these efforts we see that the more robust standards and emerging regulations have an implicit implementation framework that starts with ESG commitments and strategy and continues to management systems, policies and programs, data and transparent disclosure of information.
Stop the checkbox madness
When investors ask for ESG reporting, mining leaders listen. More often than not, a scramble ensues to gather and report the information required. Consultants are brought in. Management time and attention are sapped away as the organization focuses on the information request. Then, once the data has been submitted and accepted, life goes back to normal. Until the next request.
This approach, while common particularly amongst small to medium mining organizations, is unsustainable and does not lead to real progress. Not surprisingly, many mining leaders are now looking to find a better way.
Our experience working with mining companies across the project lifecycle has hardened our belief that taking a strategic approach is needed to maximize ESG investments and efforts. Rather than chasing standards on an ad-hoc basis, mining companies need to start building their ESG strategy from the ground up.
A strategic approach starts with an analysis of relevant ESG trends and drivers, stakeholder opinions, Indigenous relations, performance expectations, competitor activity and investor expectations. This should provide the leadership team with the right information to have an informed discussion on how to position the company, its projects and its products. This is the point where you should be thinking about how you will govern the management of ESG across the organization and with your stakeholders.
The next step is to establish your priorities based on what you have learned, what your stakeholders expect and your governance plan. For example, you may choose to focus on ensuring you are not locking in carbon-intensive energy carriers. Or that you are not locking in poor community relations. Or ineffective governance processes. This is about knowing what you want to achieve and understanding what success looks like.
Then the trick is to find better ways to deliver against those priorities by hard-wiring ESG into your core business processes. For instance, you may want to explore how you can ensure ESG considerations are embedded more broadly into your capital project design processes. Or what role different technology solutions will play in the operations and closure phases. Or how you can enhance your community relations plans to build trusted relationships from the start.
In most cases, what you will find is that there are technologies, ideas and solutions already at play in the market. But you can’t identify and apply them unless you take ESG seriously and approach it strategically. You can’t invest in the right areas or develop the right capabilities unless you know your priorities. And you can’t ensure it will endure unless you have appropriate governance structures. Simply put, you can’t find a better way until you know what you are looking for.
Finding a better way for you
At Ausenco, we’ve been working with mine owners, investors, communities and stakeholders on issues related to ESG for more than 30 years. Our people are driven by our stated purpose – to find a better way – not only for the businesses we serve, but also for the wider industry and global community. Our solution sets, which include a wide range of planning, design, engineering, ESG and sustainability services, are linked to innovation, value creation and cost management.
Our business is to help your business find a better way. We believe that means taking a more strategic approach to ESG.
Contact Kevin Brady to find out more.