The ‘E’, ‘S’ and ‘G’ in Mining

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Magali Gable April 21, 2021 Global Metals & Mining Sustainable Finance

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At our 30^th Annual Global Metals & Mining Conference this year, producer after producer engaged on the subject of sustainable mining in a world where so many metals and minerals will be critical to the transition to a clean-energy, low-carbon future and in the global fight against climate change.

To be sure, traditional talk around M&A, new deposits and capex was all there, but this year was intermingled with discussion on lowering carbon footprints, water stewardship, protecting biodiversity and supporting sustainable community development.

“Over the last 30 years, concerns about our impact on the environment have grown from an issue that was sporadically discussed by a select few to an issue that rightly receives global recognition as the key challenge of our time,” ICMM Chief Executive Officer Tom Butler^₁ said about the environmental pillar of ESG.

His comments were part of the first installment of our three-day ESG Thought of the Day series that saw each day start with high-level thoughts about the industry’s ESG scorecard, through the lens of progress today and tomorrow.

Day I - Environment Firmly on the Table

For an industry where respect for the geographies, environments and resources of host countries is paramount to the license to operate, Butler said, a lot has changed in recent decades, especially with respect to critical environmental issues like managing carbon footprints, water use and biodiversity.

Where the industry’s historical attitude toward climate change might once have been described as one of inaction, companies are now taking determined steps to reduce carbon footprints, like switching to more efficient fuels or using renewable sources of electricity.

Faced with stakeholder pressures as well as cost pressures, Butler said, ICMM members are also trying to accelerate further reductions through an Innovation for Safe and Cleaner Vehicles (ICSV) initiative, which focuses on mobile equipment along the value chain.

“There has been significant target setting by (ICMM) company members, with several pledging significant intermediate (carbon) reductions by 2030, and targeting net zero by 2050,” he said.

“The real elephant in the room is Scope 3 emissions, which account for about 92% of ICMM members’ total emissions, and I think that is representative across the industry,” Butler said, pointing to some encouraging efforts at companies like BHP Billiton and Rio Tinto in value chain collaboration to reduce or even eliminate downstream CO₂ emissions. Scope 3 emissions are the indirect emissions that occur in a company’s value chain, whereas Scope 1 refers to direct emissions from operations and Scope 2 refers to indirect emissions from energy consumption by a company.

“Since last year, we have been working with members to develop a consistent approach to measuring and reporting on Scope 3 emissions, so that going forward, all stakeholders can more easily assess the progress being made.”

In the end, said Butler, as the world tracks a transition to a lower-carbon economy, there will be no turning back of the clock, and he predicted big changes in mining processes as technology and automation are brought to bear to mitigate ESG impacts of mining.

“Engineers will design a mine differently at the outset if they are asked to maintain optionality for that mine’s economic and social value after closure,” said Butler.

Day II – Social -The Pandemic Push

As the industry reacted to the moral imperative of fighting COVID, a disease that disproportionately impacted those most vulnerable in many of the host communities and geographies where mines are located, mining has responded more proactively than many other industries, according to Doug Morrow, an ESG strategist for BMO Capital Markets.

“More so than other sectors, the mining industry generally responded swiftly and effectively to the pandemic, with many firms dispersing testing kits to employees and local communities, providing medical services and supplies including personal protective equipment, and deploying increased hygiene and community support measures,” Morrow said as he addressed the ‘S’ in ESG.

As the pandemic gathered steam globally, he said COVID saw the industry deploying its considerable process management and logistics capabilities to bring equipment, knowledge and resources to their host communities. It’s no surprise that the companies who came into the pandemic with the best practices and the best networks with surrounding communities were also the ones best able to manage surrounding social issues during COVID-19.

That success, Morrow reflected, marked an important change that has occurred in mining since he started looking at ESG in the industry nearly two decades ago. For him, the industry is now acutely aware of both the social challenges embedded in mining projects, and the risks and opportunities posed by ESG issues.

Where good ESG means good business, the corollary is that poor practices lead to community opposition, project delays, increased permitting costs and erosion of a company’s all-important social license to operate.

