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Episode 14: Integrating ESG Practices in Mining

 

Investors and other stakeholders are demanding tools to better measure the sustainability and performance of the mining industry. On this episode, guest host Dan Barclay, CEO, BMO Capital Markets is joined by Tom Butler, CEO, International Council on Mining & Metals (ICMM), in a discussion about how the industry is increasing transparency to make it easier for investors and other stakeholders to quantify ESG efforts and results.

In this episode:

  • How ICMM mining principals drive sustainable development ICMM’s Global Tailings review a year after Brazil

  • Six key sustainability challenges to the mining industry

  • Purpose and culture in mining

  • Climate change and transition and the  Mining Agenda



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Visit bmo.com/sustainabilityleaders-podcast for more information about the podcast


TRANSCRIPT:

The future of work, so with automation, companies are going to need different types of skills, and also, the communities that are around the mines, if they are to benefit in terms of jobs and procurement, they'll also need different skills.

Welcome to "Sustainability Leaders." I am Michael Torrance, Chief Sustainability Officer with BMO Financial Group. On this show, we will talk with leading sustainability practitioners from the corporate, investor, academic and NGO communities to explore how this rapidly evolving field of sustainability is impacting global investment, business practices and our world.

The views expressed here are those of the participants and not those of Bank of Montreal, its affiliates or subsidiaries.

In this episode, we're bringing you a conversation between BMO Capital Markets CEO, Dan Barclay, and Tom Butler, who's chief executive officer at the International Council of Mining & Metals. The discussion took place at the BMO Annual Mining Conference in Hollywood, Florida. Their conversation immediately followed the annual meeting of the ICMM which is an international group of the world's top mining companies that does a lot of work around sustainability. Dan and Tom discussed what the industry is planning to do as part of the broader global conversation around sustainability topics like climate change and the work being done towards a lower carbon economy.  They also dug down on what the industry is doing to increase transparency around ESG matters and to make it easier for investors and other stakeholders to quantify and to understand what is happening with respect to ESG performance and risk management.

This is Dan Barclay, CEO of BMO Capital Markets, and I was speaking to Tom Butler, CEO of the international Council of Mining & Metals. Tom, to start, why don't you introduce yourself, ICMM and the role within the mining industry?

Dan, hi, yes. My name is Tom Butler. I'm the CEO of the International Council of Mining & Metals. I've been doing that job for 5 years. ICMM's mission is to enhance environmental and social performance by collaborating with its members. The members are all committed to a set of principles. We've recently, in fact last week, announced enhanced mining principles which are additional commitments that they have made. Two other things to emphasize about ICMM, one is that it's CEO-led, so the CEOs commit to meet personally at least twice a year, this year, three times a year because we had an extraordinary meeting earlier today at your conference. They agree not to delegate, not to have other people in the room so they can have really strategic decisions. That sends a very strong signal externally but also internally within their own companies, just how important the topic is. And then the other thing to emphasize is that it's a very rigorous admission process. So we have an independent panel of experts, three people, one with G, one with S and one with E expertise.

Okay.

And they assess applicant companies, and they decide whether people are close to meeting their commitments. And if there are any gaps, they will negotiate an action plan, and the companies have to close that action plan within 2 years. If the panel decides that the gaps are too wide and that they can't close the gaps quickly enough, they'll tell them that they need to go and do some homework before coming back and having another go.

That's good. That's powerful. So when did ICMM first get organized?

So we were founded in 2001.

Okay.

And basically, the reason we were founded was, there were a number of fairly high-profile incidents in the industry in the 1990s which affected the reputation. And the founding premise of ICMM was to preserve access to capital, to projects and to markets by enhancing the reputation of the industry, and the way to do that was to focus on ESG.

Can you give us a little more detail on the mining principles? I think it's a fascinating topic, ESG. I hosted a panel myself today on that topic, and it's very germane for investors, for companies and how people are approaching the industry today, and I think your principles line up completely with that theme and are really quite thoughtful and industry-leading.

So, first of all, what's driving this is that we've seen a huge increase in investors and other stakeholders and consumers focusing on ESG, but a lot of them are unclear about how to measure that, so we're trying to provide them with tools to help them assess ESG performance of companies. We've always had a set of principles. We've had 10 principles since we were founded, but the principles were very high level, and they were tested at the corporate level. So for example, we had a principle on respecting human rights, but we never went into detail, at the granular level, as to what that meant. So what we rolled out last week was a set of underlying performance expectations for each principle, so now respecting human rights is the overarching principle. Underneath, you've got six or seven performance expectations which lay out exactly what it means to respect human rights. And the other big difference between the way this has worked in the past and the way this works now, or will work starting from last month, is that the self-assessments of how companies are doing against these performance expectations that underlie the principles will be at the site level. So this is going to have a lot of scale. It's the first time we've gone down to site. It's going to apply to 650 sites in over 50 countries. Each site is going to self-assess itself against all of these principles and performance expectations and report on that and disclose.

