So, what exactly is ESG?
We are becoming used to hearing a range of terms gathered under the banner of ‘Environmental, Social and Governance’ (ESG), including not only the more obvious elements, but also sustainable development, responsible mining, social licence to operate, community relationships and social responsibility, local procurement, supply chain, human rights, modern slavery, transparency, traceability, renewable energy and climate change. It can seem difficult, if not almost impossible, for mining companies to justify dealing with anything other than a small subset of these concepts even at the best of times, especially during early project stages when resources and expertise focus on geology, economics and project finance. However, ensuring some level of understanding of these issues at the earliest project stages can lead to important efficiencies and added value as the project evolves, enhancing financial benefits, reducing risk, and ultimately increasing the chances of financially successful, environmentally sustainable, and socially beneficial outcomes.
It is evident that the ESG discussion is now being heard loud and clear across some parts of the mining sector and there is no indication that it will become anything other than more significant in the future. A broad range of stakeholders within the mineral resource industry, including investors and others in the minerals supply chain, are under pressure from multiple directions to demonstrate that they are giving the required attention to ESG factors. As a result, mining companies are having to grapple with a multiplicity of frameworks, guidelines, directives and standards against which they must demonstrate compliance or risk losing their source(s) of finance and/or licences to operate (be they legal, environmental or social).
Micon’s environmental & social management specialists have decades of experience not only in ensuring that mineral projects demonstrate good practice in environmental management and permitting, social licence and stakeholder relations, but also in ensuring compliance with all applicable performance standards. Micon is increasingly involved in the development of new standards and strongly positioned to provide guidance on sustainable approaches to addressing ESG issues at all stages of the project lifecycle.
In the increasingly complex ESG landscape of today it is worth stepping back and taking the time to ensure that we have a common understanding of the key issues at play.
The overarching context is provided by “sustainable development” – first defined in 1987 by the Brundtland Commission as “development that meets the needs of the present without compromising the ability of future generations to meet their own needs”. Still highly relevant, this definition encompasses both the economic-environmental-social triumvirate but also the need for intergenerational equity. So, while the extractive sector can make important contributions to local, regional and global economics, these have to be balanced with addressing the short and longer term environmental, social, and health impacts of the sites and their surroundings. This of course is now increasingly pertinent in the wake of the Covid-19 pandemic where many mining companies are stepping in to support, for example, the immediate healthcare and safety needs not only of their workers but also in the communities in which they operate.
At the global level, the critical importance of the extractives sector is recognised, but this also comes with the need to address significant challenges (Box 1).
Box 1: Key messages at the global level (e.g. UN Mineral Resource Governance)
At the global level, then, we operate in a sector that is still largely maligned for its perceived negative environmental and social impacts, but one that is working hard to improve its ‘responsible mining’ or ‘sustainable mining’ credentials. And while examples of improving, good and best practice in environmental and social management and performance are promoted, on the ground there is wide variation in practice which continues to perpetuate the negatives. In Micon’s experience, efforts to improve tend to be piecemeal, poorly reported, and uncoordinated beyond the International Council on Mining and Metals (ICMM) group of companies. This increases the need for better collaboration across the sector (a subject Micon will return to in a later newsletter) but also heaps pressure on all operators to pay attention – and be seen to be paying attention – to these factors. This is where a clear understanding of the applicable ‘ESG’ frameworks and associated societal expectations comes into play.
What frameworks and expectations are relevant to ESG performance?
The overarching agenda is provided by the United Nations Sustainable Development Goals (UN-SDGs) which set out objectives and targets for equitable, socially inclusive and environmentally sustainable economic development. When managed appropriately, mining activity can contribute by creating jobs, spurring innovation and bringing investment and infrastructure at a potentially game-changing scale over long time horizons. If managed poorly, mining can lead to environmental degradation, displaced populations and increased conflict, among other challenges. These attributes make the industry a major potential contributor to the SDGs and the ICMM has provided sustainable development guidance for the sector to ensure that investments should be technically appropriate, environmentally sound, financially profitable, and socially responsible. At the same time, if the mining industry does not participate or if individual companies engage in activities that contradict the Goals, their achievement at a global scale will inevitably be hindered.
Sector-specific Environmental and Social Performance expectations are articulated in many frameworks, guidelines and standards applicable to and/or implemented by investors, operators, international and national organizations, non-governmental organizations and standards bodies (see examples in Box 2).
Box 2: Examples (non-exhaustive) of the range of current frameworks,
guidelines and standards which address, in whole or in part, ESG issues in mining
Rest assured, though, that any single operator cannot be expected to meet all these requirements separately! However, it is possible and desirable (and may yet become internationally mandated) for a company to be able to demonstrate, using a selected combination of frameworks, how they are meeting those ESG requirements which are material to their business and to the communities within which they operate.
The key to navigating the ESG landscape lies first and foremost at Board-level, from which effective strategy and direction – including capacity and resources – can most effectively be given to this fundamental issue. But understanding is also required at regional and project management levels; we often find knowledgeable people at site level who are capable ‘champions’ for the ESG issues and who, given adequate resources and support, can deliver good performance. It is clear to Micon that those companies who lead in this area are those where understanding of the many benefits of achieving high ESG standards is at the company’s core. That said, successful navigation of the ESG landscape will only be as successful as its weakest link, wherever that is in the company. Effective systems and resources for their implementation have to be embedded from the earliest project stages to firmly set the scene for ongoing and sustainable financial, environmental and social outcomes.
Without doubt, the ESG bar is heading upwards. Micon’s challenge is to ensure you meet, and potentially exceed, those expectations.
Thanks for inserting me on the picture…
My approach is from the bottom up. Focusing in gaining a solid social license to operate and the project will gain intrinsic value. Afterwards, all the standards for reporting will make sense by itself.