“I think what has changed over the last 20 years is that meaningful community engagement has evolved from a nice to have for mining firms to an essential pre-condition for business success,” said Morrow. “One of the reasons the mining industry was able to respond so efficiently to the COVID-19 pandemic is because of its longstanding focus on health and safety issues, including experience implementing enhanced health protocols at mine sites.”

On the other hand, he said, the industry still has challenges. Some mining firms are struggling with their approach because maintaining productive community relations is a fundamentally challenging issue.

“Best practices today are not limited to community development programs, human rights policies and indigenous rights policies,” said Morrow. “They include a clear plan for local communities after mine closure and broad-based community consultation that extends beyond local political leaders.”

Day III – Governance and Shaping the Narrative

The third installment of the ESG Thought of the Day series was around the ‘G’, which is rarely talked about but which, by many accounts is the most important.

“ESG is a topic that will only increase in importance to this industry, and though the letter ‘G’ comes last, it’s far from an afterthought,” Dan Barclay, CEO of BMO Capital Markets, said in presenting on governance.

In fact, understanding a company’s corporate governance policy has been key to investment decisions for quite some time, although how it is looked at has evolved.

“Whether it’s more frequent shareholder proposals on voting rights, introduction of hard requirements by stock exchanges on board diversity or an increase in expectations on pay for ESG performance, there is both a broadening of the waterfront and a heightening of expectations that companies face,” Barclay said.

Rather than a simple challenge to corporates, Barclay said that mining companies should look at it as an opportunity to take a proactive stance, take control of their narratives and attract investors that increasingly see ESG performance as a value creation lever.

“What’s really happening in ‘G’ is more of an evolution than a revolution,” he said, pointing at increased expectations that boards establish accountability for ESG and sustainability as part of their committees.

“This is an opportunity to be front-footed, developing appropriate disclosures and establishing action plans where needed,” added Barclay.

What’s key, he said, is for companies to communicate their ‘E’, ‘S’ and ‘G’ journeys to their investor base, allowing them to take credit for progress across each of these pillars and while building a more effective bridge with investors.

Miners can also do more to build their ESG narratives around incentive and compensation, topics that draw big headlines across all sectors and demonstrate the link between executive compensation plans and environmental factors, occupational health and safety metrics.

On average, only 1 in 10 companies of the FTSE All-World index have an ESG pay link. That number approximately doubles when you look at Metals & Mining as an industry, reflecting the hard work the industry is already doing to manage risks that are central to license-to-operate and asset performance, he said.

”Public discussion of these linkages, not just in executive pay, but also in how they’re integrated across the organization, is a significant opportunity for the metals & mining industry to proactively shape the narrative around the work they’re doing,” said Barclay.

¹On March 9, the International Council on Mining & Metals announced that Tom Butler would step down from his role as Chief Executive Officer as of April 6, 2021

Global Metals & Mining Sustainable Finance April 21, 2021

road to recovery

Magali Gable Director, Sustainable Finance

Magali Gable joined BMO’s Sustainable Finance team in early 2020. She supports BMO’s Energy and Natural Resources clients by offering advisory services,…

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Global Metals & Mining Sustainable Finance April 21, 2021

road to recovery

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Day I - Environment Firmly on the Table

“There has been significant target setting by (ICMM) company members, with several pledging significant intermediate (carbon) reductions by 2030, and targeting net zero by 2050,” he said.

“Engineers will design a mine differently at the outset if they are asked to maintain optionality for that mine’s economic and social value after closure,” said Butler.

Day II – Social -The Pandemic Push

Day III – Governance and Shaping the Narrative

The third installment of the ESG Thought of the Day series was around the ‘G’, which is rarely talked about but which, by many accounts is the most important.

In fact, understanding a company’s corporate governance policy has been key to investment decisions for quite some time, although how it is looked at has evolved.

“This is an opportunity to be front-footed, developing appropriate disclosures and establishing action plans where needed,” added Barclay.

¹On March 9, the International Council on Mining & Metals announced that Tom Butler would step down from his role as Chief Executive Officer as of April 6, 2021

Magali Gable Director, Sustainable Finance

This is part 5 of a 12-part series on

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