So you have 10 major principles. Is that correct?

Yeah, yeah.

And how many sub ... Each one has five or six underneath it?

So the total is 38.

Thirty-eight ...

Six of those are kind of corporate-level requirements, and then the other 32 are site-level self-assessment, very granular. So, for example, do you have ... On human rights, do you have a grievance mechanism in place? Have you got appropriate restrictions on child labor? So very clear underlying requirements.

Okay, and then so is there any independent testing that goes on, or it's really all a self-assessment around that?

So the phase in the first 2 years will be self-assessment.

Okay.

So, we're doing this for the first time so wanted to see how this works out, and we might have to tweak the way it works based on the experience the members have, but then we will move into third-party validation. We'll go into 3-year cycles, so every single site, at least once every 3 years, will go through this process, and the members will determine, based on a material and risk basis, a subset for third-party validation by way of bringing in an additional set of eyes to look at the self-assessments.

Okay, that's extraordinary. You mentioned earlier that you had an extraordinary meeting today with your members. What was the topic for today?

There was one sort of substantive topic which was the Global Tailings Review.

Okay.

A year ago, which was shortly after the Brumadinho tragedy, we agreed to co-convene at Global Tailings Review with the United Nations Environment Programme and PRI, Principles For Responsible Investments, and over the last year, we've made a lot of progress on that. We agreed to a framework for the review. We hired an independent chair who's a very respected former Swiss environment minister. He has run a process of collecting an expert panel together, preparing a draft which has been out for public consultation, global consultation with seven or eight in-country consultations as well as being online in multiple languages. And he's now digesting the comments which is a complicated process because he had more than 200 sets of comments. He's also had comments from us, of course, and from the other co-conveners. And he's now busy distilling that into an updated draft, and the purpose of the meeting was to discuss progress and work through the next steps with the members. Members have got a lot of interest in this because they've committed to accept the final product, so they're watching the process very closely.

Right.

And then we also had two more administrative things that we discussed which was new members.

Okay, good.

Sibanye Gold took over Lonmin about a year ago, and we have a process whereby if there's a material change in ownership, then we bring in the independent panel that I mentioned. We assess the new set of assets, so they've just been through that process, and they've been found to basically be up to scratch and came in with full membership today and also a name change. Then we had two affiliate members. One was the Ecuadorian Chamber of Mining.

Okay.

And then the Canadian Mining Innovation Council, CMIC.

Great.

So we're up to 38 now.

Excellent. Well, congratulations. I've actually heard the ICMM standards on tailings discussed quite a bit here at the conference, and so you had a standard before, and this is really going to be enhancing that as we go forward.

Yeah, so after the Samarco incident, we conducted a similar review, but it was an internal review, and we came up with what we call a position statement which is, essentially, a commitment that sits alongside the 10 founding principles. So we had a position statement on tailings. It focused largely on governance and change management. This global tailings review that we're going through now with ... Hopefully, at the end of the process, the standard is going to be much more holistic. It's going to look beyond governance issues, beyond change management. It's going to look into emergency planning, disclosure, the principles behind how you design these things and then also a consequence classification process so that people will be classifying what they've got against a range of different criteria, so that, essentially, investors, and other stakeholders, can understand exactly what a company has in its portfolio.

That kind of clarity, the marketplace would be very interested in seeing some of those results and how do they compare and contrast and identify what standards someone is operating at. Obviously, companies use independent engineers and use independent reviews, but something that comes up with another standard for the industry is, I think, going to be more than welcomed.

Yeah. Yeah, and I think we're meeting ... trying to meet the needs of investors, and importantly, because we're doing this with other people, PRI and UNEP, we're hoping to maximize uptake beyond ICMM. So if it was just ICMM designing something, the risk is that all of the other companies in the industry would say, "Well, this is just another ICMM project, and why should we sign up for this?" Because we've got PRI at the table and investors being part of the design, we're hoping that investors will be encouraging uptake and asking other companies to consider adopting the standard as well.

Right.

So we want it to be a global standard. We want to avoid it just being ICMM. I think that the whole industry could do with a bit more transparency about how they manage these assets.

And I think the market is clamoring for that.

Yeah.

So I applaud that. Why don't we transition a little bit? Some other big issues that are facing your members today, that are focusing on with you.

The key issues that the members face, and we sort of try to track how the issue have all been ... What are the societal expectations? We think there are six key things that we're facing today as a membership, so the first one, obviously, is tailings.

Yes.

