Environmental, social and governance standards come into play as pressure mounts to curb emissions and work towards a cleaner world
Pressures that emerged during the 2016 Paris Agreement to reduce carbon emissions, as well as requirements from the growing impact investment sector, are pushing mining companies to clean up their act and implement environmental, social and governance standards in the industry.
Environmental, social and governance issues, as well as the need to reduce carbon emissions, were a theme headlining presentations and panel discussions during the four days of the Investing in African Mining Indaba, which took place in Cape Town last week.
The term “impact investing” emerged in 2007 and referred to measuring the social and environmental performance of companies with the same rigour applied to financial performance.
Global head of mining at the International Finance Corporation, Namrata Thapar, said that, over the past five years, investors had been “asking a lot more questions on ethical and impact investing”.
Mining companies could no longer restrict their focus to their operations, added Thapar.
“So much needs to be monitored beyond the fence, whether it’s the community or the water.”
She said those responsible for public investor and pension funds were requiring measurements of what impact mines were having on surrounding communities and the environment, and it was no longer just about compliance with a country’s regulations.
She said there was “a lot of capital” available, but it was not going to flow into mining “if we don’t shape up”.
Furthermore, failure to stand up to scrutiny by one mine or mining company affected the perception of the mining industry as a whole.
Benjamin Jones, managing consultant at UK-based business intelligence firm CRU, said there was increasing interest in environmental, social and governance standards, and “huge growth in investor pressure” for mining companies to record carbon emissions.
The pressure had been so rapid and sustained, said Jones, that CRU had to evolve to help corporations track and benchmark emissions, particularly in the steel sector, which is reliant on iron ore.
Frøydis Cameron-Johansson, group head of international and government relations at Anglo American, said the climate crisis was the biggest challenge facing humanity, and “needs to be the lens we use to approach all our activities”.
A holistic approach was needed so that one area, such as the environment, was not favoured over another, such as communities, said Cameron-Johansson.
This required “collaborative regional development” to ensure a mine was “not a dependancy”, but offered economic opportunities to communities. These needed to be sustainable and able to exist beyond the life of the mine.
This, she said, was “fundamental to our social licence to operate”.
However, no universal standard has been implemented to measure environmental, social and governance compliance or reporting.
Group corporate relations executive at Rio Tinto, Simone Niven, said the challenge for investors was measuring environmental, social and governance performance.
Although there were numerous tools and indices that had been developed, there was no standardisation across the board, said Niven. Rio Tinto, for instance, had developed its own standards.
To properly measure and track company performance, “we need to work on, and mainstream, what environmental, social and governance standards look like across the board”, she said.
Cameron-Johansson said that, because so many new indices and standards kept “popping up”, it was difficult to know which to follow. Disclosure requirements were also “crazy at the moment”, and so onerous that smaller companies were unable to comply with requests for information due to a lack of human resources.
The demand for responsible mining was also emerging from consumers.
Senior adviser for conflict minerals and US lead for the Kimberley Process, Pamela Fierst-Walsh, said the US was “working very hard” on responsible sourcing of minerals, which are often used to fund conflict, particularly in the Democratic Republic of Congo.
Fierst-Walsh said it was not only the mining itself, but all parts of the supply chain that needed reporting. Doing so was “highly complex”, but it was what consumers demanded.
However, Mzila Mthenjane, the executive head of stakeholder affairs at Exxaro Resources, warned that, in the move towards environmental, social and governance standards compliance, mining companies needed to be careful of providing services to communities that were the responsibility of local government.
“On the ground, we’re confronted with locals in abject poverty, and local government is failing them when it comes to services and safety,” said Mthenjane.
“When it comes to social upliftment, we are all aware of the challenges we are facing from municipalities. How do we build on the right terms with the right skills to work with a local community?”