Thu, Jul 07, 2022
Why ESG is Becoming Essential for the Mining Industry
The mining industry has a publicity problem. According to the 2022 RMI Report by the Responsible Mining Foundation, the majority of mining companies are unable to show that they are “informing and engaging with host communities and workers on basic risk factors such as environmental impacts, safety issues, or grievances.”
In fact, 94% of mining companies scored less than 20% on 15 ESG (Environmental, Social, and Governance) metrics that were measured, with many organizations ineffective at tracking and reporting on how they are managing ESG.
What is ESG and why should mining companies care? ESG is an acronym that represents how companies manage and report their environmental, social, and governance practices. For years, the mining industry has been able to avoid addressing ESG but, consumers, employees, communities, and shareholders increasingly expect mining companies to prove that they are implementing and managing their environmental, social, and governance policies.
ESG: Threat or Opportunity?
The changing sentiment and focus on ESG is getting noticed by the industry and it’s a source of anxiety among corporate leadership. In a report by Ernst & Young (EY), ESG is listed as the number-one risk for mining and metals in 2022. In another report by the global firm White & Case, ESG issues are listed as one of the biggest threats to decision makers in the mining industry.
But is it a threat? Or is it really an opportunity? Companies that effectively embrace and communicate their ESG practices see a myriad of benefits, including risk reduction. Those that don’t incorporate ESG into their business policies and practices will soon experience significant impacts to the business, including loss of funding and social license to operate, meaning it has the ongoing approval of the local community and other stakeholders as well as broad social acceptance.
Probably one of the biggest challenges to the mining industry is managing the pollution of air, water, and soil, including greenhouse gas emissions. As stakeholders become more aware of mining’s impact on the planet, ESG has turned the spotlight especially bright on this industry. Environmental policies that can be put in place in a mining environment to improve ESG include:
- Greenhouse gas emissions
- Energy usage
- Energy mix
- Water usage
- Climate risk mitigation
Companies that effectively implement these policies often recognize the benefits. As environmental factors are addressed, companies may see a cost reduction in energy and water usage, operational improvements, and even develop better relationships with their community.
Although the mining industry has come a long way in terms of its reputation in dealing with people, there’s still room for improvement. There are several social policies that, when implemented effectively, can significantly strengthen a company’s relationship with its employees, contractors, suppliers, communities, host governments, and investors. These include:
- Occupational Health and Safety
- Human Resources
- Labor and Decent Work
- Abolition of Child & Forced Labor
- Human Rights
Among other benefits, effectiveness in these policies helps companies attract and retain the best talent, have a social license to operate, and entice new investors.
This third pillar of ESG, governance, is often overlooked but critically important. Though most companies have some level of controls in place, a weakness in any governance area can allow an incident to cause reputational damage, lawsuits, loss of social license to operate, and more. Governance is perhaps one of the most critical areas to have effective policies in place. They include:
- Diversity practices
- Legal compliance
There is a bright side to strong governance controls—competitive advantage. Those mining companies that follow government mandates make themselves much more desirable, not only to their investors but to their employees and contractors, communities, and host governments.
All the best efforts are not enough to improve a company’s ESG if they aren’t communicated to stakeholders. Reporting is a key piece of ESG and there are several frameworks that help provide structure, such as the Global Reporting Initiative (GRI). But these require detailed data and metrics to support each of the ESG policies. As part of ESG, it helps to have technologies that collect, track, and report on the performance of each policy.
Mining companies can no longer take a “wait and see” approach with ESG. Not only is it an expectation of every stakeholder, getting proactively involved with ESG can actually provide significant benefits. Fortunately, it’s not too late to get started transforming your mining company into a more sustainable and competitive business.