And we just discussed that. The second one is the future of work, so with automation, companies are going to need different types of skills, and also, the communities that are around the mines, if they are to benefit in terms of jobs and procurement, they'll also need different skills. So we're trying to think with the members about how to prepare for that change. In fact, the change is already happening, but it's only likely to accelerate. The third one is disruption, so that's kind of related to the automation thing, but that's more being able to be ready for the technical disruption that's coming, the different types of processes that are coming, the impact on commodities, especially smaller commodities because of disruption. The fourth one is stewardship, and that basically means stewardship of the environment with a strong focus on climate change, and a lot of stakeholders are putting that as sort of number one in terms of what they'd like to see from our members. Human rights and community engagement and at your panel at lunchtime, there was a lot of emphasis on the S in the ESG.

Correct.

So social impacts, and there's a sort of increasing focus, especially in some parts of the world, on human rights and human rights defenders. A lot of human rights defenders are actually finding themselves in the way of vested interest, and some of them are being killed so more focus on that and a lot of focus, generally, on interaction with communities. And then, finally, a lot of demand for greater transparency and accountability which covers all of those other issues. And one of the challenges, which I think companies are facing, is there are multiple voluntary initiatives. Most commodities have got their own initiatives now like the Aluminum Stewardship Initiative. So how do you do your day job and yet also meet all these transparency and accountability requirements?

Yeah, I was struck today, at the lunch, around ESG. First off, that observation for the mining industry, and the word E, when we typically use it in almost industries except mining, really just means how do we move to a low-carbon world?

Yep.

But in mining, it actually is quite a bit deeper than that, right, in terms of how they use energy, but you also get into water. You get into aerial displacement and to much, much more sophisticated environmental thought process. The S is also quite a bit more sophisticated than many industries because most mines don't operate in nice, big urban centers. They operate in regions of the world where you do have quite a social impact on that local community, and so bringing that to life and seeing how it responds to it. The other takeaway I had at lunch today was really just with the two CEOs that were up on stage, how committed they are, both fundamentally.

Yeah.

They both started the concept off with just purpose which is, why do we exist as a company? And the old format of "I produce metal to make money" is gone, right?

Yeah.

They really see themselves as a driving force of social change and behaving, I think we heard it a couple times, doing the right thing in the right way.

Yeah, and I think that's ... There's two comments I'd make on that. One is that these mining principles, which I've been talking about, are essentially designed to help companies, investors and other stakeholders assess where the companies are managing risks properly. But one of the things that people like Sustainalytics and MSCI and other people assessing ESG performance don't think about is the positive impacts. So they're very good at assessing and measuring the risks and whether, you know ... We heard on the panel at lunchtime, people were doing that well. Good ESG means minimizing the potential for a blowup, but they tend to think about, are you managing and mitigating all of these risks? And there's not enough weight given to the positive impact, to the upside, sort of the transformation that people like Mark with Anglo American and other companies can have on the ground if they think through this very carefully. And I always say, "If you want to put a dollar into a company where you're going to make the most positive social impact, you put it into the DRC," because for every direct job you create, you're going to create 25 indirect jobs. If you put it into Australia, it's going to be three to five. If you put it into a supermarket in London, it's going to be probably one to one or something like that, so if you really want to have social impact, you should be thinking about the really poor countries where any kind of foreign direct investment makes a huge difference. And, of course, if it's responsibly done then so much the better.

That's right, and I think that, to me, is a real interesting leg to the conversation is changing.

Yeah.

It's gone from a pain and punishment thesis, a divestment to others to how do we think about transition to the point you just made which is, what is the upside opportunity?

Yeah.

If you listen to the examples mining companies use today about what they're doing to enhance their social impact or their environmental impact, you can come out and say it's all at a concept of doing something better. Almost all of it came with a financial performance.

Yeah.

And so it came with both pieces which is the doing more to transition, more to create a better outcome, but it actually creates more value at the same time.

Yeah, and it's risk mitigation. It's just coming at it from a slightly different angle. The second thing I want to say is, you mentioned the point about purpose, and I think that's becoming more and more important for the next generation of investors, younger people. It's not only that they want to work for companies where there's a strong sense of purpose, but they want to put their money into companies where there's a strong sense of purpose. And so you see that sort of ... that change happening, and I think companies these days are in competition for talent with the likes of Google and Apple. They need software programmers. They need people with much softer engineering skills, and those people will come to companies where there's a clear sense of purpose, and it's the same thing with the next generation of investors. They really want their money to make a difference, and it's not just about the sort of the highest return. It also has to be responsible, so I think Mark and Tom are hitting exactly the right point.

That's right. You may not know it, but BMO actually launched its own purpose last year...

Oh, well.

... which is ... The phrase that we use is to boldly grow the good in business and life.

Yeah.

And I can see it galvanizing itself through our employee base and our customer base, and we're actually making decisions different. We're behaving different, and I think we already were a very highly responsible company to start with, but I'm starting to see it flow through in the way we make things, including we have a commitment to make a $400 billion mobilization of finance for sustainable finance.

