What’s brewing in the mining industry as ESG debate heats up

Summary

• The mining industry is witnessing growing calls to adopt new standards to meet Environmental, Social and Governance (ESG) compliance.
• Various mining space players are taking active steps with ESG on their agendas.
• With more educated consumers and investors, ethical investing is expected to grow exponentially in the future.

Mining, which involves the extraction of metals and minerals from the Earth, is considered a messy business, owing to its impacts on the environment, its inhabitants, and surrounding communities.

ESG or environmental, social, and governance issues are believed to represent the largest risk to the mining industry, amid rising prominence of ESG discussions aimed at pressing the industry to adopt new standards.  

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With the whole world transitioning towards a green economy, there have been rising calls for increased attention on ESG-related matters from the mining industry. Also, there have been trends wherein investors, in addition to the balance sheets and other prospects, are emphasising on the competitive advantage, ethics, and culture of a mining organisation.

Interesting Read: How ESG Consideration Rings Bell In Assessing The Quality of A Mining Stock?

Transition in the Mining Industry:

The implementation of ESG standards into a mining firm may result in better operational performance, sustainability practices, and lower investment risks. Many mining companies are already taking active steps with ESG on their agendas by analysing their shortcomings and addressing them to boost their performance.

With growing pressure, the industry is aware of the need to change the stakeholders’ perception with a substantial shift in the operational methods. The industry is witnessing an accelerated adoption of technologies designed to create operational efficiencies. Moreover, the regulatory and environmental considerations have brought significant changes in the mining operations that can reduce their social and environmental impacts.

A change in management culture and working practices coupled with technology adoption is transforming the mining industry as the whole world is becoming more resource intensive.

The transition is still in its preliminary phase; however, future mines are expected to witness the best industry practices and technological inputs. The introduction of renewable energy power plants at the mine site is one such example. These facilities can meet the energy requirements of the mining operations as well as the local community.

Must Read: How is ESG impacting mining companies?

How the transition in the mining industry will affect all three ESG areas?

The next-generation mines will be entirely different from the conventional mines that we look at today. The implementation of the latest technology and best practices will change the intensity of mining impacts. Also, it will be less intrusive to the communities where these mines sit.

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Environment:

The implementation of ESG policies forces the mining industry to minimise their impacts starting from the exploration and development phase to the closure and rehabilitation phase.

Under the environmental criterion, aspects that are considered include – the company’s energy use, pollution, waste, resource conservation, and animal treatment. This area takes care of all the environmental risk-related factors and how the company is tackling all those risks.

Nowadays, if a company fails to meet this criterion, they are forced to close the mine site and return it to the original stage, as it was when they first arrived.

Social:

The mining industry has long been drawing flak for child labour, slavery, and potential health and safety hazards. Though the initiatives taken by various international government bodies, NGOs, and international agencies have reduced the child labour and other related ill effects of the industry, artisanal and small-scale mining continues to be an integral part of the industry even today and accounts for a major chunk. Many companies across the globe are aiming to eradicate child labour from the industry.

While many companies are engaged in the upliftment of social communities by addressing human rights violations, a wide scope of improvement is still needed in the industry.

Under the social criterion, the company’s relationship with local communities and its business partners are looked at. This also deals with the health, safety and environment (HSE) concerns of the employees and local communities that are directly or indirectly related to the business.

Good Read: Explained: Climate Change and the Role of Mining Industry

Governance:

The Governance criterion gives an understanding with respect to transparency in a company’s implementation of policies that enable its stakeholders to vote for specific issues.

Since the mining industry is not limited to a single location or a country, it has to engage with various jurisdictions and governments. As the process is entirely dependent on the location of the deposit, companies sometimes risk the growth of the host nation by opting for some corrupt measures to get favours and by illegally exploiting the resources.

This criterion deals with a company's engagement in illegal practices and political contributions to obtain unlawful favours.

Does mining industry have a place in ESG portfolio?

The mining industry is the backbone for any country’s transition to a low-carbon economy as it facilitates the world with raw materials required to power green technology. Copper is used in the manufacturing of wind turbines; nickel and lithium are the main components of batteries in electric vehicles; and silver, copper, and aluminium are needed to make solar panels.

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How the mining industry is positioned in the ESG portfolio is a debatable matter. However, the proportion of ESG-linked funding sources for a mining space player can help with the answer.

ESG investors can provide transparent inspection of the companies, ensuring sustainability in their mining practices. Also, the emergence of large-scale funding in the ESG portfolio has the capability to make an impact on conventional mining practices and change them according to new ESG policies.

What is the future of the industry?

With more educated consumers and investors, ethical investing is expected to grow exponentially in the future.

The higher performance of ESGs has resulted in an increased capital input in ESG equity funds. With attractive returns, ESG funds are poised to become the major fund providers across the debt-to-equity spectrum for mining companies.

Good Read: Why Big Players Need To Be Focusing On ESG Adherence - Mining Sector of Australia