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Navigating the ESG Narrative

Published by , Editor
Global Mining Review,

In the first part of a two-part article, Assheton Stewart Carter, TDi Sustainability, UK, explores the complex ESG reporting landscape for mining companies.

With growing demand from investors, regulators and downstream customers to provide detailed environmental, social and governance (ESG) reports, and new frameworks for ESG being introduced in the mining industry all the time, the sourcing, interpreting, and presenting of data to support this level of disclosure is becoming an increasing burden for many miners.

This rising tide of expectations around climate change action, sustainability reporting, and disclosure is already proving hard to keep up with. Recent policy changes coming into place, such as the EU Green Deal, the German Supply Chain legislation, the Norway Transparency Act and the COP26 summit taking place in November 2021 in Glasgow, mean that the focus on sustainable production, responsible sourcing, and supply chain transparency will only get greater over the coming years.

In TDi Sustainability’s discussions with clients, six sustainability topics consistently rise to the surface as being of key importance in reporting to stakeholders:

  • Climate action and decarbonisation.
  • Building trust with community.
  • Meeting compliance and customers ESG requests.
  • Grasping the opportunity to supply green and critical minerals to a growing market.
  • Achieving zero harm in occupational health, safety and environment (HSE).
  • Demonstrating good governance.

In short, what this means for mining companies is that a comprehensive ESG reporting programme is no longer ‘nice to have’. Instead, it has become an essential tool to not only help compliance with industry and customer expectations, but also in helping to create a key value differentiator for those who can use their data to demonstrate tangible positive impacts, helping to give them a competitive advantage in the market.

Keeping up with changing expectations

One of the greatest challenges for mining companies in meeting expectations around ESG reporting is that these expectations are continuously changing. The focus on mineral and metal supply chains began in earnest well over a decade ago with the campaign on conflict minerals, leading to the introduction of the Dodd Frank Act in the US. Since then, there have been dozens of new pieces of legislation, from the UK Modern Slavery Act in 2015 to the EU Conflict Minerals Regulation in 2017, the Canadian Bill S-216 in 2020, and, early in 2021, the Biden Administration’s Supply Chain Executive Order. In addition to this, more is on the way.

With the introduction of new legislation comes new expectations on ESG reporting, as well as the introduction of new standards and frameworks to get to grips with. While the focus of ESG compliance instruments to date has been on human rights, such as child and forced labour, and on operating in conflict countries (mostly in Africa), an increased awareness of the climate crisis in recent years has meant a greater focus on environmental impacts and issues, including unsustainable water consumption, pollution, deforestation and biodiversity loss.

Businesses that use standards to screen companies for investment – asset managers, private equity firms, development finance institutions (DFIs) – and sourcing of materials – auto, electronics, energy utilities, jewellery, and heavy industry – are now more vocal about the preferences for the characteristics and attributes of the ESG frameworks and schemes they use.

ESG framework and schemes characteristics

Comprehensive coverage of ESG topics

The management of conflict and human rights risks are a ‘must’, but insufficient. Auto companies, such as BMW and Ford; electronics original equipment manufacturers (OEMs), such as Microsoft and Apple; and metals markets, such as the London Metal Exchange (LME), now require assurance on miners’ commitments and strategies to reduce greenhouse gases, demonstrate a no net loss of biodiversity, eliminate toxic waste and emissions, achieve zero harm in the workplace, and contribute to the concept of a circular economy by designing operating processes to reduce and recycle waste.

Site level information

There is a demand for information on and assurance of the ESG performance at the site level – mine, refinery, smelter, roaster, plant, etc. – rather than aggregated at the corporate entity. And, what is more, the information demanded is not only for whether there is a management system in place, but also for key performance indicators (KPIs) on measurable results of actions at the site: total carbon dioxide equivalent (CO2e) per production volume, number of health and safety incidents, net disturbance to productive land, increased threat to particular species, quantitative gender balance at all tiers of the organisation, and so on.

Credible assurance

Self-assessment or second party reports are no longer acceptable. In most cases, customers now ask for assurance by independent verifiers or auditors. Further, the expectations for the credentials of assessors is getting tougher: approval is needed for the individual, rather than the firm; accreditation to tailored standards; many years of experience, and local knowledge. Can supply meet demand?

Multi-tier supply chain applicability

There is a strong preference to have assurance for the entire supply chain, covering not only one tier, i.e. the mine, but many, right down to the fabricator or even the manufacturer and retailer. Supply chain visibility, traceability, and chain of custody is one of the most popular dishes on the menu, and blockchain the touted solution to every problem, but how to achieve this at reasonable cost is a dilemma that many pilot projects are mandated to unravel.

Multi-stakeholder governance

The days of the industry-controlled ESG assurance schemes are over, in the eyes of the metals customers and mining investors. Being and being seen to be ‘independent’ is one of the keys to an ESG framework’s adoption. Stakeholder and ‘affected community’ participation through consultation or representation on advisory boards is a minimum, but more formal multi-stakeholder initiatives are strongly favoured.

Alongside the challenge of keeping up with these changing expectations for ESG reporting is the challenge of how mining companies can use reporting frameworks to effectively communicate the bigger picture of their progress in compliance and, more importantly, their positive impacts on people and planet in their local communities and natural environment.

Often, efforts made by miners to convey sustainability performance clearly and accurately to stakeholders can go unacknowledged or disappear into a black hole of annual reports and due diligence surveys, leading to frustration. This can also be the case when new ESG frameworks emerge that reinvent or ignore the responsible production practices that are already established in the industry, some of which have often been in place for many years.

With the COVID-19 pandemic over the past 18 months, the power of data has been seen to lie not just in facts and figures, but in the way they are presented and, therefore, what story is told through them to the world. So, how can mining companies learn from this and utilise their data and the reporting frameworks available to tell the most compelling story of the business, as well as help generate positive engagement with customers and investors?

The second part of this article can be viewed here.

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