That's great to hear.

Obviously, the backdrop to how BMO thinks about the world is, how do we, in my mind is, motivate and move money, is how we make change can happen.

Yeah, I hope you're seeing that translate into being able to attract the best and the brightest.

We are starting to see that. We are starting to see that.

Yeah.

Maybe one last question, Tom, as we start to think about the environment, and you think about your members and how ICMM is helping them thinking about the reduction of greenhouse gases and transitioning to a low-carbon economy.

Yeah.

How are you helping them? How are your members responding? What are some of the more interesting conversations you've seen in the last little while?

Yeah. So there's two or three things that we're doing on this, so the first one is probably the most important from a collaborative point of view, is what we call the Innovation for Cleaner, Safer Vehicles Initiative which is what I spoke about early yesterday. This is quite innovative for us because we, for the first time, have brought the OEMs, the Original Equipment Manufacturers, into the room, and so we're collaborating with the supply chain. This is an attempt to align their priorities in terms of where they're spending their R & D and where they're putting their money into developing the next generation of vehicles, and the program has three priorities. One is collision-avoidance technology which is, obviously, driven by the impact that vehicles have in terms of fatalities. About 30 percent of ICMM's fatalities are caused by vehicles.

Hmm, I didn't know that.

The second one is DPM, diesel particulate matter which is carcinogenic, and we need to get that down to as low as possible, ideally zero. And then the third area is transition away from using diesel in these vehicles so alternative energy supply, either electric directly or electric batteries or, as Mark would say, hydrogen. It's technology agnostic, but we're trying to align them in terms of giving them some clear priorities and also helping the members assess where they stand today in terms of this evolution and giving them benchmarking tools so that they can move faster up that curve. So that's a big, collaborative effort, and that's, by the way, about 30 percent of the total emissions, at site, from vehicles. So if we can accelerate that change, we're making a big difference through the membership. The second area where we're working with members is just bringing them together to share knowledge and learning and case studies across the membership in terms of what they're doing, how they're improving efficiency and also how they're transitioning away from hydrocarbons to renewable energy. And then, at the membership level, we're seeing loads of examples today on how members are moving away from hydrocarbons. Mike Henry, for example, announced yesterday that the transition to renewable energy in Chile is going to reduce their emissions by about 60 percent in Chile.

Which is amazing.

Yeah, and it's not just PHP. Just about everyone is ... they're experimenting with solar panels. They're ... Well, they're operating in countries with grids that are procuring renewable energy across the grids, and then we see examples like Newmont Mine that used to be Goldcorp where they've actually built an all-electric mine where ... and as you know, most of the electricity in Canada is green.

That's correct.

So that's also a transition away from hydrocarbon, so there are lots of examples at the member level, and we're fostering collaboration where it makes sense to bring them together, to learn from each other on what can be done to accelerate this.

And where do you think this transition and dealing with climate change sits on the companies' agenda? Is it top of the stack, middle of the stack? Where do you think it sits?

I think it's pretty high. I think they hear from consumers about it. They hear from investors about it. They hear from their own employees about it. I was surprised ... It's not a member, but I was surprised, the other day, to hear that even companies like Trafigura are having to develop their position on climate change, and they're oil traders, because their own employees are demanding it. So I think all of our members, and possibly across the industry, are hearing about this from all quarters.

I think that's absolutely true. We hear at BMO with our employees which are a passionate bunch, so we hear it loud and clear where this sits on their agenda.

Yeah, good to hear.

So, Tom, thank you very much. It was great to see the great work that ICMM is doing. Thank you for your contribution on that.

Thanks, Dan. Thanks for the opportunity, and thanks for having me here.

Thank you.

Thanks for listening to "Sustainability Leaders." This podcast is presented by BMO Financial Group. To access all the resources we discussed in today's episode and to see our other podcasts, visit us at bmo.com/sustainabilityleaders. You can listen and subscribe free to our show on Apple Podcasts or your favorite podcast provider, and we'll greatly appreciate a rating and review and any feedback that you might have. Our show and resources are produced with support from BMO's marketing team and Puddle Creative. Until next time, I'm Michael Torrance. Have a great week.

The views expressed here are those of the participants and not those of Bank of Montreal, its affiliates or subsidiaries. This is not intended to serve as a complete analysis of every material fact regarding any company, industry, strategy or security. This presentation may contain forward-looking statements. Investors are cautioned not to place undue reliance on such statements as actual results could vary. This presentation is for general information purposes only and does not constitute investment, legal or tax advice and is not intended as an endorsement of any specific investment product or service. Individual investors should consult with an investment, tax and/or legal professional about their personal situation. Past performance is not indicative of future results.

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Dan Barclay Chief Executive Officer & Group Head, BMO Capital Markets



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