An industry-wide approach to ESG performance

An industry-wide approach to ESG performance

With social license to operate consistently topping the lists of key challenges facing the mining industry, the spotlight is firmly on how miners set, track and report against environmental, social and governance (ESG) performance measures.

Investors are increasingly factoring ESG into their decision making, however a recent report by consultancy firm PwC Australia, Mine 2020: Resilient and resourceful, found that only 11 of the top 40 mining companies are setting stringent ESG targets and reporting against them.

“All top 40 miners should have moved past the stage of general and loose commitments about ESG,” PwC reported. “Miners that are leaders have embedded ESG at the core of their strategy.

“They set goals and link these to key performance indicators and management pay.

“They also disclose how they are tracking against their targets.

“In other words, they are accountable and transparent.”

Ivanhoe Mines founder, executive co-chairman and non-independent director Robert Friedland highlighted the importance of ESG in the mining industry at the 2020 Sprott Natural Resource Symposium, saying it would alter the way metals are priced.

“If your copper produces a lot of carbon dioxide because it uses coal power, it will eventually trade at a lower price than copper produced with hydroelectricity,” Mr Friedland said.

He also noted the importance of miners committing to social investment.

“When you are in a community it is now essential to benefit the people that have historically lived around the mine,” he said.

Kirsty Danby, CEO, Port Hedland Industries Council, agrees that all miners should be taking ESG seriously.

“ESG has moved from a nice to have, to a critical element which should be embedded from the start of every project,” Ms Danby said.

“Businesses that value ethical practices are strategically creating a competitive advantage. They stand out as attractive investment options, particularly to those ethical investors who are making decisions beyond traditional operational or financial performance alone.

“These investors assess businesses on social environmental values and credentials, and this trend continues to gather momentum.

“If a company can clearly demonstrate how they are adding value through their ESG performance, they are more likely to reduce operating costs in some areas, for example through a reduction in water or energy consumption,” Ms Danby said.

“Maybe more importantly, they are able to attract employees who are socially conscious and improve relationships with regulators by demonstrating how they are managing their company’s environmental footprint.”

Global management consulting firm McKinsey & Company recently developed a research program to better understand sustainability reporting.

Sara Bernow, who leads McKinsey’s work in sustainable investing, said its research had drawn some interesting conclusions.

“Large companies report extensively and ambitiously around ESG to inform their stakeholders. However, the stakeholders have a difficult time making sense of all that reported data,” Ms Bernow said on McKinsey’s Inside the Strategy Room podcast.

“A recent survey highlighted that while 90 per cent of companies report on sustainability, only 15 per cent of investors can successfully integrate this information into their investment decisions.

“Companies have 10 to 12 different frameworks and standards, and they are free to choose which of them to use as a basis for reporting. Many select several, so you end up with a lot of data and, in most cases, limited transparency as to how that data relates to the company’s financial performance.

“Furthermore, there is no validation or auditing of this data, so as a stakeholder you can’t be fully comfortable with its quality.”

In its report, PwC suggests miners can take ownership of ESG, be accountable and transparent, and work toward the same set of goals by following the International Council of Mining and Metals’ (ICMM) Mining Principles.

ICMM is focused on enhancing the industry’s contribution to society with safe, fair, and sustainable practices. Members must meet the commitments of the ICMM 10 Principles, eight Position Statements and all associated performance expectations.

Ms Danby agrees that wider adoption of the ICMM and United Nations Sustainable Development Goals (SDG) would help build momentum in the industry to work toward creating a global reporting standard for ESG.

“Membership to the ICMM provides a supportive framework for members to report against a range of good practice environmental, social and governance requirements,” she said.

“It holds members accountable to reporting on the same set of principles, and this in turn will help drive standardised reporting across the industry.

“It will make it easier for miners to clearly report on ESG performance, for investors to make accurate decisions using comparable information, and ensure stakeholders that industry is operating to the highest ESG standards.”

Aluminium giant Alcoa, which appeared in the top 40 mining companies in PwC’s report, and has won several industry awards for its ESG performance, is one example of how adoption of the ICMM and UN SDGs can help to guide a company’s sustainability reporting and provide more transparency for stakeholders.

Alcoa was accepted as a member of the ICMM in 2019 after a rigorous assessment to ensure it adhered to ICMM’s Sustainable Development Framework.

“Our membership in ICMM gives us an opportunity to learn, define and share best-in-class mining practices through a common set of international standards,” Alcoa President and CEO Robert Harvey said.

In its 2019 Sustainability Report Mr Harvey said Alcoa joined ICMM to support the company’s strategic priorities.

“We must meet the commitments of the ICMM 10 Principles and all associated performance expectations,” he said.

Alcoa updated its water and wastewater management plan to align with the ICMM’s framework.

Mr Harvey said the company is also committed to contributing to the UN SDGs.

“For example, we published a new Human Rights Policy aligned with the United Nations Principles for Business and Human Rights and the International Labor Organization Core Conventions.

“We also performed human rights due diligence in Australia and Brazil and human rights risks assessments in Canada, Spain and Norway.

“Sharing the value created by our presence helps communities thrive and earns us access to the resources we require to manufacture our products,” he said.

PwC’s report suggests it is the responsibility of all miners to work together toward a common global ESG standard.

“The more companies that can demonstrate they are meeting their stakeholders’ expectations, the more the sector benefits through a stronger social licence and the ability to attract higher-quality, more patient capital,” the report said